FTC Wins Antitrust Challenge To Hospital Purchase of Physician Practice

February 1, 2014

An Idaho federal judge late last month found that St. Luke’s Health System Ltd.’s acquisition of a nearby independent physician practice violates the Clayton Act and the Idaho Competition Act, permanently enjoining the buy and ordering St. Luke’s to fully divest itself of Saltzer Medical Group PA’s assets.

In his ruling, U.S. District Judge B. Lynn Winmill said the court predicts that the deal under scrutiny will have anti-competitive effects, even if they’re unintended.

“Although possibly not the intended goal of the acquisition, it appears highly likely that health care costs will rise as the combined entity obtains a dominant market position that will enable it to negotiate higher reimbursement rates from health insurance plans that will be passed on to the consumer, and raise rates for ancillary services to the higher hospital-billing rates,” Judge Winmill wrote in the memorandum decision. “The acquisition must be unwound.”

The Judge stated the acquisition was intended by St. Luke’s and Saltzer primarily to improve patient outcomes but he said there are other ways to achieve the same effect that do not run afoul of the antitrust laws and do not run such a risk of increased costs.

This ruling means that hospitals and physicians should be very aware of antitrust concerns as they pursue future acquisitions and mergers. This is a special concern for primary care physician groups. The ruling shows that hospitals can’t hide behind Affordable Care Act incentives for coordination to justify aggressive acquisitions of physician practices. This seems to include even small deals that improve treatment quality if they appear likely to drive up costs.

This ruling is a reminder that providers in similar situations must show why a formal merger is essential to their goals – You have to show not only that quality improves, but that there aren’t other means outside the acquisition. In this case the hospital had purchased at least 16 physician practices over a span of two years, and the Saltzer deal would give it control of 80 percent of adult primary care physicians in the city of Nampa.

Obviously that was too much of a concentration of power that could/would lead inevitably to increased prices. This is probably the key concern in the case – Whether the hospital would wind up with too much leverage against insurance company payors.

The hospital said it intends to appeal the decision.

Federal Trade Commission et al v. St Luke’s Health Services, LTD. et al, Case Number: 1:13-cv-00116

Author Note: I had the priviledge of being an expert witness for the FTC, Saint Alphonsus Hospital, and the Idaho Attorney General in this case. 

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