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From Antitrust Law Daily, February 3, 2014

Findings behind decision in Idaho acquisition case released over objections of defendant

By Jeffrey May, J.D.

The federal district court in Boise has released its Findings of Fact & Conclusions of Law, supporting a determination that the 2012 acquisition by St. Luke’s Health System, Ltd.—the largest health care system in Idaho—of Saltzer Medical Group—the state’s largest independent, multi-specialty physician practice—violated Section 7 of the Clayton Act and the Idaho Competition Act. The court overruled objections raised by St. Luke’s and Blue Cross of Idaho to the unredacted release of the findings (St. Alphonsus Medical Center—Nampa, Inc. v. St. Luke’s Health System, Ltd., January 28, 2014, Winmill, B.).

On January 24, the court held that the parties would have to unwind their consummated merger. There was a substantial risk that the combined entity would use its dominant market share to raise costs to consumers.

Before the merger was consummated, 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—brought suit to block the deal. Later, the FTC and the State of Idaho filed a complaint, challenging the acquisition that made St. Luke’s the dominant provider in the Nampa area for primary care.

The trial began in September 2013 and testimony concluded on October 21. Three months later, the court released its decision, which was based on the reasons set forth in a separately-filed Findings of Fact and Conclusions of Law. The filing was sealed to allow counsel to file any objections. St. Luke’s and Blue Cross sought to redact material; however, the court decided that they failed to satisfy the high standard for sealing judicial material.

St Luke’s and Blue Cross objected to revealing specific figures and percentages regarding hospital-based billing. “While revealing those numbers may offer some insight to competitors, the effect is not great, especially when compared to the powerful insight those figures offer to the public trying to understand how the Court arrived at its decision.”

The court also denied a request from Blue Cross for the redaction of any reference to the insurer’s experience with a St. Luke’s facility in the Twin Falls Idaho market, since there would only be a minor competitive disadvantage from revealing the incident. “That experience is nearly five years in the past, an eternity in this fast moving field, and there is no discussion of personal compensation, future strategy, or sensitive details in this brief account.” According to the court, the same analysis applied to the attempts to redact statements that (1) St Luke’s or Saltzer are “must have” providers in the Blue Cross network, (2) that Blue Cross would not have a “sustainable product” without them, and (3) that the Acquisition would take away a health insurer’s best outside option and make negotiations more difficult.

Findings of Fact & Conclusions of Law

According to the court’s Findings of Fact & Conclusions of Law, the relevant market was defined as adult primary care physician (PCP) services sold to commercially insured patients in Nampa. Based on the market and the market shares, there was a presumption that the combined entity would lessen competition. The defendant failed to rebut the presumption.

The court’s findings specifically identified the anticompetitive effects that the transaction would have as St. Luke’s became the largest provider of adult primary care services in Nampa, with a market share of 80 percent. The substantial market share would give St. Luke’s a dominant bargaining position over health plans in the Nampa market and allow St. Luke’s to use this leverage to receive increased reimbursements that the plans will pass on to consumers in the form of higher health care premiums and higher deductibles.

The court considered and rejected the defenses raised by St. Luke’s. St. Luke’s failed to show that the raised efficiencies were merger-specific. Moreover, entry of competing providers in the Nampa market was unlikely to mitigate the anticompetitive effects of the acquisition. Finally, it was noted that the cost and complexity of unwinding the transaction was no defense to divestiture.

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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