A federal appeals court ruled against Idaho's St. Luke's Health System and delivered another blow to the argument that mergers in the name of high-quality, coordinated care override concerns that dominant players will squash their competitors.
In the widely watched antitrust case against Boise-based St. Luke's acquisition of a major medical practice, a three-judge panel of the 9th U.S. Circuit Court of Appeals in Portland concluded that St. Luke's had to do more than prove the deal would yield better patient outcomes,
The court affirmed a district court's decision that St. Luke's 2012 acquisition of Nampa, Idaho-based Saltzer Medical Group violated state and federal antitrust laws. The 9th Circuit also backed the district judge's order that St. Luke's unwind the deal.
“I think this is sort of a wake-up call for hospital systems,” said Matthew Cantor, an antitrust lawyer with the firm Constantine Cannon in New York. “Just stating that you're merging to better patient outcomes to achieve the goals of the Affordable Care Act—that you somehow intend to gain cost efficiencies without providing the flesh to that argument—that's not going to work under antitrust laws,” Cantor said.
St. Luke's—much like Toledo, Ohio-based ProMedica, another health system fighting the Federal Trade Commission and losing—had argued that the acquisition would help it improve care for the communities it serves. The Idaho attorney general and St. Luke's competitors joined the FTC in challenging the deal, countering that it would lead to higher prices for health plans and consumers.
The appeals court concluded that St. Luke's failed to overcome that argument.
“The district court did not clearly err in concluding that whatever else St. Luke's proved, it did not demonstrate that efficiencies resulting from the merger would have a positive effect on competition,” according to the 9th circuit opinion written by Judge Andrew D. Hurwitz.
Across the country, health systems are rapidly buying up medical groups to form integrated delivery networks they say will fulfill core goals of the Patient Protection and Affordable Care Act: better care at lower costs.
David Ettinger, a lawyer for St. Luke's competitor St. Alphonsus Health System and a partner with the law firm Honigman in Detroit, said the Idaho case shows that having laudable goals is not enough to allay the competitive concerns policed by antitrust laws.
“What I see around the country is many consultants are advising providers the Affordable Care Act's goals mean you need to be acquiring more entities,” Ettinger said. “Implicit in that advice is the idea that the goals of the Affordable Care Act somehow trump antitrust concerns. The lessons of cases like the St. Alphonsus v. St. Luke's case is they do not.”
Robert McCann, a partner with Drinker, Biddle & Reath in Washington, D.C., said the ruling is disappointing because it suggests the courts are not prepared to acknowledge that value-based care delivery arrangements can benefit consumers in ways that aren't appropriately reflected in traditional antitrust analysis.
“I think what the court is not understanding is those are just two sides of the same coin in the sense that we don't protect competition for its own sake; we protect competition because we believe that's in the best interest of consumers in markets that are driven by traditional competitive forces,” McCann said. “If consumers then benefit as a result of the merger in certain ways, that's something to be considered side-by-side with traditional market power to raise prices.”
St. Luke's spokeswoman Beth Toal said Tuesday the system is “extremely disappointed by the court's decision.” St. Luke's will take some time to review the decision and decide on next steps, she said. If St. Luke's unwinds its ownership of Saltzer Medical Group, she added, it will have to decide “how best to do that and at the same time ensure that Saltzer can continue to operate in that community.”
Idaho Attorney General Lawrence Wasden said in a statement Tuesday his office looks “forward to working with St. Luke's in any way possible to fulfill what is now required by the court's decision.”
If St. Luke's does decide to go ahead and unwind, it could try to sell the medical group or recreate Saltzer as an independent company, McCann said. St. Luke's argued in the case that Saltzer would no longer be able to compete if it were divested, thus meaning divestiture wouldn't restore competition to the local market. But the 9th Circuit opinion also notes that St. Luke's, in opposing an earlier preliminary injunction, told the court that divestiture would be feasible.
If St. Luke's doesn't want to divest, it could try to appeal the case to the U.S. Supreme Court and seek a stay from the 9th Circuit, Cantor said. It's unlikely, however, that the Supreme Court would hear the case. ProMedica, which lost its case against the FTC and its appeal to the 6th U.S. Circuit Court of Appeals in Cincinnati, has petitioned the U.S. Supreme Court for review.
FTC Chairwoman Edith Ramirez praised the St. Luke's decision in a statement Tuesday, calling it a “win for consumers and healthcare competition in the Nampa, Idaho area.”
“If left unchallenged, St. Luke's acquisition of Saltzer would have created a dominant provider of physician services for adults seeking primary care in Nampa, leading to higher costs for consumers and employers there,” Ramirez said. “The acquisition would have delivered no benefit to consumers that could not be achieved in ways other than the anticompetitive merger."
Follow Lisa Schencker on Twitter: @lschencker
