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From Antitrust Law Daily, January 24, 2014

Combination of Idaho’s largest health system and largest physician practice must be unwound

By Jeffrey May, J.D.

The federal district court in Boise today ordered St. Luke’s Health System, Ltd.—the largest health care system in Idaho—to divest Saltzer Medical Group—the state's largest independent, multi-specialty physician practice—after concluding that St. Luke’s 2012 acquisition of Saltzer violated Section 7 of the Clayton Act and the Idaho Competition Act. The decision comes more than three months after testimony closed in the month-long bench trial that pitted the FTC, the State of Idaho, and smaller rivals against the merged firm (St. Alphonsus Medical Center—Nampa, Inc. v. St. Luke’s Health System, Ltd., January 24, 2014, Winmill, B.).

“Although possibly not the intended goal of the Acquisition, it appears highly likely that health care costs will rise as the combined entity obtains a dominant market position that will enable it to (1) negotiate higher reimbursement rates from health insurance plans that will be passed on to the consumer, and (2) raise rates for ancillary services (like x-rays) to the higher hospital-billing rates," the court concluded with little elaboration.

The decision hints at the tension between an integrated health system and a competitive health system.

The court suggested that the anticompetitive effects might not have been the intended goal of the acquisition. Rather, the acquisition was intended to improve patient outcomes, and it would have had that effect if left intact, in the court's view.

"St. Luke’s is to be applauded for its efforts to improve the delivery of health care in the Treasure Valley," the court said. "But there are other ways to achieve the same effect that do not run afoul of the antitrust laws and do not run such a risk of increased costs."

The decision was based on the reasons set forth in a separately-filed Findings of Fact and Conclusions of Law, according to the court. However, this filing was sealed to allow counsel to file any objections. The objections are due by January 27. After the court reviews the objections, it will determine whether any redactions are needed before the decision is filed in an unsealed form. The dispute over redactions will not change the result in the case, the court noted.

St. Luke’s is an Idaho not-for-profit health system that operates six hospitals, including a 399-bed hospital in Boise, and more than 100 outpatient centers and clinics throughout central and southwest Idaho and eastern Oregon. Saltzer was Idaho’s largest independent, multi-specialty physician practice group with 44 physicians.

Boise-based hospital operator Saint Alphonsus Health System, Inc. and Treasure Valley Hospital (TVH)—a nine-bed physician-owned, short–term care, non-emergency hospital in Boise—filed a lawsuit in 2012 to block the proposed combination of St. Luke’s and Saltzer. After a motion for a preliminary injunction filed by the complaining hospital operators was denied, the merger was consummated. A few months later, the FTC and Idaho Attorney General filed a complaint, challenging the deal. The trial began in September 2013 and went forward, despite the partial shutdown of the federal government in October. Testimony concluded on October 21.

FTC Chairwoman's Reaction

“The district court’s ruling is an important victory that will benefit both competition and consumers in Nampa, Idaho, and the surrounding areas,” said FTC Chairwoman Edith Ramirez in response to the decision. “The combination of St. Luke’s and Saltzer would have given the merged hospital system the market power to demand higher rates for health care services, ultimately leading to higher costs for both employers and consumers. Keeping health care costs low and quality high by ensuring vigorous competition between providers is, and will continue to be, a top Commission priority.”

Idaho Attorney General's Statement

"We now look forward to working with St. Luke's Health System and the Saltzer Medical Group in carrying out all that is required in the judge's decision," Idaho Attorney General Lawrence Wasden said in a statement issued today. "What compelled me to get involved in this important case is a commitment to ensuring that Idaho's laws protecting and promoting competition are upheld and that the marketplace is defended in a way to ensure the business climate in our state remains competitive. The resolution spelled out in the decision reaffirms my commitment to those goals."

St. Luke's Response

St. Luke's issued a statement, saying that it anticipated filing an appeal. St. Luke’s also said that, while its business relationship with Saltzer might change, it remained committed to working collaboratively with the physician practice.

David C. Pate, president and CEO of St. Luke's, called the decision surprising, disappointing, and “a blow for the health of Idaho.”

Comments from Counsel for St. Alphonsus

David A. Ettinger of Honigman Miller Schwartz and Cohn LLP, who represented Saint Alphonsus, said that he was very pleased that Judge Winmill preserved health care competition in the Boise area.

“Judge Winmill's decision also made clear that acquisitions of substantial market share are not necessary to achieve the goals of health care reform,” Ettinger added. “Entities considering physician practice mergers and acquisitions will need to carefully consider the antitrust implications of their transactions in the future. This is likely to apply in particular to primary care physicians, to whom patients are particularly loyal, and who often serve patients in very localized areas. As a result, acquisitions of primary care physician groups creating large shares in even local areas may raise significant antitrust concerns.”

This is case 1:12-cv-00560-BLW and Case 1:13-CV-00116-BLW.

Attorneys: David A. Ettinger (Honigman Miller Schwartz and Cohn LLP) and Keely E. Duke (Duke Scanlan & Hall, PLLC) for Saint Alphonsus Health System, Inc. Jason S. Risch (Risch Pisca, PLLC) for Treasure Valley Hospital. Peter Herrick for FTC. Brett T. DeLange, Office of Attorney General, for State of Idaho. Jack R. Bierig (Sidley Austin LLP) for St. Luke’s Health System Ltd. Brian Julian (Anderson, Julian & Hull LLP) for Saltzer Medical Group.

Companies: Saint Alphonsus Medical Center—Nampa, Inc.; Treasure Valley Hospital Limited Partnership; St. Luke’s Health System, Ltd.; Saltzer Medical Group, P.A.

MainStory: TopStory Antitrust IdahoNews FederalTradeCommissionNews

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