Integrated Health in Limbo After U.S. District Court Decision

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In January, a U.S. District Court judge for the District of Idaho ordered St. Luke’s Health System Ltd. (St. Luke’s) to unwind a recent acquisition of a physician group because the deal violated federal and state antitrust laws. St. Luke’s claimed objective in acquiring Saltzer Medical Group (Saltzer) was to address the many problems—principally, the extraordinary cost of the fee-for-service reimbursement system—in the Nampa, Idaho healthcare market; however, the court found that the acquisition would ultimately lead to higher healthcare costs and a reduction in healthcare options.

The ruling represents the first time a federal court has struck down a hospital’s integrated health defense for antitrust reasons. In an integrated health system, primary care physicians and specialists work together to reduce waste by coordinating patients’ care so that nothing falls through the cracks. Oftentimes, integrated health is a central feature of accountable care organizations, which similarly aim to reduce the total cost of healthcare by assuming responsibility over the quality, effectiveness and efficiency of healthcare provided to patients.

The St. Luke’s acquisition specifically sought to enhance the ability of St. Luke’s to offer coordinated, patient-centered care; support physicians in an environment that rewards value of care rather than volume of care; and accept risk and accountability for patients’ outcomes. In doing so, St. Luke’s claimed that healthcare costs would decline and the quality of healthcare would improve, creating efficiencies that would far outweigh any anticompetitive effects. The court disagreed, however, stating that St. Luke’s did not present evidence of extraordinary efficiencies necessary to overcome the anticompetitive effects of market concentration.

The court based its decision on several anticompetitive indicators common in antitrust analysis. First, the court analyzed whether the acquisition would result in at least a small but significant, non-transitory increase in price and found that a price hike would not prompt consumers to travel to adjacent areas to take advantage of lower prices, thereby allowing St. Luke’s to profitably impose price increases in the market.

Next, the court analyzed the acquisition’s effect on market concentration. Compared to benchmark indices, the merger between St. Luke’s and Saltzer resulted in extreme market concentration by merging close substitutes, which reduced competition and consumers’ ability to choose between healthcare providers.

Finally, the court found that the acquisition would lead to a substantial increase in St. Luke’s bargaining power with health insurers and allow it to demand higher reimbursement rates, which would ultimately be passed on to consumers in the form of increased insurance premiums. What is more, the court determined that it was likely that St. Luke’s would exercise its enhanced bargaining power to charge more services at higher hospital billing rates, as opposed to physician group rates.

The district court’s decision puts similar integrated health acquisitions in jeopardy of also being struck down. Hospitals and physician groups will have to carefully navigate federal and state antitrust regulations to avoid a similar fate.

Topics:  Acquisitions, Antitrust Litigation, Healthcare, Hospitals, St. Luke's

Published In: Antitrust & Trade Regulation Updates, Health Updates, Mergers & Acquisitions Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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