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Hospital-doctor merger undone in ruling

Judge rules for FTC in antitrust case

A U.S. district court judge ruled in favor of the Federal Trade Commission in an antitrust case that may shape the future of hospital acquisitions of physician groups.

Judge B. Lynn Winmill’s decision, released on Friday in Boise, ordered St. Luke’s Health System of Boise to undo its acquisition of the Saltzer Medical Group of Nampa, Idaho, the state’s oldest and largest independent, multispecialty physician group. St. Luke’s will likely appeal.

“Obviously everybody is disappointed and to some extent discouraged that this was the outcome,” said Christy Neuhoff, St. Luke’s chief legal officer. “On the other hand, I would say everybody – at least to whom I’ve spoken – remains firmly committed to the goals of providing a more integrated, coordinated lower cost model of healthcare to our communities.”

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The case pitted St. Luke’s Health and the Saltzer Medical Group of Nampa, Idaho, which St. Luke’s had acquired in December 2012, against the Federal Trade Commission, the state of Idaho and St. Luke’s biggest competitor, St. Alphonsus Medical Center (and others).

The FTC and the other plaintiffs alleged that St. Luke’s acquisition of Saltzer violated antitrust regulations by lessening competition in the Nampa area and potentially leading to higher healthcare costs for consumers, insurers and employers.

St. Luke’s and Saltzer argued that the acquisition is vital to their being able to achieve the goals of healthcare reform and maintain business viability.

[See also: FTC challenges acquisition of physician group by Boise health system.]

But Winmill disagreed. “The Acquisition was intended by St. Luke’s and Saltzer primarily to improve patient outcomes,” he wrote in his decision. “The Court is convinced that it would have the 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. But 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.”

“It’s a common theme in the healthcare community that we need to make acquisitions in order to achieve healthcare reform, and I think the judge has said that’s not true,” said David Ettinger, St. Alphonsus’ attorney.

And what’s more, he said, the case indicates that hospital acquisitions of primary care physicians in particular, will likely get more intense antitrust scrutiny going forward. “Primary care physicians have a unique and important place in the healthcare system,” Ettinger said. Patients are more dependent on them, as compared to other specialties, and develop great loyalty to them. “If someone achieves a dominant position in a local market involving primary care physicians, that can be very significant to competition.”

Dale Grimes, an attorney with Nashville, Tenn.-based firm Bass, Berry & Sims, agrees that this case is an indicator that the likelihood of federal antitrust challenges will be going up and healthcare organizations are being put on notice that they will have to make the best case that can be made for why an acquisition is necessary to achieve better quality care and efficiencies rather than some other integration model.

“I think it’s a case that shows that just saying the Affordable Care Act and healthcare reform generally requires healthcare companies to grow and consolidate to this extent … is not necessarily in and of itself a winning argument,” Grimes said. “There are going to need to be other things that show where they take into account the efficiencies and the benefits to the system that are pre-competitive.”

The judge released to the parties’ attorneys a larger document detailing his conclusions. The document was temporarily sealed to allow the parties to ensure no potentially sensitive material is released to the public. But once those documents are unsealed, it would behoove healthcare organizations considering acquisitions to study them for guidance, said Grimes and Ettinger.

Once administrators at St. Luke’s are able to have access to Winmill’s more detailed conclusions, they will have a better understanding of how they should approach an appeal, said Neuhoff.

In the meantime, St. Luke’s is hoping to maintain status quo pending an appeal, although no stay pending appeal has been filed yet, she said.