Source: https://supreme.justia.com/cases/federal/us/568/11-1160/opinion3.html
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Fed. Trade Comm'n v. Phoebe Putney Health Sys., Inc., (Opinion by Justice Sotomayor) :: 568 U.S. ___ (2013) :: Justia US Supreme Court Center
Justia › US Law › US Case Law › US Supreme Court › Volume 568 › Fed. Trade Comm'n v. Phoebe Putney Health Sys., Inc. › Opinion
Fed. Trade Comm'n v. Phoebe Putney Health Sys., Inc.,
Under this Court’s state-action immunity doctrine, when a local governmental entity acts pursuant to a clearly articulated and affirmatively expressed state policy to displace competition, it is exempt from scrutiny under the federal antitrust laws. In this case, we must decide whether a Georgia law that creates special-purpose public entities called hospital authorities and gives those entities general corporate powers, including the power to acquire hospitals, clearly articulates and affirmatively expresses a state policy to permit acquisitions that substantially lessen competition. Because Georgia’s grant of general cor- porate powers to hospital authorities does not include permission to use those powers anticompetitively, we hold that the clear-articulation test is not satisfied and state-action immunity does not apply.
In 1941, the State of Georgia amended its Constitution to allow political subdivisions to provide health care services. 1941 Ga. Laws p. 50. The State concurrently enacted the Hospital Authorities Law (Law), id., at 241, Ga. Code Ann. §31–7–70 et seq. (2012), “to provide a mechanism for the operation and maintenance of needed health care facilities in the several counties and municipalities of th[e] state.” §31–7–76(a). “The purpose of the constitutional provision and the statute based thereon was to . . . create an organization which could carry out and make more workable the duty which the State owed to its in- digent sick.” DeJarnette v. Hospital Auth. of Albany, 195 Ga. 189, 200, 23 S. E. 2d 716, 723 (1942) (citations omitted). As amended, the Law authorizes each county and municipality, and certain combinations of counties or municipalities, to create “a public body corporate and politic” called a “hospital authority.” §§31–7–72(a), (d). Hospital authorities are governed by 5- to 9-member boards that are appointed by the governing body of the county or municipality in their area of operation. §31–7–72(a).
In the same year that the Law was adopted, the city of Albany and Dougherty County established the Hospital Authority of Albany-Dougherty County (Authority) and the Authority promptly acquired Phoebe Putney Memorial Hospital (Memorial), which has been in operation in Al- bany since 1911. In 1990, the Authority restructured its operations by forming two private nonprofit corporations to manage Memorial: Phoebe Putney Health System, Inc. (PPHS), and its subsidiary, Phoebe Putney Memorial Hospital, Inc. (PPMH). The Authority leased Memorial to PPMH for $1 per year for 40 years. Under the lease, PPMH has exclusive authority over the operation of Memorial, including the ability to set rates for services. Consistent with §31–7–75(7), PPMH is subject to lease conditions that require provision of care to the indigent sick and limit its rate of return.
Memorial is one of two hospitals in Dougherty County. The second, Palmyra Medical Center (Palmyra), was estab- lished in Albany in 1971 and is located just two miles from Memorial. At the time suit was brought in this case, Palmyra was operated by a national for-profit hospital network, HCA, Inc. (HCA). Together, Memorial and Palmyra account for 86 percent of the market for acute-care hospital services provided to commercial health care plans and their customers in the six counties surrounding Al- bany. Memorial accounts for 75 percent of that market on its own.
The Federal Trade Commission (FTC) shortly there- after issued an administrative complaint alleging that the proposed purchase-and-lease transaction would create a virtual monopoly and would substantially reduce competition in the market for acute-care hospital services, in violation of §5 of the Federal Trade Commission Act, 38Stat. 719, 15 U. S. C. §45, and §7 of the Clayton Act, 38Stat. 731, 15 U. S. C. §18. The FTC, along with the State of Georgia, [ 1 ] subsequently filed suit against the Authority, HCA, Palmyra, PPHS, PPMH, and the new PPHS subsidiary created to manage Palmyra (collectively respondents), seeking to enjoin the transaction pending administrative proceedings. See 15 U. S. C. §§26, 53(b).
The United States Court of Appeals for the Eleventh Circuit affirmed. 663 F. 3d 1369 (2011). As an initial matter, the court “agree[d] with the [FTC] that, on the facts alleged, the joint operation of Memorial and Palmyra would substantially lessen competition or tend to create, if not create, a monopoly.” Id., at 1375. But the court con-cluded that the transaction was immune from antitrust liability. See id., at 1375–1378. The Court of Appeals explained that as a local governmental entity, the Authority was entitled to state-action immunity if the challenged anticompetitive conduct was a “ ‘foreseeable result’ ” of Georgia’s legislation. Id., at 1375. According to the court, anticompetitive conduct is foreseeable if it could have been “ ‘reasonably anticipated’ ” by the state legislature; it is not necessary, the court reasoned, for an anticompetitive effect to “ be ‘one that ordinarily occurs, routinely occurs, or is inherently likely to occur as a result of the empowering legislation.’ ” Id., at 1375–1376 (quoting FTC v. Hospital Bd. of Directors of Lee Cty., 38 F. 3d 1184, 1188, 1190–1191 (CA11 1994)). Applying that standard, the Court of Appeals concluded that the Law contemplated the anticompetitive conduct challenged by the FTC. The court noted the “impressive breadth” of the powers given to hospital authorities, which include traditional powers of private corporations and a few additional capabilities, such as the power to exercise eminent domain. See 663 F. 3d, at 1376. More specifically, the court reasoned that the Georgia Legislature must have anticipated that the grant of power to hospital authorities to acquire and lease projects would produce anticompetitive effects because “[f]oreseeably, acquisitions could consolidate ownership of competing hospitals, eliminating competition between them.” Id., at 1377. [ 2 ]
We granted certiorari on two questions: whether the Georgia Legislature, through the powers it vested in hospital authorities, clearly articulated and affirmatively expressed a state policy to displace competition in the market for hospital services; and if so, whether state-action immunity is nonetheless inapplicable as a result of the Authority’s minimal participation in negotiating the terms of the sale of Palymra and the Authority’s limited supervision of the two hospitals’ operations. See 567 U. S. ___ (2012). Concluding that the answer to the first question is “no,” we reverse without reaching the second question. [ 3 ]
In Parker v. Brown, 317 U. S. 341 (1943) , this Court held that because “nothing in the language of the Sherman Act [ 15 U. S. C. §1 et seq.] or in its history” suggested that Congress intended to restrict the sovereign capacity of the States to regulate their economies, the Act should not be read to bar States from imposing market restraints “as an act of government.” Id., at 350, 352. Following Parker, we have held that under certain circumstances, immunity from the federal antitrust laws may extend to nonstate actors carrying out the State’s regulatory program. See Patrick v. Burget, 486 U. S. 94 –100 (1988); Southern Motor Carriers Rate Conference, Inc. v. United States, 471 U. S. 48 –57 (1985).
But given the fundamental national values of free enterprise and economic competition that are embodied in the federal antitrust laws, “state-action immunity is disfavored, much as are repeals by implication.” FTC v. Ticor Title Ins. Co., 504 U. S. 621, 636 (1992) . Consistent with this preference, we recognize state-action immunity only when it is clear that the challenged anticompetitive conduct is undertaken pursuant to a regulatory scheme that “is the State’s own.” Id., at 635. Accordingly, “[c]loser analysis is required when the activity at issue is not directly that of” the State itself, but rather “is carried out by others pursuant to state authorization.” Hoover v. Ronwin, 466 U. S. 558, 568 (1984) . When determining whether the anticompetitive acts of private parties are entitled to immunity, we employ a two-part test, requiring first that “the challenged restraint . . . be one clearly articu- lated and affirmatively expressed as state policy,” and second that “the policy . . . be actively supervised by the State.” California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U. S. 97, 105 (1980) (internal quotation marks omitted).
This case involves allegedly anticompetitive conduct undertaken by a substate governmental entity. Because municipalities and other political subdivisions are not themselves sovereign, state-action immunity under Parker does not apply to them directly. See Columbia v. Omni Outdoor Advertising, Inc., 499 U. S. 365, 370 (1991) ; Lafay- ette v. Louisiana Power & Light Co., 435 U. S. 389 –413 (1978) (plurality opinion). At the same time, however, substate governmental entities do receive immunity from antitrust scrutiny when they act “pursuant to state policy to displace competition with regulation or monopoly public service.” Id., at 413. [ 4 ] This rule “preserves to the States their freedom . . . to use their municipalities to administer state regulatory policies free of the inhibitions of the federal antitrust laws without at the same time permitting purely parochial interests to disrupt the Nation’s free-market goals.” Id., at 415–416.
As with private parties, immunity will only attach to the activities of local governmental entities if they are undertaken pursuant to a “clearly articulated and affirmatively expressed” state policy to displace competition. Community Communications Co. v. Boulder, 455 U. S. 40, 52 (1982) . But unlike private parties, such entities are not subject to the “active state supervision requirement” because they have less of an incentive to pursue their own self-interest under the guise of implementing state policies. Hallie v. Eau Claire, 471 U. S. 34 –47 (1985). [ 5 ]
Applying the clear-articulation test to the Law before us, we conclude that respondents’ claim for state-action immunity fails because there is no evidence the State affirmatively contemplated that hospital authorities would displace competition by consolidating hospital ownership. The acquisition and leasing powers exercised by the Authority in the challenged transaction, which were the principal powers relied upon by the Court of Appeals in finding state-action immunity, see 663 F. 3d, at 1377, mirror general powers routinely conferred by state law upon private corporations. [ 6 ] Other powers possessed by hospital authorities that the Court of Appeals characterized as having “impressive breadth,” id., at 1376, also fit this pattern, including the ability to make and execute contracts, §31–7–75(3), to set rates for services, §31–7–75(10), to sue and be sued, §31–7–75(1), to borrow money, §31–7–75(17), and the residual authority to exercise any or all powers possessed by private corporations, §31–7–75(21).
Similarly, in Omni, where the respondents alleged that the city had used its zoning power to protect an incumbent billboard provider against competition, we found that the clear-articulation test was easily satisfied even though the state statutes delegating zoning authority to the city did not explicitly permit the suppression of competition. We explained that “[t]he very purpose of zoning regulation is to displace unfettered business freedom in a manner that regularly has the effect of preventing normal acts of competition” and that a zoning ordinance regulating the size, location, and spacing of billboards “necessarily protects existing billboards against some competition from newcomers.” 499 U. S., at 373. Other cases in which we have found a “clear articulation” of the State’s intent to displace competition without an explicit statement have also involved authorizations to act or regulate in ways that were inherently anticompetitive. [ 7 ]
Taking a somewhat different approach than the Court of Appeals, respondents insist that the Law should not be read as a mere authorization for hospital authorities to participate in the hospital-services market and exercise general corporate powers. Rather, they contend that hos- pital authorities are granted unique powers and respon- sibilities to fulfill the State’s objective of providing all residents with access to adequate and affordable health and hospital care. See, e.g., Ga. Code Ann. §31–7–75(22). Respondents argue that in view of hospital authorities’ statutory objective, their specific attributes, and the regulatory context in which they operate, it was foreseeable that authorities facing capacity constraints would decide they could best serve their communities’ needs by acquiring an existing local hospital rather than incur the additional expense and regulatory burden of expanding a facility or constructing a new one. See Brief for Respondents 33–39.
In support of this argument, respondents observe that hospital authorities are simultaneously empowered to act in ways private entities cannot while also being subject to significant regulatory constraints. On the power side, as the Court of Appeals noted, 663 F. 3d, at 1376–1377, hospital authorities may acquire through eminent domain property that is “essential to the [authority’s] purposes.” §31–7–75(12). [ 8 ] On the restraint side, hospital authorities are managed by a publicly accountable board, §§31–7–74.1, 31–7–76, they must operate on a nonprofit basis, §31–7–77, and they may only lease a project for others to operate after determining that doing so will promote the community’s public health needs and that the lessee will not receive more than a reasonable rate of return on its investment, §31–7–75(7). Moreover, hospital authorities operate within a broader regulatory context in which Georgia requires any party seeking to establish or significantly expand certain medical facilities, including hospitals, to obtain a certificate of need from state regulators. See §31–6–40 et seq. [ 9 ]
We have no doubt that Georgia’s hospital authorities differ materially from private corporations that offer hospital services. But nothing in the Law or any other provision of Georgia law clearly articulates a state policy to allow authorities to exercise their general corporate powers, including their acquisition power, without regard to negative effects on competition. The state legislature’s objective of improving access to affordable health care does not logically suggest that the State intended that hospital authorities pursue that end through mergers that create monopolies. Nor do the restrictions imposed on hospital authorities, including the requirement that they operate on a nonprofit basis, reveal such a policy. Particularly in light of our national policy favoring competition, these restrictions should be read to reflect more modest aims. The legislature may have viewed profit generation as incompatible with its goal of providing care for the indigent sick. In addition, the legislature may have believed that some hospital authorities would operate in markets with characteristics of natural monopolies, in which case the legislature could not rely on competition to control prices. See Cantor v. Detroit Edison Co., 428 U. S. 579 –596 (1976).
We recognize that Georgia, particularly through its certificate of need requirement, does limit competition in the market for hospital services in some respects. But regulation of an industry, and even the authorization of discrete forms of anticompetitive conduct pursuant to a regulatory structure, does not establish that the State has affirmatively contemplated other forms of anticompetitive conduct that are only tangentially related. Thus, in Goldfarb v. Virginia State Bar, 421 U. S. 773 (1975) , we re- jected a state-action defense to price-fixing claims where a state bar adopted a compulsory minimum fee schedule. Although the State heavily regulated the practice of law, we found no evidence that it had adopted a policy to displace price competition among lawyers. Id., at 788–792. And in Cantor, we concluded that a state commission’s regulation of rates for electricity charged by a public utility did not confer state-action immunity for a claim that the utility’s free distribution of light bulbs restrained trade in the light-bulb market. 428 U. S., at 596.
4 An amicus curiae contends that we should recognize and applya “market participant” exception to state-action immunity because Georgia’s hospital authorities engage in proprietary activities. Brief for National Federation of Independent Business 6–24; see also Columbia v. Omni Outdoor Advertising, Inc., –375, 379 (1991) (leaving open the possibility of a market participant exception). Because this argument was not raised by the parties or passed on by the lower courts, we do not consider it. United Parcel Service, Inc. v. Mitchell, .
7 See Southern Motor Carriers Rate Conference, Inc. v. United States, , and n. 25 (1985) (finding that a state commission’s decision to encourage collective ratemaking by common carriers was entitled to state-action immunity where the legislature had left “[t]he details of the inherently anticompetitive rate-setting process . . . tothe agency’s discretion”); Hallie v. Eau Claire, (describing New Motor Vehicle Bd. of Cal. v. Orrin W. Fox Co., , as a case where there was not an “express intent to displace the antitrust laws” but where the regulatory structure at issue restricting the establishment or relocation of automobile dealerships “inher-ently displaced unfettered business freedom” (internal quotation marks and brackets omitted)).
9 Georgia first adopted certificate of need legislation in 1978 in part to comply with a since-repealed federal law conditioning federal funding for a number of health care programs on a State’s enactment of certificate of need laws. See 1978 Ga. Laws p. 941, as amended, Ga. Code Ann. §31–6–40 et seq. (2012); see also National Health Planning and Resources Development Act of 1974, , repealed by §701(a), . Many other States also have certificate of need laws. See National Conference of State Legislatures, Certificate of Need: State Health Laws and Programs, online at http://www.ncsl.org/issues-research/health/con-certificate-of-need-state-laws.aspx (as visited Feb. 15, 2013, and available in Clerk of Court’s case file) (indicating in “States with CON Programs” table that 35 States retained some type of certificate of need program as of December 2011 while 15 other States had such programs but have repealed them).