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St. Luke’s Nampa Medical Plaza
The new St. Luke's Nampa Medical Plaza, above, houses a free-standing emergency department and an outpost of Saltzer Medical Group, which St. Luke's plans to acquire in a deal now facing a legal challenge by the system's competitors.

Regional News/West: St. Alphonsus vs. St. Luke's

Suit aims to halt deal to acquire Idaho practice


By Joe Carlson
Posted: November 17, 2012 - 12:01 am ET
Tags:

Despite ongoing antitrust investigations by the state attorney general and the Federal Trade Commission, Idaho's largest healthcare provider, St. Luke's Health System, intends to move forward with plans to acquire Idaho's biggest physician practice.

Now, St. Luke's major competitor, St. Alphonsus Health System, has filed a federal lawsuit asking a judge to temporarily and permanently halt any deal between St. Luke's and the physician group because of concerns that the resulting organization would dominate a primary-care service market, cut off a supply of patient referrals and have too much clout with insurance companies.

A spokesman for the FTC confirmed that the federal antitrust enforcers are investigating the proposed affiliation of Saltzer Medical Group by St. Luke's—a deal that hospital officials have said they hope to complete by the end of the year. The FTC's options include voting to take action to stop the transaction, reaching out for a negotiated settlement or closing the case without taking any action.

Physician deals are drawing increased scrutiny as healthcare reform and other forces have propelled the pace of consolidation.

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FTC Competition Bureau Director Richard Feinstein has said publicly that the agency is “aggressively” monitoring business arrangements between physicians and hospitals “to ensure that consolidation among healthcare providers will not increase healthcare costs in local communities.”

Meanwhile, Idaho Attorney General Lawrence Wasden warned St. Luke's explicitly in February to delay closing on any deal with Saltzer until the end of an ongoing investigation by his office. Officials from Wasden's office advised St. Luke's in a Nov. 8 letter that the investigation was ongoing and the system had not fully responded to civil investigative demands for information about the proposed deal.

“The present incomplete status of the production greatly hampers our ability to review this transaction and determine whether it complies with the Idaho Competition Act,” Deputy Attorney General Brett Delange wrote in the letter. “To proceed to close under such circumstances is not constructive and counterproductive. Indeed, such a strategy would appear designed to invite litigation.”

St. Alphonsus filed its lawsuit seeking to block the proposed deal on Nov. 12.

The system is a subsidiary of Livonia, Mich.-based Trinity Health, which in October announced plans to merge with another large Roman Catholic system.

“St. Alphonsus may want to give the impression that St. Luke's is too big, but St. Alphonsus' parent company in Michigan has announced a planned merger with Catholic Healthcare East, which would then become the second-largest nonprofit healthcare system in the United States,” St. Luke's President and CEO Dr. David Pate wrote in an open letter on the system's website.

Joining St. Alphonsus in the lawsuit as a plaintiff against St. Luke's is nine-bed Treasure Valley Hospital, a for-profit surgical center in Boise operated by Surgical Care Affiliates, which operates 145 surgical centers in 32 states, according to its website.

St. Alphonsus Health System and Treasure Valley Hospital allege in their complaint that St. Luke's would violate the federal Sherman Act and state competition laws because the affiliation with Saltzer would “threaten to monopolize a broad series of markets in Idaho, further increase health care costs and reduce health care quality.”

The complaint cites an “unprecedented wave” of acquisitions by St. Luke's, including more than 20 physician practices, five hospitals and four outpatient surgery centers in the past several years.

“St. Luke's is now poised to acquire Saltzer Medical Group, the largest and oldest physician practice in Idaho,” according to the lawsuit. St. Alphonsus and Treasure Valley argue that they, the public and healthcare competition in Idaho and eastern Oregon would be “seriously and irreparably injured.”

St. Luke's officials, however, characterize the practice acquisitions as part of a strategy to improve patient care while benefitting population health and lowering costs.

“That has been the focus of our health system across the board,” spokesman Ken Dey said. “We're not going to bring up the prices for the patients in the community. We are driving to bring medical prices down. That is our overall mission.”

Under the potential deal, St. Luke's would directly employ Saltzer's support staff, but the physicians would work under a professional services agreement. Dey said doctors under the agreement could quit and work for competitors at any time and would not be subject to noncompete agreements, which have been controversial in transactions such as the one recently involving Renown Health in Reno, Nev.

Renown's acquisition of two cardiology practices drew an FTC complaint and a consent agreement suspending the noncompete contracts until at least six cardiologists join competing practices.

Dey said Saltzer doctors would be under no obligation to refer patients exclusively to St. Luke's just because they would be working under contract for the system—one of the factors that he said the FTC would consider as it looks at the case. “We remain confident that once they have a chance to look at what we've given them that they will rule in our favor.”


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