Health systems acquiring medical groups cannot simply argue that their deals will improve patient care, following an appeals court decision last week in the closely watched St. Luke's Health System antitrust case. They will also have to show their acquisition will not harm competition, legal experts predicted.
In a victory for the Federal Trade Commission in its first major case challenging a hospital-physician deal, the 9th U.S. Circuit Court of Appeals backed a lower court order to unwind St. Luke's 2012 acquisition of Saltzer Medical Group. The court ruled that the deal violated state and federal antitrust laws.
Boise, Idaho-based St. Luke's argued that the acquisition would help it improve care delivery. But the FTC, the Idaho attorney general and rival hospitals said the merger would reduce competition and drive up prices.
The appeals court found that it wasn't enough for St. Luke's to say the acquisition would improve care. “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,” the ruling stated.
“This is sort of a wake-up call for hospital systems,” said Matthew Cantor, a partner at Constantine Cannon in New York. “Just stating that you somehow intend to gain cost efficiencies without providing the flesh to that argument, that's not going to work under antitrust laws.”
David Ettinger, a partner at Honigman in Detroit who represented regional rival St. Alphonsus Health System, said that consultants are advising health systems that the Affordable Care Act means they must expand, and that the reform law's goals “somehow trump antitrust concerns. The lessons of (this case) are that they do not.”
But Robert McCann, a partner with Drinker, Biddle & Reath in Washington called the ruling disappointing because it suggests the courts aren't ready to recognize that value-based care-delivery arrangements can benefit consumers.
St. Luke's spokeswoman Beth Toal said her system is “extremely disappointed” by the ruling and will take time to review it and decide what to do next. If St. Luke's unwinds its ownership of Saltzer Medical Group, she said, 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.”
FTC Chair Edith Ramirez praised the ruling. “The acquisition would have delivered no benefit to consumers that could not be achieved in ways other than the anticompetitive merger,” she said in a written statement.
