9th Cir. Backs FTC Hospital Merger Challenge

On February 10, 2015, the Ninth Circuit affirmed a district court ruling that the acquisition of an Idaho physician group practice by St. Luke’s Health System was anticompetitive. Closely watched by health care providers and other stakeholders, the St. Luke’s case is thought to be a key indicator of how courts will balance Affordable Care Act (ACA) requirements for integrated healthcare services with concerns about increasing healthcare provider concentration.

The case has been ongoing since 2012, when St. Luke’s Health System acquired Saltzer Medical Group, the largest multi-specialty physician group in Idaho. Private competitor hospitals Saint Alphonsus Health System, Inc. and Treasure Valley Hospital Limited Partnership first filed suit over the deal in 2012. They were joined soon thereafter by the Federal Trade Commission and the State of Idaho, who sought to enjoin the acquisition. At trial, the district court rejected St. Luke’s argument that the post-merger efficiencies would outweigh the potential anticompetitive price effects and ordered divestiture.

St. Luke’s and Saltzer appealed the decision, arguing that the district court erred in its analysis of the geographic market for physician services and did not fully consider the efficiencies created by the acquisition.

The appellate court rejected those arguments, finding that the lower court’s geographic market analysis was sufficient and agreeing that the consumer benefits – like physician access to electronic medical records – accompanying the merger were available to independent physicians, and therefore not merger-specific. Of note, the appellate court found that the district court’s finding that the merger would raise prices in the hospital-based ancillary services market was unsupported by the record.

While it is uncertain whether the decision will be appealed to the Supreme Court, healthcare stakeholders should be mindful of this case. For now, courts appear loathe to choose healthcare providers’ argument that consolidation is necessary to improve patient health outcomes over regulator and competitor concerns about anticompetitive activity.

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