Idaho doc deal under FTC lens moves forward

St. Luke's Health System in Idaho intends to close on its embattled acquisition of the state's largest physician practice, Saltzer Medical Group, now that a judge has issued a favorable ruling in a lawsuit challenging the sale.

B. Lynn Winmill, chief judge in U.S. District Court in Boise, denied a request from St. Luke's main competitor in the Nampa area, St. Alphonsus Health System, to file a temporary injunction blocking the sale until a trial can be held on private antitrust allegations in July. The deal is also under active investigation by the Idaho attorney general's office and the Federal Trade Commission.

Winmill's ruling noted that his decision not to grant an injunction stopping the sale was based on an assumption that Saltzer doctors would not stop referring patients to St. Alphonsus once they start working for its competitor.

“If his assumptions prove wrong before trial, St. Al's could return to court and seek to unwind what had occurred up to that point,” said St. Alphonsus attorney David Ettinger of Honigman Miller Schwartz and Cohn. “The decision provides very important protection for St. Al's, and we are very pleased with the ruling.”

Sales of doctors' practices to hospitals have accelerated in recent years across the country, and federal and state antitrust officials have devoted more attention to the deals in response. The St. Luke's case in particular has drawn national attention, as it comes on the heels of years of acquisition activity that has strengthened St. Luke's role as the dominant health system in Idaho and the state's largest nongovernment employer. Boise-based St. Luke's owns three hospitals and manages four, according to the American Hospital Association.

Ken Dey, spokesman for St. Luke's, said the hospital is expected to close on its acquisition of Saltzer on Friday. That includes the assets of the practice and its 289 nonphysician employees, who would start working at St. Luke's on Jan. 1. However, the 42 physicians will work under service contracts, and will not be directly employed by St. Luke's. A purchase price is not being disclosed.

“We were pleased that the judge asked for a speedy trial,” Dey said. “We're optimistic about the outcome of the trial, that it will be in our favor.”

Dey noted that seven specialists who formerly worked for Saltzer have decided to go work for St. Alphonsus instead.

Ettinger noted several of the physicians leaving Saltzer are part-owners in the nine-bed surgical facility Treasure Valley Hospital, which is a co-plaintiff with St. Alphonsus in the lawsuit against St. Luke's.

For example, a sworn statement by Dr. Clark Robinson says he left the practice because he was unhappy that St. Luke's insisted he drop his ownership in Treasure Valley or take a pay cut. Robinson's statement says he has already seen a drop in referrals from Saltzer doctors because his opposition to the deal with St. Luke's was well-known.

St. Alphonsus, which is owned by Trinity Health in Livonia, Mich., said in its lawsuit that it expected to have to cut as many as 150 jobs after the sale of Saltzer to St. Luke's because it expected to lose referrals from Saltzer doctors and the revenue from those patients.

But Winmill wrote, “St. Luke's counsel represented that their client will not be prompting Saltzer's physicians to steer patients to St. Luke's. Given these circumstances, the Court cannot find it likely that St. Al's prediction of an immediate referral drop will actually occur by the time the Court can hold a trial in this case.”

The state attorney general's office has asked St. Luke's not to complete the transaction until it can wrap up its lengthy investigation. Court records say the FTC has also sped up its ongoing investigation in the hopes of completing it before the transaction closes.

In an interview last week for a Modern Healthcare cover story about FTC scrutiny of healthcare deals, St. Luke's President and CEO Dr. David Pate said he believes the lawsuit from St. Alphonsus represents the beginning of a new trend where competitors take to the courts themselves rather than wait for regulators to step in and block deals.

“We are moving ahead on our transaction. The agencies have not stepped in to stop us, we have been working with them and are still under investigation. And then a competitor comes in and sues us,” Pate said. “I think we may see much more of this down the road, and it does slow you down. It is a very costly thing to go through for both parties, and it does slow you down.”

Pate noted that the federal government itself does things to encourage providers to expand through acquisitions, like spurring on the development of accountable care and demanding more efficiency, which are more easily accomplished by larger organizations.

However, Ettinger said judges in past hospital antitrust cases have not been swayed by those kinds of arguments, and he rejects the notion that evidence shows larger systems can more easily achieve efficiencies.

“The kinds of efficiencies St. Luke's claims relating to accountable care do not at all require physician acquisitions to be achieved, much less what we allege to be anticompetitive physician acquisitions,” he said. “A host of hospitals around the United States have gained clinical efficiencies and have been working to address accountable care issues, working with independent physicians. So we think that it is clear that there is no need to acquire physicians in order to gain these efficiencies.”