New York Law Authorizes Hospital's Anti-Competitive Activities

New York recently amended the Public Authority Law to allow Nassau Health Care Corporation (NuHealth) to engage in collaborative activities with public or private entities irrespective of the anti-competitive effects of such conduct. The amended law clears the way for NuHealth to partner with the North Shore-LIJ System and other healthcare competitors in order to share patients, personnel, and resources, and to implement clinical integration programs, mergers, or joint ventures. 

The federal Sherman Antitrust Act generally prohibits collaborations among competitors that unreasonably restrain competition. Under the so-called “state action doctrine,” however, certain conduct that would otherwise be unlawful under the Sherman Act will be immune from scrutiny when such conduct is the intended result of state government policy. When determining whether anti-competitive acts are entitled to immunity under this doctrine, courts employ a two-part test. First, the state must have “clearly articulated and affirmatively expressed” an intention to immunize the challenged conduct. Second, the anti-competitive action must be “actively supervised by the State.” California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980). 

Earlier this year, the Supreme Court in FTC v. Phoebe Putney Health System, Inc., 133 S.Ct. 1003 (2013), held that a local public hospital authority’s claim for state-action immunity failed because there was no evidence that the state of Georgia specifically contemplated that the hospital authority would displace competition by consolidating hospital ownership. The Court emphasized that because “state-action immunity is disfavored,” an entity must show that it has been affirmatively authorized not just to act, but to act anticompetitively.   

The New York legislature clearly drafted this new law with Phoebe Putney in mind. Specifically, the law states that “the State hereby affirmatively expresses a policy to allow [NuHealth] to engage in collaborative activities consistent with its health purposes, notwithstanding that those collaborations may have the effect of displacing competition in the provision of hospital, physician or other health care-related services.”

The amended New York law was passed by the state legislature and signed by Governor Cuomo, despite the fact that New York Attorney General, Eric Schneiderman, and the Chief of the Antitrust Bureau, Eric Stock, vehemently opposed it.  Schneiderman and Stock argue that the amended law gives NuHealth and any company it partners with an overly broad exemption that may negatively affect patients by allowing NuHealth to acquire excessive market power in the New York healthcare market. 

Although New York’s enactment likely will satisfy the first prong of the “state action” test, it is unclear whether it will satisfy the second, which requires the anti-competitive conduct to be “actively supervised by the State.”  The amended New York law simply requires NuHealth to file an annual report with the State Department of Health regarding the impact of its collaborations, and the Department has the authority to request that NuHealth voluntarily change its policies. Only time will tell if this provision is sufficient to meet the “actively supervised” standard. 

Note: Michael Blass, Managing Partner of the New York office of Arent Fox, is a partner in the firm’s national health care practice, focusing on corporate transactions and regulatory matters for health care providers. He can be reached at michael.blass@arentfox.com.