The St. Luke's Antitrust Case: 10 Things to Know
A federal judge sided with the Federal Trade Commission last week, ruling that Boise, Idaho-based St. Luke's Health System violated antitrust law with its 2012 acquisition of a 40-physician medical group.
U.S. District Judge B. Lynn Winmill said St. Luke's violated antitrust law when it acquired Saltzer Medical Group in Nampa, Idaho, one of the largest independent multispecialty groups in the state. He ordered St. Luke's to fully divest itself of Saltzer's physicians and assets.
Two of St. Luke's competitors, Saint Alphonsus Health System and Treasure Valley Hospital, both in Boise, were also plaintiffs in the case. The healthcare providers filed suit first, but their suit was consolidated in March with that of the FTC and Idaho attorney general.
The St. Luke's case has been one of the most closely watched healthcare cases this past year, as the ruling has some big takeaways for hospitals and health systems' accountable care strategies. Hospitals are acquiring and aligning with physician groups to create an integrated care continuum for patients and move toward value-based reimbursement, but the FTC is scrutinizing these transactions for potential anticompetitive effects, particularly resulting leverage with health insurers.
Cases such as this one are highly complicated. After the case wrapped up in court, Judge Winmill called it "undoubtedly one of the most difficult" trials he's presided over. He also said he was undecided on the case outcome at the end of the trial, even though he often leans one way or another by that time. Throughout his decision, the judge acknowledges how St. Luke's acquisition was intended to improve outcomes for patients, but still runs afoul of antitrust law.
FTC Chairwoman Edith Ramirez called the district court ruling "an important victory that will benefit both competition and consumers in Nampa, Idaho, and the surrounding areas." David Pate, MD, JD, president and CEO of St. Luke's, wrote in his blog that the court decision "calls into question whether accountable care can be an option for the people of Idaho," specifically those who live in towns like Nampa. He said his team will review the judge's findings and conclusions and "anticipate appealing the decision."
Here are 10 things to know about the St. Luke's case, based on Judge Winmill's written decision.
1. Judge Winmill noted in his decision that the acquisition was intended by St. Luke's and Saltzer primarily to improve patient outcomes, and "the court believes that it would have that effect if left intact, and St. Luke's is to be applauded for its efforts to improve the delivery of health care in the Treasure Valley." Still, he said there are other ways to achieve the same effect that do not run afoul of antitrust law and do not run such a risk of increased costs.
2. In his decision, Judge Winmill said the combination of five-hospital St. Luke's with Saltzer resulted in 80 percent of the primary care physicians in Nampa. Size was not the only factor in play, however: "the sterling reputations" of Saltzer and St. Luke's make it the dominant provider in the Nampa area for primary care and give it "significant bargaining leverage" over health insurance plans, he wrote.
3. The judge said there is no empirical evidence to support the theory that St. Luke's needs a core group of employed primary care physicians beyond the number it had before the acquisition to successfully make the transition to integrated care and risk-based contracting.
4. The judge also said a program St. Luke's is launching that will let independent physicians access the systems' Epic electronic health record system show "the efficiencies resulting from the use of Epic do not require the employment of physicians and hence are not merger-specific."
5. St. Luke's stands to lose at least $9 million, as Saltzer received that amount in payment for goodwill and intangibles as part of the acquisition. Saltzer does not have to pay back that $9 million if the acquisition is undone.
6. Interestingly, Nampa and Boise are only about 20 miles apart, but are still considered distinct and relevant markets. Sixty-eight percent of Nampa residents get their primary care from providers located in Nampa, whereas only 15 percent of Nampa residents obtain their primary care in Boise.
7. The largest health plan in Idaho, Blue Cross of Idaho, considers Saltzer "to be a must have provider for Blue Cross in Nampa," according to the judge's decision. If St. Luke's chose not to contract with BCI, then BCI would have an "immediately unsustainable product" in the markets where St. Luke's is a provider.
8. Judge Winmill also said the merger eliminated the next-best-option for insurers. For example, if a health plan were negotiating with Saltzer before the acquisition, its best outside option for PCP services in Nampa was St. Luke's. The best outside option for a health plan negotiating with St. Luke's was Saltzer.
9. Another factor at play was the rates at which St. Luke's would bill payers for services Saltzer physicians performed at its facilities. Before the acquisition, Saltzer performed many routine ancillary services at its own facilities, such as diagnostic imaging and specialized facility services for colonoscopies and minor outpatient surgeries. After the acquisition, if St. Luke's were to bill for these ancillary services at the higher "hospital-based" rates, BCI estimated costs under its commercial contracts would increase by 30 to 35 percent.
10. The court also rejected St. Luke's proposal that divestiture be dropped as a remedy in favor of ordering that St. Luke's and Saltzer negotiate separately with health plans.
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