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From Antitrust Law Daily, June 20, 2014

St. Luke’s denied stay of divestiture order pending appeal

By Linda O’Brien, J.D., LL.M.

The federal district court in Boise has denied a motion by a combined healthcare system entity to stay an order that the merger be unwound pending appeal (Saint Alphonsus Medical Center – Nampa, Inc. v. St. Luke’s Health System, Ltd., June 18, 2014, Winmill, B.).

St. Luke’s is an Idaho not-for-profit health system that operates six hospitals, while Saltzer was Idaho’s largest independent, multi-specialty physician practice group. In December 2012, St. Luke’s acquired all of Saltzer’s personal property and equipment. St. Luke’s also obtained the ability to negotiate health plan contracts on Saltzer’s behalf, and the power to establish rates and charges for services provided by Saltzer physicians. Saltzer entered into a five-year professional services agreement with St. Luke’s on behalf of its physicians. Two of St. Luke’s competitors, St. Alphonsus and Treasure Valley Hospital Limited Partnership, filed suit and sought to block the transaction.

Following the private suit, the FTC and the Idaho Attorney General filed a complaint seeking to halt St. Luke’s acquisition of Saltzer on the ground that the combined entity would have market power in the relevant market region to demand higher rates for health care services provided by primary care physicians. The cases were consolidated for discovery and trial. In 2014, the court found that the acquisition violated the Clayton Act and Idaho Competition Act and ordered St. Luke’s to divest itself of Saltzer’s physicians and assets. St. Luke’s and Saltzer moved to stay the order and sought to continue to operate as a combined entity pending its appeal.

Likelihood of success on the merit. The court found that St. Luke’s and Saltzer did not show there was a substantial case for relief on the merits. Although the court indicated at trial that existing antitrust law appeared to hinder innovation and resist creative solutions, the law itself and the facts of the case were clear. The application of the law to the facts compelled divestiture which was the best remedy to redress the harm of an anticompetitive merger, the court noted.

Irreparable harm. St. Luke’s and Saltzer did not demonstrate that there was a probability of irreparable injury if the stay was not granted, according to the court. In rejecting St.Luke’s argument that returning Saltzer to its former independent status would place it in financial peril, the court noted that Saltzer’s loss of seven physicians occurred due to the impending acquisition and Saltzer’s financial peril was self-inflicted. Moreover, St. Luke’s financial expert offered no opinion at trial whether divestiture would cause Saltzer to go out of business, be unprofitable, be unable to compete, or lose additional physicians. Although some hardship would be caused by the unwinding, it did not rise to the level of irreparable injury.

Substantial injury. Further, St. Luke’s did not demonstrate that an issuance of a stay would not substantially injure other parties interested in the proceeding. The court noted that physician referrals to St. Luke rose when a physician practice was acquired and there was no guarantee that the increase would not continue if a stay was imposed, thereby causing injury to the private plaintiffs in the case. A stay would also lock into place the anticompetitive bargaining advantage that St. Luke would have and it could cause substantial injury to consumers.

Public interest. Finally, the public interest both supported and rejected a stay. The acquisition was intended to improve patient outcomes and the delivery of health care in the area. However, the combination could raise health care prices at the same time. Thus, the public interest element was a “wash,” the court concluded.

The case is No. 1:12-cv-00560-BLW.

Attorneys: David A. Ettinger (Honigman Miller Schwartz and Cohn LLP), and Keely E. Duke (Duke Scanlan & Hall, PLLC) for Saint Alphonsus Medical Center - Nampa Inc. Raymond D. Powers (Powers Tolman Farley, PLLC) for Treasure Valley Hospital Ltd. Partnership. Brett T. DeLange, Office of Attorney General, for State of Idaho. Danica Noble for FTC. J. Walter Sinclair (Holland & Hart LLP), and Jack R. Bierig (Sidley Austin LLP) for St. Luke's Health System, Ltd., and St. Luke's Regional Medical Center, Ltd. Brian K. Julian (Anderson Julian & Hull) 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

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