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January 31, 2014

Court Disregards Value-Based Care Arguments in Unwinding Hospital Acquisition of Physician Group Practice Due to Antitrust Violations

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On January 24, 2014, the U.S. District Court for the District of Idaho ruled that the St. Luke’s Health System’s completed acquisition of Idaho’s largest independent multispecialty physician practice group, Saltzer Medical Group PA, violated federal and state antitrust law, and permanently enjoined the acquisition. St. Luke’s was ordered to divest itself of Saltzer’s physicians and assets, and take any other measures to fully unwind the acquisition. The court released its Findings of Fact and Conclusions of Law in the case yesterday.

In his decision, Judge B. Lynn Winmill noted that St. Luke’s acquisition of Saltzer gave St. Luke’s 80% of the share of adult primary care services sold to commercially-insured patients in the city of Nampa, which the court determined was the relevant product and geographic market for purposes of the antitrust review. The court found the acquisition to be presumptively anticompetitive and predicted that such a dominant market position would enable St. Luke’s to negotiate for higher reimbursement rates from health plans and raise rates for ancillary services to the higher hospital rates. St. Luke’s argued that the acquisition was intended to improve patient outcomes by moving to value-based or risk-based care. The judge praised St. Luke’s for its quality of care, and acknowledged that improved patient outcomes would likely have resulted from the acquisition, but further stated that “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 marks one of the first successful attempts to block a hospital acquisition of a physician group. It is also significant because although it is a relatively small transaction, the Federal Trade Commission (FTC) still decided to prosecute. At less than $30M the transaction was less than half of the FTC’s threshold for receiving notice of a merger, so it normally should have been a transaction that garnered little regulatory interest. However, St. Luke’s had been aggressively increasing its market share in Idaho, acquiring 49 physician clinics and at least 28 physician practices between 2007 and 2012. One key to the court’s decision was its definition of the relevant “geographic market.” Although Boise is only twenty miles from Nampa and has many primary care physicians, the judge noted that nearly 70% of Nampa residents prefer to receive their primary care from providers who are located in their city. As a result (and at the urging of the state’s largest health plan, Blue Cross of Idaho), the court concluded that the Saltzer deal would give St. Luke’s too much control of adult primary care physicians in Nampa, and ordered the parties to unwind the deal.

About the Author

Robert Blaisdell

Robert Blaisdell is a Boston attorney providing general business and corporate legal services to healthcare clients. You can find him on LinkedIn.

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