A "substate" governmental entity that engages in conduct that would usually violate the Sherman Act may escape liablity under the state-action doctrine if the "state" directs "substate" to do the anticompetitive deeds. But the state must "'clearly articulate[] and affirmatively express[]' state policy to displace competition." Fed'l Trade Comm'n v. Phoebe Putney Health Sys., Inc., No. 11-1160, slip op. 8 (U.S. Feb. 19, 2013).

A scheme by a bi-county hospital "authority" in Georgia failed the clear-articulation and affirmative-expression test, the Supreme Court unanimously held today.

The authority had agreed to buy a hospital that accounted for 11 percent of the market for acute-care hospital services in a six-county area and to let an outfit that controlled 75 percent of the market lease its smaller cousin for $1 a year. The Federal Trade Commission sued under the FTC Act to enjoin the transaction. The district court dismissed the FTC's complaint under the state-action doctrine. The Eleventh Circuit affirmed, ruling that the doctrine applied so long as the conduct in question foreseeably resulted from the state law creating the hospital authority.

The Supreme Court reversed. It held (in an opinion by Justice Sotomayor) that the "foreseable result" standard flunked the clear-articulation and clear-expression test:

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.

Id. at 16-17.