Appeals court backs FTC, orders St. Luke's to unwind purchase of Saltzer Medical Group

The Ninth Circuit Court of Appeals has upheld a federal judge's ruling that Boise, Idaho-based St. Luke's Health System violated antitrust laws when it acquired Saltzer Medical Group in Nampa, Idaho.

St. Luke's 2012 acquisition of the medical group was challenged by the Federal Trade Commission. In January 2014, a federal judge sided with the FTC and ordered St. Luke's to unwind its acquisition of Saltzer. Two of St. Luke's competitors, Saint Alphonsus Health System and Treasure Valley Hospital, both in Boise, and the Idaho attorney general were also plaintiffs in the case.

In June 2014, St. Luke's appealed the decision.

R. Dale Grimes, attorney at Bass, Berry & Sims and leader of the firm's antitrust and trade practices group, commented on this case while it was still pending appeal, saying, "One of the most significant aspects of this case was the [district] court's findings that the transaction was designed to improve healthcare outcomes and to improve quality of care, and that those goals would probably be achieved, but that under traditional market analysis, the acquisition threatened to give the combined parties market power and therefore should be enjoined."

The appeals court has now affirmed the district court's decision to enjoin the acquisition of Saltzer by St. Luke's. Assuming this is the end of the road for the case, St. Luke's will have to divest the medical group and attempt to achieve the benefits of integrated care, such as improving quality of care, organically or through some other business structure, according to Matthew L. Cantor, partner at Constantine Cannon who specializes in antitrust litigation. 

"For the hospital industry, this is an important decision," says Mr. Cantor. "It demonstrates that traditional antitrust analysis will apply to provider consolidations, notwithstanding that the merging parties may be trying to achieve better patient outcomes by merging."

The decision in this case shows healthcare organizations will need to "show economic benefits (i.e., cost savings), rather than merely medical benefits, in order to prove that an otherwise anticompetitive merger should be permitted," says Mr. Cantor.

David Ettinger, partner at Honigman Miller Schwartz and Cohn, who serves as chair of the firm's antitrust & trade regulation practice and as outside counsel to Saint Alphonsus, says "the decision means that perceptions that transactions will achieve efficiencies will not be enough to trump antitrust concerns." If a transaction will give a provider high market shares, the provider "will need to carefully analyze their markets to determine whether they can make the case that competition will not be harmed by their transaction," he says.

Since many hospitals are seeking to purchase physician groups to deliver more integrated care — transactions that could prompt close antitrust review — to meet the goals of the Patient Protection and Affordable Care Act, this case could have broad implications on the industry as a whole. However, Mr. Cantor says the health reform law's goals can be achieved without anticompetitive mergers.

"Procedures to better patient outcomes and achieve efficiencies can often be achieved organically or through a business combination short of a merger. Consistent with this decision, healthcare organizations will have to fully explore these options or, should they consider a merger route, demonstrate that the transaction will not lead to an anticompetitive result," says Mr. Cantor.

Mr. Ettinger doesn't see any tension between the antitrust laws and the goals of the PPACA. "The Ninth Circuit affirmed the district court's conclusion that the efficiencies claimed by St. Luke's were not merger specific, i.e., that a merger was not necessary to achieve these efficiencies," he says. "The evidence in the record showed…that physicians and hospitals can work together to achieve efficiencies even if the physicians have not been acquired."

Regarding the decision, St. Luke's released a statement saying, "We are extremely disappointed by this outcome. We will take some time to review the Ninth Circuit's full decision and evaluate what the next steps might be. Our job continues to be to work every day to provide better coordination of care and better outcomes for patients, while at the same time managing costs of that care." St. Luke's also said, "While our business relationship with Saltzer Medical Group may need to change, our commitment to working with them and other providers throughout our communities to improve the way healthcare is delivered will not."

More articles on healthcare transactions:

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10 recent hospital transactions and partnerships
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