FTC and Idaho AG Sue, Challenge St. Luke’s Acquisition of Saltzer Medical Group

by King & Spalding

The Federal Trade Commission (FTC), together with the Idaho Attorney General, have filed a complaint (the “joint complaint”) under seal in Federal district court seeking to block the acquisition of Saltzer Medical Group P.A., Idaho’s largest independent multi-specialty physician practice group, by St. Luke’s Health System, Ltd. The joint complaint alleges that the combination of St. Luke’s and Saltzer would give St. Luke’s the market power to demand higher rates for health care services provided by primary care physicians (PCPs) in Nampa, Idaho and surrounding areas, ultimately leading to higher costs for healthcare consumers.

The FTC says that “the acquisition has created a dominant single provider of adult primary care physician services in Nampa with a nearly 60 percent share of the market.”  “The result of the acquisition will be higher prices for the services that those physicians provide, with costs ultimately passed on to Nampa employers and their employees.”  The FTC Press Release is available by clicking here.

St. Luke’s is a six-hospital not-for-profit health system headquartered in Boise, Idaho.  Before the acquisition, Saltzer was a for-profit, physician-owned, multi-specialty group located in Nampa, Idaho.  Saltzer’s specialties include family practice, internal medicine, and pediatrics.  Saltzer, along with St. Alphonsus Medical Center (a health system that competes with St. Luke’s), is currently part of a network of adult PCP providers, which the joint complaint alleges serves as an alternative to St. Luke’s.  The joint complaint alleges that the network would be eliminated as a credible outside option by the acquisition of Saltzer by St. Luke’s.

Last year, the Idaho Attorney General’s office asked St. Luke’s to delay its acquisition of Saltzer while the state and federal investigation into possible antitrust violations moved forward, but St. Luke’s declined to wait.  On December 31, 2012, St. Luke’s acquired all of Saltzer’s personal property and equipment, plus the power to establish rates and charges for services provided by Saltzer physicians.  Saltzer has also entered into a five-year professional services agreement with St. Luke’s on behalf of its physicians.

According to the joint complaint, St. Luke’s acquisition of Saltzer was anticompetitive and violated Section 7 of the Clayton Act and Section 48-106 of the Idaho Competition Act.  It created a single dominant provider of adult primary care physician (adult PCP) services in Nampa, with the combined entity commanding nearly a 60 percent share of that market.  In addition, an alternative network of health care providers that does not include Saltzer’s primary care physicians becomes far less attractive for employers with employees living in Nampa.  The FTC and Idaho Attorney General allege that the newly combined primary care practices will give St. Luke’s greater bargaining leverage with health care plans, with higher prices for services eventually passed on to local employers and their employees.

In addition to the joint complaint, two of St. Luke’s competitors, St. Alphonsus and Treasure Valley Hospital Limited Partnership (the “private plaintiffs”), have already filed a private action in federal district court in Boise seeking to block St. Luke’s acquisition of Saltzer.  The district court denied the private plaintiffs’ request for a preliminary injunction in December, citing four “critical assumptions”:   1)  the case will proceed on a fast track trial; 2) Saltzer referrals to Saint Alphonsus will not measurably decline; 3)  the integration of St. Luke’s and Saltzer will happen gradually; and 4)  the acquisition can be unwound and St. Luke’s ownership in Saltzer divested if the private plaintiffs prevail on their antitrust claims.  The action is scheduled for fast track trial beginning on July 29, 2013.  The FTC’s joint complaint with the Idaho Attorney General was filed in the same court, and FTC staff will ask the district court to consolidate the two actions for discovery and trial.

Reporter, Kate Ball, Washington D.C., + 1 202 626 2912, kball@kslaw.com.

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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