• Idaho Hospital's Physician Practice Acquisition Violated Antitrust Laws, According to Court Ruling
  • February 3, 2014
  • Law Firm: Waller Lansden Dortch Davis LLP - Nashville Office
  • St. Luke’s Health System’s 2012 acquisition of Saltzer Medical Group, Idaho’s largest independent multi-specialty physician practice group, violated federal and state antitrust laws according to a U.S. District Court holding issued on Friday, January 24, 2014. The Court ordered divestiture of the practice. The FTC and the Idaho Attorney General filed the Complaint seeking to block the sale on March 12, 2013. In response, St. Luke’s and Saltzer had defended the transaction as necessary to launch a new payment scheme where providers are rewarded for high-quality work. As a result of the decision, healthcare transactions will likely need to be even more heavily vetted in order to consider potential antitrust risks when considering acquisitions or joint venture partners.

    The December 31, 2012 transaction had transferred to St. Luke’s the power to negotiate health-plan contracts on Saltzer’s behalf and to establish rates and charges for services provided by Saltzer physicians. The Complaint alleged that the combination of St. Luke’s and Saltzer would give it the market power to demand higher rates for healthcare services provided by primary care physicians in Nampa, Idaho and surrounding areas, leading to higher healthcare costs for consumers.

    In the St. Luke’s/Saltzer case, the Court acknowledged that a better healthcare system would focus on rewarding successful patient outcomes and innovation. The Court complimented St. Luke’s on its foresight and vision in purchasing independent physician groups to assemble a team committed to practicing integrated medicine in a system where compensation depends on patient outcomes. Although arguably not the intended goal of the acquisition, the Court predicted that the deal would have anticompetitive effects, making it highly likely that healthcare costs would rise because a dominant market position would enable the hospital to negotiate higher reimbursement rates from health insurance plans and raise rates for ancillary services to higher hospital billing rates. The Court applauded St. Luke’s for its efforts to improve the delivery of healthcare in the area, but because of the anticompetitive effects, held that the acquisition violated Section 7 of the Clayton Act and the Idaho Competition Act.

    The case may be factually distinguishable from other proposed transactions, but much of the information upon which the Court relied has not yet been made available. The Court has not yet released its Findings of Fact and Conclusions of Law, as it is giving the parties until January 27 to file objections to making such potentially sensitive information public. In the case, the Court found that the combined entity included 80% of the primary care physicians in the Nampa area, making it the dominant provider for primary care and therefore giving it significant bargaining leverage over health insurance plans. Competitors pointed to evidence that referrals from other independent physicians plummeted after St. Luke’s bought the practices, and lawyers for the government pointed to internal e-mails and private conversations as evidence of anti-competitive intent and effects. If the Findings of Fact and Conclusions of Law are published, providers should have better insight into the particular facts of this case.

    Revised HSR Size of Transaction Thresholds Announced

    Also on January 24, the Federal Trade Commission published revised thresholds for determining whether companies must notify the federal antitrust agencies about a transaction, pursuant to Section 7A of the Clayton Act, the Hart-Scott-Rodino Antitrust Improvements Act.

    The HSR Act requires companies to notify the FTC and the Department of Justice if the size of the parties at issue and the value of a transaction exceeds the filing thresholds, absent an applicable exemption. The FTC revises the thresholds annually based on the change in gross national product.

    For 2014, the minimum size of transaction threshold for reporting proposed mergers and acquisitions will be increased from $70.9 million to $75.9 million. Transactions valued in excess of $75.9 million but less than $151.7 million (up from $141.8 million) will require a $45,000 filing fee. Transactions valued at $151.7 million or greater but less than $758.6 million (up from $709.1 million) will require a $125,000 filing fee. Transactions valued at greater than $758.6 million will require a filing fee of $280,000.

    The new thresholds will be effective for filings made on or after February 24, 2014.