St. Luke's Health System in Idaho announced Thursday it will not appeal its loss in an antitrust case to the U.S. Supreme Court—but that's hardly the end of the story.
Five months after an appeals court ordered St. Luke's to unwind its acquisition of a large physician group, the parties continue to spar over how to accomplish it. The situation shows how difficult it can be to undo a deal that's done before the government can persuade a court to stop it.
A federal appeals court ruled against the health system in February in a widely watched Federal Trade Commission case. The court concluded the acquisition of Saltzer Medical Group violated antitrust laws, but the government and St. Luke's continue to haggle over the divestiture plan.
In a recent twist, U.S. District Judge Lynn Winmill on Monday sided with the plaintiffs in the case—the FTC and several competing hospitals—ordering Boise-based St. Luke's to disclose documents about its plan to sell Saltzer. The plaintiffs complained that they didn't like the little they'd heard thus far. The judge also shot down St. Luke's request to appoint a person, or “master,” to help it navigate divestiture.
St. Luke's argued in court documents that it needed a master “because what may have seemed like a simple, straightforward process at the time that divestiture was ordered, has proven not to be so.”
The judge, however, disagreed with St. Luke's, using the system's own words against it.
Winmill noted that he didn't stop the merger at the outset of the case after a lawyer for St. Luke's assured him during a 2012 hearing that “it would be quite possible to unscramble this egg” if it was found to be unlawful.
“Because that key promise was made to—and relied upon by—this court, the divestiture issues should be resolved by this court,” Winmill wrote.
St. Luke's spokeswoman Beth Toal said in an e-mail that St. Luke's and Saltzer had hoped for a master to get “clarification” on how to successfully and quickly move forward. “The court ordered St. Luke's to divest of Saltzer and that is what we are doing,” Toal wrote.
Toal said St. Luke's and Saltzer had hoped to receive guidance from the FTC but did not get it. Since requesting the master, St. Luke's has submitted a divestiture plan to the court.
That proposal, according to Toal, includes details about Saltzer's plan to focus on primary care and stop offering certain other services.
That worries the plaintiffs in the case. Saltzer could be weakened as an effective future competitor in the market if services are eliminated, said David Ettinger, a lawyer for St. Luke's competitor St. Alphonsus Health System, one of the plaintiffs and a subsystem of Trinity Health. “That's why we want more information—so we can determine if there's a basis for concern,” said Ettinger, a partner with the law firm Honigman Miller Schwartz and Cohn in Detroit.
The dispute shows how important it is for an organization to watch what it says and promises early in antitrust reviews, said Robert McCann, a partner with Drinker, Biddle & Reath in Washington, D.C. “You can say something strategically beneficial to you in one circumstance and then it can come back to bite you when circumstances change,” he said.
For St. Luke's to argue now that it's complicated for it to unwind the assets creates a credibility issue with the court, agreed Matthew Cantor, an antitrust lawyer with the firm Constantine Cannon in New York.
Typically, the FTC's preference in antitrust cases is to get an injunction to halt a merger before it happens.
“Perhaps it will serve as an object lesson to courts that they should not be willing to let a merger get consummated pending a review of the merits because it's a messy business,” said Tim Greaney, director of the Center for Health Law Studies at St. Louis University School of Law and a former assistant chief in charge of healthcare antitrust enforcement at the U.S. Justice Department.
McCann called the Idaho case “educational to the industry.”
The St. Luke's case, however, is not the only challenged healthcare merger that went through while a deal was still in question. In another widely watched FTC case, Ohio health system ProMedica was allowed to merge with a hospital (also named St. Luke's) while the deal was still under investigation by the FTC in 2010.
But under a “hold separate agreement,” ProMedica was barred from terminating St. Luke's contracts with managed-care organizations; eliminating or transferring St. Luke's clinic services; or firing its employees without cause. The FTC filed its administrative complaint against the merger several months later.
The hold-separate agreement could make it easier to undo that deal, Cantor said.
In May, the U.S. Supreme Court denied ProMedica's request to hear the case, ending the nearly five-year legal battle. At the time ProMedica said it would work with St. Luke's over the next six months to develop a divestiture plan to submit to the FTC.
ProMedica spokeswoman Jen Sorgenfrei said this week she couldn't discuss any further details until the divestiture plan is completed and approved.