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Hospital’s Purchase of Physician Group Violated Antitrust Law, Court Says

Posted in Accountable Care Organizations, Affordable Care Act, Antitrust, Hospitals and Institutions, Legislation and Public Policy, Litigation, State Matters

On January 24, a federal court in Idaho ruled that St. Luke’s Health System’s purchase of a large private medical practice, Saltzer Medical Group, violated federal and state antitrust laws and will have to be unwound. The decision could potentially slow the rapid pace of hospital acquisitions of physicians’ practices nationwide.

The lawsuit was brought by the Federal Trade Commission (FTC), the Idaho Attorney General, and two competitors of St. Luke’s, St. Alphonsus Health System and Treasure Valley Hospital. The plaintiffs claimed that the December 2012 acquisition, after which St. Luke’s and Saltzer had 80% of the primary care physicians in Nampa, gave the combined entity an unfair and illegal marketplace advantage by dominating primary care in the area. The entity’s size, the plaintiffs claimed, would allow it to negotiate higher reimbursement rates from health insurance plans that would be passed on to consumers, driving up healthcare prices in the area.
The court’s decision acknowledged that St. Luke’s purchase of the 40-physician Saltzer group was intended to improve patient care, and that it might indeed do so. “But there are other ways to achieve the same effect that do not run afoul of the antitrust laws and do not run such a risk of increased costs,” the court said. “For all of these reasons, the Acquisition must be unwound.”
The court did not provide a deadline for unwinding the transaction, which may be legally complicated to do. In the meantime, it is expected that St. Luke’s will appeal the decision to the Ninth Circuit.

The decision, the first of its kind involving a hospital’s acquisition of a physician practice, puts hospitals across the U.S. on notice that the FTC may challenge practice acquisitions on antitrust grounds. Any purchase of a primary care group that gives the combined entity a large share of the local market could be held to violate federal (and perhaps state) antitrust laws.
In situations where an acquisition would produce a high market share, hospitals and physician groups may instead elect to offer coordinated care through participation in an accountable care organization (ACO), the Medicare Bundled Payments for Care Improvement initiative, or a similar integration model.

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