The Supreme Court made clear on Monday that it is entirely comfortable with states having the authority to set up a monopoly for public services in one of its communities, but not unless the state says — in so many words — that that is exactly what it intends.   The Justices came away apparently unsatisfied that a hospital monopoly in Georgia had produced hard evidence that it had the state legislature’s specific blessing.   Without that, the monopoly probably would not survive a federal antitrust attack.

It has long been settled that a state is entitled to immunity from antitrust law if it chooses to displace competition with an officially sanctioned enterprise to carry out a public duty, but it remains unclear when it can pass on that immunity to private firms that get assigned to perform the public task.  That is what the Court and two lawyers were debating in Federal Trade Commission v. Phoebe Putney Health Systems (docket 11-1160).   The FTC’s lawyer did not escape a hard grilling, and left at least some of the Justices uncertain about what legal standard he was advocating.

But that lawyer, Assistant to the Solicitor General Benjamin J. Horwich, could walk away somewhat content, since he had obviously made one of his most important points: a state must provide some kind of clear statement when it wants to substitute something for competition.  And that put the attorney for the merged hospital complex in Albany, Georgia, on the spot, throughout.

The hospitals’ lawyer, Washington attorney Seth P. Waxman, had the rougher time at the podium, as one member of the Court after another pressed him to show that the Georgia legislature had actually said that it was willing to let the only hospitals in Albany join forces, and thus stifle what remained of competition.   He never quite dispelled the impression that the hospitals had been left to go very much on their own, although he did try to argue that they were on a rather tight leash.

The argument, overall, appeared to turn very much on the specifics of this case, and thus suggested that no new principle of state or local antitrust immunity and no more refined theory of what constitutes “state action” for immunity purposes would emerge.  The Court seemingly had granted review to add some clarity to this area of law, but it now seems that they can decide the case without doing so.

The FTC’s attorney, Horwich, had come prepared to argue that, even if a state does give clearance to an anti-competitive private enterprise, that enterprise has to be held under some kind of continuing government oversight to assure that it does not stray from its public mission of providing a governmental service.  From the opening question from Justice Sonia Sotomayor, however, it was clear that the Court was more focused upon just how a state would authorize such anti-competitive behavior on its behalf in the first place.

Georgia’s legislature had authorized county governments to set up a hospital authority, with full power to provide the full range of acute care services, with the proviso that they make a special effort to provide care for the poor.  Sotomayor wondered just what that grant of authority meant, in detail — in other words, what specifically did the legislature intend, or how could that be shown?   That remained the core of the exchanges between Horwich and the Court, especially when Justice Elena Kagan energetically tested his answers.

Justice Stephen G. Breyer tried his hand at interpreting the authorizing law for the hospital authorities, without obvious success, and wound up somewhat plaintively asking Horwich, “What do you want us to do?”  Horwich in response did make one clear point: a state cannot share its immunity with a local hospital combine merely by saying it wanted to do so; it cannot act to stifle competition “at any cost” but had to make clear how doing so would advance its governmental objective.

Waxman, the hospitals’ lawyer, had barely begun when Justice Antonin Scalia said he could not find in the Georgia hospital authority law a grant of permission to create a hospital monopoly.  He told Waxman that, if he was relying on a statement that a hospital authority could acquire hospitals, that was not enough.   The attorney also encountered some trouble with Justice Anthony M. Kennedy, who interpreted Waxman’s argument to suggest that the mere grant of general corporate powers to authorized hospitals was to be understood as the equivalent of a legislative grant.  Waxman said that was not his argument, that the hospitals were sensitive to the need to show specifically that the end of competition was a “foreseeable result” of their approval by the hospital authority.   It was foreseeable, he insisted, that they could “acquire market power — or even a monopoly.”

That response, however, did not seem to reassure the Court that the legislature had intended such an outcome.  Justice Sotomayor, for example, responded that she could accept that the hospitals had a mandate to provide a public service, but she added that there had to be a further step, to authorize a form of anti-competitive conduct, and she said she could not find it in the legislative grant.

Justice Kagan noted that Waxman had said that a grant of general corporate powers was not enough to authorize a merger that produced a monopoly, and that the mission assigned the hospitals also was not enough, so, she asked, “What else have you got?” What evidence is there, she went on, that the legislature thought about the matter and decided to give explicit permission?   Waxman suggested that the hospitals had been put on notice that their “rate of return” on hospital operations would be closely monitored, and that was “a hallmark of a public service monopoly.”

It would be left to Justice Scalia to provide something of a rhetorical clincher against Waxman’s argument.  If that argument prevailed, Scalia said, the Court would not be endorsing a hospital monopoly in a small rural area, but in Georgia’s largest county where five or more hospitals could be combined into one.  Waxman’s only response was that that would not be allowed under Georgia law.  “We have no way to know,” Justice Scalia retorted.



Posted in FTC v. Phoebe Putney Health System, Featured, Analysis, Merits Cases

Recommended Citation: Lyle Denniston, Argument recap: Searching for immunity, SCOTUSblog (Nov. 26, 2012, 4:59 PM),