The Economic Development Commission recently voted to submit a letter in support of Phoebe Putney’s purchase of Palmyra Medical Center, and the County Commission instructed its attorney to “compose a letter” in support of Phoebe Putney’s efforts to retain control of Palmyra.
Initially, one must question the propriety of the letters in question. Phoebe Putney sought to purchase Palmyra after Palmyra’s lawsuit, in which it sought damages for alleged violations of federal antitrust laws, was reinstated by the 11th U.S. Circuit Court of Appeals in 2010. The subsequent transaction was structured so that the Hospital Authority would purchase Palmyra and then promptly lease Palmyra back to Phoebe Putney.
The Federal Trade Commission, which has responsibility for preventing anticompetitive and unfair business practices, conducted an exhaustive investigation after receiving notice of the proposed transaction. Research confirmed health care costs in this market are 45 percent higher than the state average, and economists concluded the loss of competition would result in even higher prices. The FTC, acting on behalf of the citizens of Dougherty and surrounding counties, refused to approve the sale and filed a complaint seeking to enjoin the purchase of Palmyra until such time as the administrative proceeding was adjudicated.
The federal district court dismissed the FTC’s lawsuit, concluding the Hospital Authority is not subject to federal antitrust law. That ruling was affirmed on appeal, though the Supreme Court granted certiorari on June 25, 2012.
I represent Dr. Corleen Thompson, who filed a lawsuit on July 12, 2012, seeking to enjoin the Hospital Authority from entering into a long-term lease with Phoebe Putney until such time as the Supreme Court decided the appeal. Attorneys for the Hospital Authority vigorously argued against an injunction, even though neither the Hospital Authority nor Phoebe Putney would have been prejudiced, as the management agreement for the former Palmyra, now known as Phoebe North, would not have expired until Dec. 11, 2013. Dr. Thompson’s motion was denied, and the Hospital Authority entered into a long-term lease for Phoebe North on July 25, 2012.
Phoebe Putney, after eliminating Palmyra as a viable competitor, orchestrating the purchase of Palmyra so as to avoid federal antitrust scrutiny and proceeding with the renovation of Palmyra, with knowledge that the Supreme Court would very likely conclude the lower courts had erred, is now actively soliciting the support of local elected and appointed officials.
The EDC should not have waded into this legal dispute without sufficient understanding of the FTC’s objectives and the possible resolution of the administrative proceeding. The FTC has several options, including:
(1) Divestiture. The purchase of Palmyra is invalidated. HCA will be required to return the $195 million to the Hospital Authority and Phoebe will be required to pay Palmyra $35 million, termed a “rescission fee.” Palmyra’s antitrust lawsuit against Phoebe would be reinstated.
HCA could use the $35 million and the substantial proceeds from Palmyra’s lawsuit against Phoebe Putney to renovate and modernize the hospital. HCA could, alternatively, operate the hospital until such time as it finds a hospital management corporation willing to purchase Palmyra for its actual value, which is only a fraction of the $195 million purchase price.
(2) The FTC could allow the purchase of Palmyra, and order the Hospital Authority to sell Palmyra to a for-profit. Phoebe Putney would lose the $195 million, and the Hospital Authority would retain the sales price, as it “owns” Palmyra.
There are several entities that would be interested in purchasing the hospital once the litigation is concluded, should Palmyra be retained by the Hospital Authority, on the condition that it be sold to a genuine competitor.
(3) The FTC could refuse to “undo” the transaction.
The EDC, more than any other entity, should understand the importance competition in health care has for the local economy. At least two members of the EDC, who urged their colleagues to submit the letter of support, have enjoyed lucrative contracts with Phoebe Putney. These relationships should have been disclosed, and evaluated by legal counsel, before these gentlemen participated in the discussions culminating in the letter of support.
One member of the EDC asserted HCA, Palmyra’s parent corporation, “didn’t want to be here,” without reference to Phoebe Putney having successfully eliminated Palmyra from the networks of numerous private insurers. That gentleman further stated an adverse ruling in the administrative proceeding, which was reinstated following the decision of the Supreme Court, would result in “a significant loss of jobs and a boarded-up building.”
The claim that the hospital would be “boarded-up” is asinine. Additionally, no jobs would be lost, as the second hospital would enjoy a much greater market share than Palmyra had at the time the hospital was sold.
Another member of the EDC stated support for the acquisition “should come from an economic development perspective” and the county administrator described the letter as supportive of “one of the community’s economic engines.” Commissioner Hayes encouraged his colleagues on the County Commission to “send a letter similar to the one sent by the EDC to underscore the value of the health care provided by Phoebe and the positive economic impact it has on the community.”
The EDC and County Commission seem to have forgotten Cooper Tire was one of the industries that announced its ability to remain competitive was compromised by health care costs at the Albany plant. And what about P&G, which presented objective evidence that its health care costs are consistently higher for employees at this location?
Shouldn’t the EDC and County Commission have considered how prospective employers would evaluate a market where health care costs are 45 percent higher than the state average before writing a letter essentially requesting that the FTC grant Phoebe Putney a monopoly in this market? Did these individuals stop to think industrial prospects might be discouraged to learn the only hospital in Dougherty County was recently included in a list of the 25 worst hospitals in the United States, before they voted to submit a letter applauding Phoebe Putney’s “positive economic impact?”
The citizens of Dougherty County should be thankful the FTC is committed to restoring genuine competition in health care.
Bo Dorough is an Albany lawyer and a former Albany city commissioner.