Federal District Court Orders Hospital to Unwind Acquisition of Physician Group

February 10, 2014 | Health Services

On Friday, January 24th, Judge B. Lynn Winmill blocked the acquisition of Saltzer Medical Group (“Saltzer”) by St. Luke’s Health System (“St. Luke’s”) in Idaho.  The District Court Judge held that the merger violated antitrust laws, and allowing the merger to remain in place would give St. Luke’s greater bargaining leverage with health plans and an unfair advantage in its ability to charge higher rates for ancillary services.

Saltzer is Idaho’s largest independent physician practice, located in Nampa, a city just over 20 miles west of Boise. St. Luke’s, based in Boise, acquired Saltzer approximately a year ago. If the deal stood, it would have given St. Luke’s control of almost 80% of the primary care market in Nampa.

Before the transaction was closed, St. Alphonsus Health System (“St. Alphonsus”) and Treasure Valley Hospital (“Treasure Valley”), both also located in the metro Boise area, filed suit to block the transaction.  They argued the merger would give St. Luke’s a significant competitive advantage in negotiating rates with payors.  In addition to St. Alphonsus and Treasure Valley, the Federal Trade Commission (“FTC”) took up the antitrust case against St. Luke’s.  The FTC’s action was a first for an acquisition of a physician practice group. On Friday, Judge Winmill sided with the hospitals and FTC and against St. Luke’s and Saltzer.

St. Luke’s was disappointed with the District Court’s ruling, and stated that the ruling jeopardized the efficacy of accountable care in Idaho. For his part, Judge Winmill recognized the movement towards a new model of healthcare designed to address rising costs in the United States, and even recognized St. Luke and Saltzer’s efforts to address that very issue. However, the need for accountable care and the need to abide by federal antitrust laws were not, Judge Winmill opined, mutually exclusive.  The significant market share, which Judge Winmill held would allow St. Luke’s to negotiate higher rates and charge more for ancillary services, proved too significant a threat to be offset by the potential benefits of the merger. Significantly for other groups or health systems contemplating expansion through similar mergers, this ruling signals that traditional notions of antitrust will not take a back seat to considerations of the imperative of growth in the era of health care reform.

Responses to the ruling have been predictably mixed. For its part, St. Luke’s has issued a statement that it will appeal the ruling.  On the other side, an attorney for St. Alphonsus lauded the ruling and said that the case provided a warning that hospitals and physicians have to consider market share when merging.  He went on to echo Judge Winmill in saying that there are alternatives to achieving the goals of health care reform while keeping physicians independent. And for its part, FTC Chairwoman Edith Ramirez called the ruling “an important victory.”  In her statement, Chairwoman Ramirez went on to say “keeping health care costs low and quality high by ensuring vigorous competition between providers is, and will continue to be, a top Commission priority.”  The success of this case, as well as Chairwoman Ramirez’s statements, should serve as an alert to entities considering similar transactions to consider the antitrust issues that may come along with such a merger.

Additional updates on this matter will come as St. Luke’s pursues its appeal.

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