FTC Successfully Blocks St. Luke’s Acquisition of Physician Group

On January 24, 2014, the FTC won its court battle against St. Luke’s Health System’s acquisition of a large primary physician group – the Saltzer Medical Group – in Nampa, Idaho.

Background 

In March 2013, the FTC filed a complaint for an injunction against St. Luke’s, alleging that the Saltzer acquisition, which was not reportable to the federal antitrust agencies under the Hart-Scott-Rodino Antitrust Improvements Act (“HSR Act”), would create a single, dominant provider of primary care physician services in Nampa, Idaho.  The FTC alleged that the acquisition would provide St. Luke’s with greater bargaining leverage with commercial insurance health plans, because any attractive insurance plan would need to offer primary care services from St. Luke’s-Saltzer – resulting in higher prices for those services that ultimately would be passed on by the insurance plans to local employers and their employees.

Judge Lynn Winmill’s opinion agreed with the FTC’s view of the market.  The Judge concluded that the combined entity would control 80% of the primary care physicians in Nampa, would enable St. Luke’s to negotiate higher reimbursement rates with commercial health care plans that would be passed on to consumers; and raise rates for ancillary services, such as x-rays, to the higher hospital-billing rates.  The Judge noted that while St. Luke’s has a proven track record of putting the well-being of patients at the forefront of its operations, and that the merger is primarily intended to improve patient outcomes, the merger may nevertheless have significant anti-competitive effects that will ultimately raise the cost of healthcare for consumers in the Nampa area.  Accordingly, the court issued a permanent injunction against the acquisition and ordered St. Luke’s to divest itself of the physicians and assets acquired from the Saltzer group.

Judge Winmill acknowledged that the acquisition was intended to improve patient outcomes and likely would have done so if the acquisition had been left intact. And it also applauded St. Luke’s for its integrated approach to the delivery of health care throughout the Treasure Valley of Idaho. Judge Winmill also indicated that she will be issuing her full analysis, including findings of facts and conclusions of law, after the parties have an opportunity raise any confidentiality objections.

Lesson Learned

The FTC’s win is noteworthy because it demonstrates that the antitrust laws still apply to healthcare mergers even though the parties to a transaction may believe that the benefits of creating more efficient and higher quality health care outweigh the competitive harm.  Indeed, the benefits of an acquisition do not immunize the acquisition from antitrust scrutiny and that the benefits can usually be achieved through less restrictive means than by acquisition.  The victory emboldens the FTC staff to continue its efforts in the healthcare industry.  Moreover, healthcare providers that are thinking about deals are on notice that the FTC may scrutinize any health systems’ integration efforts with physicians under the antitrust laws.  The enforcement action also demonstrates the FTC’s willingness to investigate and challenge acquisitions that are not reported under the HSR Act.

Andre Barlow
202-589-1838
abarlow@dbmlawgroup.com

Mark Ye
202-589-1834
mye@dbmlawgroup.com