Healthcare Mergers: Idaho Judge to Unwind Acquisition of Medical Practice

Last week, a federal district court judge in Idaho ruled that a diversified hospital company’s acquisition of a large primary care medical practice violated the antitrust laws. The court will order divestiture.

In 2013, the Federal Trade Commission and the Idaho Attorney General filed a complaint for preliminary injunction to halt the acquisition of Saltzer Medical Group, a primary care physician (PCP) group of 47 physicians, by St. Luke’s Health System, which owned hospitals and employed eight PCP doctors. The judge consolidated this lawsuit with a private antitrust action filed by St. Luke’s largest hospital competitor. In St. Alphonsus Medical Center-Nampa, Inc. v. St. Luke’s Health System, Inc. (D. Idaho 2014), the court found that the combination of the two largest primary care practices in the county would result in a 80% market share, giving St. Luke’s a dominant bargaining position in negotiating health insurance reimbursements. The court accepted the FTC’s evidence that the post-acquisition HHI would 6219, with an increase of 1607, significantly over the thresholds permitted by the Horizontal Merger Guidelines. The court found that health insurers already pay significantly higher rates in Idaho than in other parts of the country, and the acquisition would increase that burden. The FTC disputed the hospital’s claims of better efficiencies, and while the court complimented St. Luke’s efforts to improve healthcare delivery in its market, it nonetheless found that that the potential efficiencies were not merger-specific and did not counterbalance the likely anticompetitive effects. Ultimately, the judge concluded that the acquisition violated the Clayton Act and promised to order the transaction to be unwound.

Healthcare providers seeking to consolidate in a strategic response to the Affordable Care Act must be aware that federal and state antitrust regulators are devoting new resources to investigate and challenge mergers and acquisitions in healthcare markets that they believe to be anticompetitive. This is the third medical practice consolidation blocked by FTC since 2011. Despite the high market share, the transaction was small enough that HSR premerger notification reporting was not required, another reminder that non-reportability is not a safe harbor from antitrust challenge.