Hospital Merger Mess Gets Messier with Temporary Restraining Order

Another battle has been decided in the ongoing war between the Federal Trade Commission (FTC) and a hospital operator in Southwest Georgia.

A judge Wednesday granted the FTC’s request for a temporary restraining order to halt the integration of Palmyra Medical Center in Albany, Ga. with hospital Phoebe Putney, which acquired Palmyra in 2010 for $195 million. The FTC sued for the restraining order after Phoebe once again began integration after the U.S. Supreme Court ruled against it.

The Director of the FTC’s Bureau of Competition, Richard A. Feinstein, said in a statement, “We are pleased that the Court has issued a Temporary Restraining Order prohibiting any further steps to consolidate the two hospitals in Albany, and prohibiting any price changes to existing health-plan contracts, pending our Motion for Preliminary Injunction.  A hearing on that motion has been scheduled for June 14.”

Phoebe Putney Health System, operator of the largest hospital in Albany, agreed to purchase its only competition in town in 2010 from owner Hospital Corporation of America (NYSE: HCA). The deal was to merge HCA Palmyra Park Medical Center with Phoebe Putney Memorial Hospital, creating one system that would deliver more than 85 percent of the acute-care hospital services to a mostly rural six-county area with 170,000 residents.

The FTC did not like those numbers from an antitrust perspective and challenged the deal. Phoebe Putney argued that the FTC had no say in the deal, as the state of Georgia had drawn up special exemptions from federal antitrust scrutiny if one of the parties is a government or public entity under a state action doctrine. Phoebe, while a private non-profit company, was technically operating under a local public hospital authority.

A lower court in Albany sided with Phoebe Putney, agreeing that the Hospital Authority of Albany-Dougherty County met the requirements for a special purpose hospital authority under state doctrine and the deal was immune from FTC scrutiny. When an appellate court in Atlanta upheld the ruling in December 2011, the merger went ahead as planned.

All of Palmyra’s assets were transferred from HCA to Phoebe Putney and the hospital was renamed Phoebe North in 2012.

But the Supreme Court agreed to hear the case on further appeal from the FTC. Arguments were made on November 26, 2012 and in February, the Supreme Court unanimously said that the lower courts had misread Georgia’s state action doctrine.

Now, nearly 18 months after the completion of the merger and the transfer of assets, the integration is once again on hold.