Judge’s Antitrust Decision Makes Hospitals Think Twice before Acquiring Physician Practices

A federal judge recently reversed a hospital system’s acquisition of a physician practice under antitrust laws. Judge B. Lynn Winmill of the United States District Court for Idaho ruled that St. Luke’s Health System, Ltd. (“St. Luke’s”) and Saltzer Medical Group, P.A. (“Saltzer”) would need to unwind their deal as a result of violations of the Clayton Act and the Idaho Competition Act. Suit was brought to enjoin the deal by the Federal Trade Commission and competitors of St. Luke’s and Saltzer.  Despite ordering St. Luke’s to fully divest itself of Saltzer’s physicians and assets, Judge Winmill lauded the efforts of the parties to improve patient outcomes through greater coordination of care.

In the deal, St. Luke’s acquired Saltzer’s assets, including intangibles, property, and equipment, for an amount not to exceed $16 million and entered into five year agreements for Saltzer’s physicians. The combined entity included 80% of the primary care physicians in the service area, Nampa. Judge Winhill found that the deal violated the Clayton Act and the Idaho Competition Act as a result of its anticompetitive effects. The Court predicted that the combined entity’s market position would enable it to “(i) negotiate higher reimbursement rates from health insurance plans that would then be passed on to the consumer and (ii) raise rates for ancillary services (like x-rays) to higher hospital billing rates.”

In his ruling, Judge Winmill praised the goals of the deal—the record showed that the parties entered into the deal because the affiliation with St. Luke’s would allow Saltzer physicians to be “involved in all aspects of care rather than being fragmented as part of an outside system that works in concert with the health system but not integrated with the health system.”

Judge Winhill also described the backdrop of health care in America that led the parties to pursue such a deal. His Conclusions of Law stated that “health care is at a crisis point” creating a universal demand for change. He acknowledged that there has been a call “to move away from fee-for-service reimbursement and toward integrated care and risk-based reimbursement”—a system that values patient outcomes over volume of services provided. Though St. Luke’s and Saltzer attempted to create just such a system, the Court upheld the letter of the law under the Clayton Act. Judge Winhill found that the anticompetitive effects of the deal had to be reversed, because the law does not give the Court discretion to “conduct a health care experiment.”

St. Luke’s example provides a cautionary tale to those health care providers seeking to improve patient outcomes and implement coordination of care by acquiring physician groups. By employing a number of physicians, a health care provider might be able to work toward a more integrated health care system, but such arrangements risk running afoul of antitrust laws. The Court noted that while the combined entity would continue offering outstanding quality of care, the cost of care would rise as a result of the parties’ deal. This was true even over the parties’ defense that the deal would create efficiencies that would outweigh anticompetitive effects. Health care providers should consider such benefits and risks associated with the acquisition of physician practices with the aid of experienced legal counsel.

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For more information on the acquisition and the case, visit the Federal Trade Commission’s website here.