Industry-Specific Application of the Doctrine

• Pages: 97-126

CHAPTER V

INDUSTRY-SPECIFIC APPLICATION OF THE

DOCTRINE

There are certain industries in which the state action doctrine is most

commonly encountered. These include health care, energy and utilities,

transportation, and the regulation of professionals. This chapter

addresses the application of the state action doctrine in each of these

sectors.

A. Health Care

The state action doctrine is frequently invoked by participants in the

health care industry. The doctrine’s application to state-operated or

owned hospitals, certificates of need (CONs), and staff privileges and

peer review, is discussed below.

1. State-Operated or Owned Hospitals

Several states have enacted legislation allowing municipalities or

other political subdivisions to operate hospitals or health care districts.

Courts generally have held that public hospitals are municipal or political

actors entitled to the protections of the state action doctrine so long as the

challenged regulation or conduct stems from a clearly articulated state

policy.1 Based on their status as municipalities, public hospitals are not

1. See, e.g., FTC v. Phoebe Putney Health Sys., Inc., 133 S. Ct. 1003, 1010

(2013) (finding that hospital authority was a substate govern mental entity,

but was not entitled to state-action immunity from antitrust laws because

its actions did not satisfy clear articulation requirement); Lafaro v. N.Y.

Cardiothoracic Group, 570 F.3d 471, 477-78 (2d Cir. 2009) (treating

public benefit corporation that operated medical center as a municipality

for purposes of state action doctrine); Jackson, Tenn. Hosp. Co. v. W.

Tenn. Healthcare, 414 F.3d 608, 611-12 (6th Cir. 2005) (holding that

public hospital constituted political subdivi sion and was immune from

antitrust challenge so long as it acted “pursua nt to a ‘clearly expressed’

state policy”); Crosby v. Hosp. Auth. of Valdosta & Lowndes Cnty., 93

F.3d 1515, 1525 (11th Cir. 1996) (holding that public hospital author ity

98 State Action Practice Manual

required to meet the active supervision prong of the Midcal test in order

to establish an antitrust exemption for a challenged regulation or course

of conduct.2

For example, in Crosby v. Hospital Authority of Valdosta and

Lowndes County3 the Eleventh Circuit determined that, based on a state

statute conveying broad public powers to the hospital authority,

combined with the state supreme court’s historical interpretation of the

hospital as a “governmental entit[y],” the defendant hospital authority

constituted a municipality for state action purposes.4 The court then had

only to examine whether the state, through its statutes, “clearly

articulate[d] a policy authorizing the challenged anticompetitive

conduct.”5

To satisfy the clear articulation requirement, the anticompetitive

effect of the delegated action must be the “foreseeable result” of the state

authorization; the state legislature is not required to explicitly authorize

or anticipate specific anticompetitive effects.6 Applying this standard,

qualified as a political subdivision and was subj ect only to clear

articulation test); Martin v. Mem’l Hosp. at Gulfport, 86 F.3d 1391, 1398-

99 (5th Cir. 1996) (holding that public hospital was a state subdivision or

municipal corporation, and “need prove only that it acted p ursuant to a

clearly articulated and affirmatively expressed state policy”); FTC v.

Hosp. Bd. of Dirs. of Lee Cnty., 38 F.3d 1184, 1188 (11th Cir. 1994)

(holding that healt h care authority was a political subdivision subject o nly

to clear articulation test because it was a “special purpose unit” of local

government).

2. See, e.g., Crosby, 93 F.3d at 1521-25; Martin, 86 F.3d at 1397; Hosp. Bd.

of Dirs. of Lee Cnty., 38 F.3d at 1188.

3. 93 F.3d 1515 (11th Cir. 1996).

4. Id. at 1523-26.

5. Id. at 1532 (quoting Hosp. Bd. of Dirs. of Lee Cnty., 38 F.3d at 1187-88).

6. Id. (quoting Hosp. Bd. of Dirs. of Lee Cnty., 38 F.3d at 1189 (emphasis

added), and citing Town of Hallie v. Cit y of Eau Claire, 471 U.S. 34, 42

(1985)); see also Phoebe Putney, 133 S. Ct. at 1012-13 (“Thus, we have

concluded that a state policy to displace federal antitrust law was

sufficiently expressed where the displacement of competition was the

inherent, logical, or ordinary result of the exercise of authority delegated

by the state legislature.”); Crosby, 93 F.3d at 1534 (citing to cases

observing “that ‘reasonable anticipatio n’ does not require explicit

authorization to enga ge in anticompetiti ve conduct”); Jackson, Tenn.

Hosp., 414 F.3d at 612 (“The state legislature need not explicitly

authorize anticompetitive conduct, as long as anticompeti tive effect

would logically result from the authority gra nted by the state.”);

Redwood Empire Life Support v. Cnty. of Sonoma, 190 F.3d 949, 955