On June 25, 2012, the U.S. Supreme Court granted the Federal Trade Commission’s request for certiorari review in FTC v. Phoebe Putney Health System, Inc., a hospital merger case on appeal from the U.S. Eleventh Circuit Court of Appeals and the U.S. District Court for the Middle District of Georgia.

At issue in the case is the FTC’s challenge to a hospital merger that would give the acquiring health system 100% market share in its county and more than 90% market share of the multi-county region in rural southern Georgia.  Applying the state action doctrine, both the trial court and the Eleventh Circuit held that the merger of two private hospitals, Phoebe Putney Memorial Hospital and Palmyra Park Hospital, was immune from antitrust laws even though all parties agreed that the merger created a monopoly.  State action immunity applies when a policy that displaces competition is “clearly articulated” and “actively supervised” by the state.  The doctrine can extend to private actors when they act pursuant to a clearly articulated state policy to displace competition, and they are actively supervised by the state.  Clear articulation is found when a restraint of trade is a “foreseeable” consequence of the action taken by the state.   

In Phoebe Putney, the state action was applied by the trial court and the Eleventh Circuit based on the approval of the merger by a largely inactive county hospital commission created under a 1941 Georgia statute.  Both courts concluded that, because the 1941 state statute granted the local hospital commissions general corporate powers, including the power to acquire hospitals, the state of Georgia had “clearly articulated” its intention to restrain competition in hospital services because it was reasonably foreseeable that hospital acquisitions could lead to a monopoly or other displacement of competition.  In its certiorari petition, the FTC argued that the Eleventh Circuit’s ruling is inconsistent with Supreme Court precedent and is at odds with rulings from the Fifth, Sixth, Ninth, and Tenth Circuit Courts of Appeals, which have concluded that a general grant of corporate powers is insufficient to trigger state action immunity.

The Supreme Court’s grant of certiorari in Phoebe Putney is extremely significant, as this will be its first ruling on the state action doctrine in more than twenty years.  The case will be heard next term.