On January 24, 2014, the FTC announced that a federal district court in Idaho had ruled that St. Luke’s Health System’s acquisition of Saltzer Medical Group violated Section 7 of the Clayton Act and the Idaho Competition Act, and ordered St. Luke’s to fully divest itself of Saltzer’s physicians and assets. In March 2013, the FTC and the Idaho Attorney general had filed a joint complaint challenging the merger between Idaho’s largest health system and the state’s largest independent, multi-specialty physician practice as anticompetitive, in that it would create a dominant single provider of adult primary care physicians in the Nampa, Idaho area, with almost 60 percent market share. At the time the FTC and Idaho AG filed their case, two of St. Luke’s competitors, St. Alphonsus and Treasure Valley Hospital Limited Partnership, had already filed a private action in federal district court, seeking to block St. Luke’s acquisition of Saltzer, and the two actions were consolidated for the purposes of discovery and trial.
The defendants appealed the case to the Ninth Circuit. In their brief, the providers advanced legal arguments regarding the court’s holding the transaction unlawful including that the lower court erred in its (1) geographic market determination; (2) finding market power in the product market; (3) disregard of pro-competitive effects; and (4) abused its discretion by ordering divestiture.
In addition, the providers made policy arguments to the effect that the vertical integration was, in fact, intended “to improve the quality of healthcare and to move to a value-based rather than volume-based system of payment for services—in accord with federal policy as reflected in the Affordable Care Act.” Indeed, defendants argued that contrary to the district court’s findings, the merging parties “sought to promote the Triple Aim—better health, better care, and lower cost—by working together to provide integrated, value-based healthcare instead of the fragmented, fee-for-service care that is common in this country.”
A number of amicus briefs were filed for both sides in the appeal, including one by our friends at Catalyst for Payment Reform that encouraged the Court to affirm the district court’s ruling because of the unavoidable connection between consolidation and rising healthcare prices, and another by 16 state attorneys general, arguing the same and putting forth healthcare costs as a matter of grave concern for the states.
We will be watching as the providers/appellants’ attempt to convince the panel to reverse the district court’s ruling. This one is a tough call and a perfect illustration of the conflict between the FTC’s attempts to curtail the rise in healthcare prices caused by consolidation and the ACA’s push towards cost-and-quality-improving vertical integration. As the briefs before the Court suggest, this case will be a landmark decision in reconciling those two policy aims.