Phoebe Putney hospital fights to maintain regional monopoly

Ben Remaly

17 July 2020

Phoebe Putney hospital fights to maintain regional monopoly

Credit: BMarko Structures

Phoebe Putney hospital has attempted to thwart efforts to build a rival hospital in southwest Georgia, even as it has begun treating an overflow of covid-19 patients in repurposed shipping containers. 

Phoebe has maintained a monopoly on hospital beds in Dougherty County, Georgia since it acquired its only rival – Palmyra Medical Center – in 2013.

The Federal Trade Commission and the state of Georgia had sued to block the transaction in federal court, claiming the deal would make Phoebe the sole operator of hospitals in a 30-mile radius in southwestern Georgia.

Phoebe defeated the FTC’s challenge after a federal district court ruled that the Dougherty County-owned hospital was immune from antitrust scrutiny. The Supreme Court reversed, finding the lower court had misconstrued state-action precedent.

Despite winning the appeal, the FTC was unable to unwind the deal. 

“Unfortunately, Albany is deemed ‘over-bedded’ by Georgia’s strict need assessment criteria making it unlikely that any possible divestiture buyer could obtain the necessary [Certificate of Need] approval to operate an independent hospital,” the agency said in 2013 while announcing a settlement with Phoebe.

The agreement required Phoebe to report future transactions to the agency for the next decade and refrain from objecting to attempts by competitors to build hospitals in Dougherty or its neighbouring counties for five years.

In November 2017, with the backing of the FTC, Georgia regulators approved Lee County Medical Center’s certificate-of-need (CON) application to build a 60-bed $120-million hospital just a few miles north of Phoebe in neighbouring Lee County. 

Not everyone is convinced Phoebe stayed out of that application process. John Ray, an attorney specialising in CON law at Ray & Gregory, said it was apparent that Phoebe was indirectly opposing the CON application through the Georgia Alliance of Community Hospitals. Phoebe denied the claims.

In March 2019, the FTC said it had closed a nonpublic investigation into Phoebe’s compliance with the consent decree without taking action.

Later that year, Lee County Medical Center requested to extend its construction deadline until August 2021. This May, LCMC requested a second extension citing disruptions caused by the pandemic.

Phoebe urged the Georgia Department of Community Health to reject LCMC’s second request for an extension. 

“Bizarrely, in an attempt to justify what the department's rules do not permit, LCMC points to the executive orders issued by the governor in response to the current COVID-19 state of emergency that are meant to speed up – not delay – healthcare initiatives,” Phoebe said in a May filing

Phoebe said LCMC had not presented any evidence that it had secured the local government bonds needed to fund the hospital or had actually been unable to hire the construction workers needed to build the new hospital.

LCMC has since withdrawn its second request for an extension while reserving the right to file for another should conditions worsen. 

“[Phoebe has been] trying to run us out of town,” LCMC president G Edward Alexander said to GCR USA

Alexander said LCMC has asked the FTC to look into whether Phoebe has violated the terms of the settlement. The FTC declined to comment on Phoebe’s filing.

Lee County commission chair Billy Mathis told GCR USA that he is disappointed, but not surprised, at Phoebe’s efforts to thwart the new hospital. 

“The community certainly needs it. We have no competition here,” Mathis said. “Many people in the community here leave the area to get access to healthcare.”

Phoebe chief executive Scott Steiner told the Associated Press that the consent decree with the FTC expired in March, meaning the hospital no longer has any obligation not to object.

“We believe state law does not allow for that second extension. Hold them accountable, they’ve had that CON (certificate of need) for more than two years,” Steiner said. 

Kevin Hahm, who previously headed the FTC’s mergers IV section overseeing hospital deals, said the staff at the FTC are likely not pleased, but there does not seem to be anything they can do.

Hahm, now a partner at Hunton Andrews Kurth, said the commission probably feels Phoebe is violating the spirit of the agreement even if it has expired.

This case exemplifies the need for an enforcer to block a merger upfront, Hahm said, pointing to the FTC’s difficulties in spite of a win before the Supreme Court.

Alexis Gilman, who also led the FTC’s mergers IV division, agreed that Phoebe’s objection was likely permissible under the settlement.

Gilman, who was part of the team seeking to remedy the Phoebe/Palmyra transaction after the Supreme Court ruling, said there were First Amendment considerations that went into how long the agency could prevent Phoebe from speaking out against regulatory approval from other hospitals. 

“The FTC can’t put tape over someone’s mouth forever for speaking out in matters of public interest,” said Gilman, now a partner at Crowell & Moring. 

University of Missouri professor Christopher Garmon said: “This is one of the things that incumbent hospitals do. They use CON procedures to keep out competition.”

Garmon co-authored a 2017 study evaluating the economic impact of the Phoebe/Palmyra merger. His analysis found that prices largely levelled out following an initial post-merger spike, but that inpatient hospital quality decreased a significant amount and never recovered.

The Centers for Medicare and Medicaid Services rank Phoebe’s overall quality as a one out of five – the lowest possible score.

Garmon said he is not sure that there is strong research showing a correlation between CON laws and bed capacity, but he does see them creating barriers to entry.

Covid-19

Both the FTC and Department of Justice have warned that CON laws can thwart competition. FTC commissioner Christine Wilson has been particularly outspoken against the regulations. 

In a statement to GCR USA, Wilson said that research has shown that CON laws have increased costs for rural communities without improving the quality of health care. 

“The anticompetitive effect is compounded when rival market players can impede the regulatory process further by objecting to applications for permission to add to the supply of healthcare facilities,” Wilson said. 

She said the harm has become particularly apparent amid the covid-19 pandemic and noted that more than a dozen states have suspended these laws. 

Georgia Governor Brian Kemp in March ordered the suspension of Georgia’s CON laws throughout the duration of the pandemic. 

Dougherty County has been walloped by the pandemic, and Phoebe has been unable to match the demand for beds and medical care. 

Georgia in April announced it would be adding 59 new beds to Phoebe’s facilities.

The state paid for the construction of shipping containers to be repurposed as intensive care units in the parking lot of Phoebe’s north campus – Palmyra Medical Center. The plans called for turning 21 containers into 24 patient rooms.

The state has also dispatched the National Guard and given Phoebe $12 million to meet the needs for medical staff. As of 9 April, Phoebe had transferred more than 160 new patients to other hospitals due to a lack of capacity, according to a local ABC affiliate.