FTC and Idaho State AG Challenge Acquisition of Idaho’s Largest Independent Physician Practice Group

On March 12, 2013, the FTC and the Idaho Attorney General jointly filed a complaint in federal district court seeking to block St. Luke's Health System, Ltd.'s acquisition of Saltzer Medical Group P.A., Idaho's largest independent, multi-specialty physician practice group. The transaction was consummated on December 31, 2012.
According to the FTC, the joint complaint alleges that the combination of St. Luke's and Saltzer would create a dominant single provider of adult primary care services with a nearly 60% share in Nampa, Idaho and surrounding areas. The complaint alleges that the acquisition has given the combined entity greater bargaining leverage over health care plans because St. Luke's/Saltzer is now an indispensible provider. The complaint further alleges that the greater bargaining leverage with health care plans would give the combined system the power to demand higher rates for health care services provided by primary care physicians in Nampa, Idaho and surrounding areas, ultimately leading to higher costs for services, which eventually will be passed on to healthcare consumers (local employers and their employees).

St Luke's issued a news release and blog post regarding the FTC's lawsuit. St Luke's believes that the FTC and Idaho do not “understand hospital-physician relationships and do not have a good understanding of accountable care.” St. Luke's also stated that it would continue operating normally, including continuing with its integration of Saltzer into the St. Luke's system.

The Affordable Care Act seeks to improve the quality and reduce the costs of health care services in the United States by, among other things, encouraging physicians, hospitals, and other health care providers to become accountable for a patient population through integrated health care delivery systems. While the Affordable Care Act allows for collaborations and integration, any collaboration must comply with the antitrust laws. Thus, the DOJ and FTC have jurisdiction to conduct an investigation to evaluate any collaboration or acquisition that may lead to anticompetitive effects.

News stories suggest that the FTC and the Idaho AG asked St Luke's to hold off on consummating the transaction in order to give the federal and state governments time to complete their investigations, however, St Luke's refused to cooperate with the government investigations.

Two of St. Luke's competitors, St. Alphonsus and Treasure Valley Hospital Limited Partnership, have already filed a private antitrust lawsuit to challenge the acquisition in U.S. District Court for the District of Idaho. The district court, however, refused to grant a preliminary injunction to block the merger. The private case is scheduled to begin on July 29, 2013. The FTC and the Idaho Attorney General will ask the court to consolidate its action and the private cases for discovery and trial.

This case is noteworthy for at least three reasons. First, the FTC continues to demonstrate its willingness to challenge transactions that raise the costs of healthcare to employers and their employees. Moreover, the Affordable Care Act may encourage hospitals to develop accountable care strategies, such as acquiring physicians to become more efficient with patient care, but it does not allow hospitals to ignore the antitrust laws. Second, this action demonstrates that the FTC will challenge a transaction where the parties invite litigation. Rather than cooperating with the FTC's and Idaho's investigation of the transaction, St Luke's appears to have ignored them. This type of strategy is risky. While the costs of a government investigation is expensive, the costs of litigation against the government may be even higher. Third, this action demonstrates that the FTC is willing to cooperate with state attorneys general and private parties in challenging anticompetitive transactions in federal court. Here, the government's theory may not be the same as the private litigants' theory, but apparently, the FTC is willing to join the private suit.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com