February 22, 2013 08:53 Age: 1 yrs

Supreme Court Finds Antitrust Laws Apply to Governments in Georgia Case

On Tuesday, the U.S. Supreme Court ruled in an important antitrust case, FTC v. Phoebe Putney Health System, Inc., which questioned whether a government entity is exempt from the antitrust laws that govern private companies.

The Court stressed that the “state action” doctrine, which provides a limited immunity from antitrust law for state government entities, should be interpreted narrowly. Emory Law Associate Professor Alexander Volokh provided background for the case which originated in Albany, Ga.

"The Supreme Court did the right thing," Volokh said. "We shouldn't have a two-tiered system where governmental entities have broad powers to act anti-competitively, while private firms have to be careful to avoiding upsetting the antitrust authorities.”

“That would discourage reliance on the private sector—and instead encourage governments to run hospitals and other businesses themselves. If states are to be allowed to act anti-competitively, this exception to the antitrust laws needs to be kept on a very tight leash,” Volokh said. “It's reassuring that all nine Supreme Court Justices voted in favor of neutrality."

Since 1941, Georgia cities and counties have been allowed to set up public bodies called Hospital Authorities which are allowed to run, acquire, lease and set rates for hospitals, which they must run on a non-profit basis, Volokh said.

In 1941, the city of Albany and Dougherty County established a Hospital Authority and acquired Phoebe Putney Memorial Hospital. Almost 70 years later in 2010, the Authority sought to purchase Palmyra Medical Center, the one other hospital in Dougherty County.

The Federal Trade Commission saw the merger would substantially reduce hospital competition in the area and tried to use federal antitrust laws to prevent the transaction, Volokh said. But the Hospital Authority countered that as a public body, it was exempt from federal antitrust law under the "state action" doctrine. The U.S. Court of Appeals for the 11th Circuit (headquartered in Atlanta), agreed with the Hospital Authority that antitrust law didn't apply.

The "state action" doctrine was first recognized by the U.S. Supreme Court in 1943 when it held that state governments should be allowed to regulate their own economies—possibly reducing competition—without running afoul of the antitrust laws.

But when anti-competitive conduct comes from lower-level state bodies, like agencies or municipalities, the Supreme Court has been stricter, Volokh said. At a minimum, the restraint of competition should be "clearly articulated and affirmatively expressed." Recent cases have been somewhat unclear, suggesting the act of a governmental entity could be "clearly articulated and affirmatively expressed" even if it was neither clearly articulated nor affirmatively expressed, as long as the anti-competitive effect was the “foreseeable result” of what the State authorized.

Using the Supreme Court's "foreseeable result" language, the 11th Circuit held that the Albany-Dougherty Hospital Authority was exempt from federal antitrust law. The 1941 Georgia law allowed Hospital Authorities to acquire hospitals, and acquisitions always have the potential to reduce competition. Thus, the appeals court reasoned, the reduction in competition from the acquisition of Palmyra must have been a foreseeable result of the 1941 Georgia law, Volokh said.

In a unanimous opinion written by Justice Sonia Sotomayor, the court said such general language in the 1941 law can't be taken to authorize any and all anti-competitive conduct. The law authorized acquisitions “against the backdrop of existing antitrust law,” Volokh said.

The opinion said the 11th Circuit's expansive approach to state-action immunity “would wholly eviscerate the concepts of ‘clear articulation and affirmative expression’ that our precedents require.”

Related links:

Professor Volokh's profile

FTC v. Phoebe Putney Health System, Inc. on SCOTUSblog

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