St. Luke’s trial could affect the future of hospital-doctor buyouts

adutton@idahostatesman.comOctober 27, 2013 

  • ST. LUKE’S TRAIL BY THE NUMBERS

    $29 million: The maximum Saint Alphonsus Health System said it would pay for Saltzer, which testimony indicated was nearly identical to St. Luke’s offer

    80 percent: Share of Nampa’s primary-care market St. Luke’s now controls, according to plaintiffs

    44.5: Hours each side had to make its case

    4: Weeks spent in court

    30: Number of lawyers involved (at least), according to court filings

    $600: Hourly rate a St. Luke’s economist was paid for his analysis

    3,000+: Pages of court transcripts filed as of two days before the trial ended

    42 percent: Trial time spent behind closed doors on the trial’s first day

    74 percent: Time spent on the trial’s next-to-last day behind closed doors

Antitrust lawyers and health-care experts around the country have been following the federal antitrust lawsuit in Boise against St. Luke’s Health System. That’s because it may shape the future of hospital acquisitions of physicians’ practices, like the purchase that landed St. Luke’s in court.

St. Luke’s bought Saltzer Medical Group last year, hoping to gain a bigger presence in the Nampa market and to augment its growing roster of employed doctors.

St. Luke’s and Saltzer executives have testified that they joined because of a shared vision: to stop making their money based on how many billable services they perform and to start earning money for high-quality, efficient care.

The Federal Trade Commission, Idaho Attorney General Lawrence Wasden, the Saint Alphonsus Health System and Treasure Valley Hospital say that’s not true. They argue the transaction gave St. Luke’s too much control of the primary-care market in Nampa and the power to charge more-than-competitive prices.

The FTC and its co-plaintiffs want U.S. District Judge B. Lynn Winmill to undo the Saltzer deal. Four weeks of testimony ended last Monday. Closing arguments are scheduled Nov. 7.

“There’s a lot more at stake beyond the transaction,” said Jonathan Lewis, an antitrust lawyer and partner at Baker Hostetler in Washington, D.C.

Lewis and partner Lee H. Simowitz are not involved in the case, but have written about it. They wrote Oct. 10 that comments from FTC commissioners suggest that losing the lawsuit “might well cause the FTC to turn its focus to completed hospital-physician deals to build needed experience to win such challenges.”

Matt Cantor, an antitrust lawyer for New York City-based Constantine Cannon who is not involved in the St. Luke’s case, said it is “a bit unusual.”

The FTC has been “quite aggressive in the health care sphere ... because there is such a concern in the United States about health care costs increasing,” Cantor said. But “generally, the FTC has focused on cases where you have two hospital systems that are coming together and, by virtue of their combined presence, will allow them to wield a substantial market share.”

When a hospital system buys a group of doctors, it’s harder to show obvious competitive problems, he said.

St. Luke’s is one of the first doctor-buyout challenges to go to trial in recent years. The FTC has settled complaints about other hospital buyouts — among them, a cardiology group in Nevada and outpatient medical clinics in Virginia — before trial.

“If the FTC wins, you know, it’s just another notch in their belt for the last few years,” Cantor said. “If the FTC was to lose this case, you’d wonder whether or not that would impact (the FTC’s) momentum ... whether they would think they want to be a little more careful before they take on a particular provider merger, to be sure they have a rock-solid case.”

Before and during the St. Luke’s trial, FTC commissioners have spoken in public speeches and forums about wanting to do a “retrospective” study of hospital-physician mergers. Antitrust lawyers say that talk reminds them of when the FTC geared up for more focused attacks on hospital mergers more than a decade ago. The FTC studied a handful of hospital-and-hospital mergers the agency had failed to block. That study, looking at pricing and quality of care after courts allowed the mergers to be consummated, showed “strong evidence that the agencies had been right to challenge those hospital deals,” FTC chairwoman Edith Ramirez said in June at a law symposium in Washington, D.C.

Armed with its study, the FTC built “a winning streak that now includes three successfully litigated merger challenges and a growing tally of hospital deals abandoned after the FTC threatened a challenge,” Ramirez said.

Now, hospital-physician mergers of the St. Luke’s-Saltzer variety have become more commonplace. Doctors are motivated to sell, frustrated by new rules under the Affordable Care Act, overwhelmed by the cost of electronic medical records systems and looking for income security. Health systems including St. Luke’s and Saint Alphonsus are under more pressure to work efficiently and keep patients healthier.

Those are all factors at play in the St. Luke’s trial. Witnesses have argued the acquisition is the only way St. Luke’s and Saltzer can make the kind of efficiency and pay-for-value changes the federal government asked for in the Affordable Care Act.

The FTC says that’s not true, arguing there are other ways to deliver on the Affordable Care Act’s goals.

It has in St. Luke’s “a case that is both winnable and important,” Cantor said. “But I don’t think this is necessarily as easy a case” as the hospital mergers the FTC has challenged in the past.

Audrey Dutton: 377-6448, Twitter: @IDS_Audrey

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