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Judge rules St. Luke's must give up Saltzer Medical Group

Story updated at 7 p.m. Eastern

A federal judge ordered Boise, Idaho-based St. Luke's Health System to unwind its acquisition of Saltzer Medical Group.

Healthcare providers and antitrust experts have watched the case closely because it's the first time that the federal courts have decided a Federal Trade Commission case against a physician practice deal.

The decision comes as healthcare systems across the U.S. have been rapidly scooping up medical groups to create integrated delivery networks to prepare for population health management.St. Luke's Boise-based competitors St. Alphonsus Health System and Treasure Valley Hospital filed suit in 2012 to block the deal, arguing that it would give St. Luke's too much power with payers.

U.S. District Judge B. Lynn Winmill agreed, writing that the integration of Saltzer made St. Luke's the dominant player in the area, with 80% of the primary-care physicians in Nampa, a city about 20 miles west of Boise.

That market dominance gives St. Luke's greater bargaining leverage with health plans as well as the power to charge higher hospital rates when physicians bill for ancillary services, like X-rays, Winmill wrote.

St. Luke's said in a statement that it is “extremely disappointed by the ruling” and that it plans to appeal.

“The court's decision calls into question whether accountable care can be an option for the people of Idaho, and specifically those who live in towns like Nampa and Caldwell,” Dr. David Pate, the system's president and CEO, wrote on his blog.

“It appears that the judge applied fairly traditional antitrust concepts,” said Dale Grimes, a Nashville-based antitrust attorney at Bass, Berry & Sims. St. Luke's argued—and the judge acknowledged—that the deal was intended to improve patient outcomes. But that wasn't strong enough to override concerns about price increases.

“I think what people in the industry had hoped was that under the imperatives of healthcare reform, those arguments would have greater strength than they've had in the past,” Grimes said.

Christine Neuhoff, St. Luke's vice president and general counsel, said that the system believed that the market should have been considered more broadly than just Nampa. And she questioned whether healthcare providers in smaller communities, with a limited number of providers, would be able to achieve the goal of creating integrated networks for care coordination.

“We do think that we would be able to lower the cost of care and improve the experience of care at the same time,” she said.

Winmill opened his opinion by noting that the U.S. pays “substantially more” for healthcare than other developed countries but still lags on quality. He also acknowledged that providers are moving to a new model of care that rewards better patient outcomes.

“St. Luke's is to be applauded for its efforts to improve the delivery of healthcare in the Treasure Valley,” he wrote. “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. For all of these reasons, the acquisition must be unwound.”

David Ettinger, an attorney for St. Alphonsus, part of Trinity Health, similarly said that there are many ways of meeting the goals of healthcare reform, even if physicians remain independent.

“We're of course very pleased (with the decision) and believe that it preserves competition in healthcare,” said Ettinger, who leads the antitrust practice at law firm Honigman. “When hospitals and physicians are considering mergers, this makes it clear that they have to consider market share.”

The FTC has kept a close eye on the healthcare industry in recent years, and Chairwoman Edith Ramirez called the St. Luke's ruling “an important victory.”

“Keeping healthcare costs low and quality high by ensuring vigorous competition between providers is, and will continue to be, a top priority,” she said in a statement.

Follow Beth Kutscher on Twitter: @MHbkutscher
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