Judge: St. Luke's broke law when it bought Nampa's Saltzer Medical Group

Nullifying the health system's purchase of Saltzer Medical Group will help restrain prices, he says.

adutton@idahostatesman.comJanuary 25, 2014 

Saltzer Medical Group building in Nampa

The judge acknowledged that St. Luke’s wanted to buy physician practices such as Saltzer, seen here in Nampa, “to assemble a team committed to practicing integrated medicine in a system where compensation depended on patient outcomes.” But he said there are other ways to achieve the same effect without violating antitrust laws.

DARIN OSWALD — doswald@idahostatesman.com

  • YOU SAID IT ONLINE

    From comments posted by IdahoStatesman.com readers:

    Paul Burton: "I fail to see how monopolistic practices and skyrocketing health care pricing on the part of St. Luke's benefits the health of Idaho."

    Marleen Stowe: "I am so pleased to see this. Not only from a patient standpoint, but from a nurse's view."

    Zeanna Clay Johnson: "Hope we get to see the 'trade secrets' (in currently sealed court filings)."

    Shirley McAllister: "I think it is a win for the people of Nampa and Caldwell."

    Stephanie Bolen Fuller: "I am starting my 24th year of employment with St. Luke's ... (It) is not a giant monster, trying to gobble up the state of Idaho in some diabolical plot to raise health care costs across the state."

    Brian Rich: "This is huge for health care in Idaho."

    Adria Lewis: "Very disappointing."

  • THE PARTIES SPEAK

    Saint Alphonsus CEO Sally Jeffcoat

    "We are very pleased with today's ruling. Competition is important to the creation of a vital health care environment and fosters innovation, choice, accessibility and affordability. ... We will continue to work with all health care providers - including Saltzer Medical Group - to provide seamless access to health care for our communities.

    "Filing the suit was a difficult decision for Saint Alphonsus. However, we believe it was the right decision for our patients and the communities we serve. We will continue to stay true to our mission, and focus on delivering the highest quality and most efficient care close to home."

    FTC Chairwoman Edith Ramirez

    "The district court's ruling is an important victory that will benefit both competition and consumers in Nampa, Idaho, and the surrounding areas. The combination of St. Luke's and Saltzer would have given the merged hospital system the market power to demand higher rates for health care services, ultimately leading to higher costs for both employers and consumers. Keeping health care costs low and quality high by ensuring vigorous competition between providers is, and will continue to be, a top commission priority."

    Idaho Attorney General Lawrence Wasden

    "We are very pleased with the judge's decision and believe the ruling is good for the residents and consumers of the Treasure Valley and the region's health care marketplace. ... We now look forward to working with St. Luke's Health System and the Saltzer Medical Group in carrying out all that is required in the judge's decision. What compelled me to get involved in this important case is a commitment to ensuring that Idaho's laws protecting and promoting competition are upheld and that the marketplace is defended in a way to ensure the business climate in our state remains competitive. The resolution spelled out in the decision reaffirms my commitment to those goals."

    St. Luke's

    "St. Luke's Health System is extremely disappointed by the ruling from U.S. District Court Judge B. Lynn Winmill ordering full divestiture of its integration of Saltzer Medical Group. Once made available we will review the judge's findings and conclusions, and anticipate appealing the decision. St. Luke's will continue its job to work every day to provide better coordination of care, better outcomes for patients, while at the same time managing costs. We will continue working in partnership with patients and providers. While our business relationship with Saltzer Medical Group may change, St. Luke's remains committed to working collaboratively with Saltzer."

    St. Luke's CEO David Pate (from his blog)

    "The court's decision calls into question whether accountable care can be an option for the people of Idaho, and specifically those who live in towns like Nampa and Caldwell. ... Though our job is made more difficult by this decision, and though our competitors have, in the near term, achieved their goal of slowing our progress, our commitment and determination is not diminished."

  • HIGHLIGHTS OF OTHER REPORTING ON THE IDAHO RULING

    The Wall Street Journal: "Consolidation is the name of the game in the health care industry, where hospitals are bulking up in response to changing market dynamics and the 2010 federal health care law. But in concentrated markets, would-be merger partners are going to have to take notice of the Federal Trade Commission."

    Healthcare Finance News: "Hospitals have been acquiring physician practices and have been doing so for years, but a case resting in the hands of a federal judge in Boise is proving to be a 'banner' case for these sorts of mergers and acquisitions."

    Modern Healthcare: "Health care providers and antitrust experts have watched the case closely because it's the first time that the federal courts have decided a Federal Trade Commission case against a physician practice deal."

  • WINMILL'S REPORT UNDER SEAL FOR NOW

    When he issued his seven-page ruling Friday, U.S. District Judge B. Lynn Winmill did not release his accompanying report summarizing the facts and law that led to his decision. He kept it under seal to give certain lawyers in the case a chance to review it first.

    Winmill said he did that to protect trade secrets. Compelling reasons may exist to seal trial material when that material contains trade secrets that could cause harm if made public, the judge wrote.

    He gave the lawyers until Monday to specify whether any of the facts should be redacted. They involve negotiation strategies, financial projections and compensation, he wrote.

    Hundreds of sealed exhibits, extensive redactions and closed-door proceedings during the trial last fall led several Idaho news organizations to request that all records and trial testimony be opened to the public. Winmill denied most of that request. The media groups, led by the Idaho Statesman, appealed. That is still being considered by the 9th U.S. Circuit Court of Appeals.

    The Associated Press, the Times-News in Twin Falls, the Idaho Press-Tribune in Nampa, the Lewiston Tribune and the Idaho Press Club are part of the suit.

The residents of Idaho have access to "outstanding" health care but they "pay substantially more than the national average for that quality," a federal judge wrote Friday in a ruling that ordered two local medical entities to split up, saying their merger could raise costs even more.

U.S. District Judge B. Lynn Winmill said St. Luke's Health System broke federal and state antitrust laws last winter when it bought Nampa's Saltzer Medical, the largest independent physicians practice in the state. The purchase gave St. Luke's 80 percent of the primary care doctors in Nampa and would have brought it "significant bargaining leverage" over health insurers, Winmill said.

But he praised St. Luke's for trying to reform a broken health care industry.

"The acquisition was intended by St. Luke's and Saltzer primarily to improve patient outcomes," he wrote. "The court is convinced that it would have that effect if left intact, and St. Luke's is to be applauded for its efforts to improve the delivery of health care in the Treasure Valley."

Winmill said the fast-growing health system - the biggest in Idaho and the state's largest private employer - didn't have to buy Saltzer to achieve its goals. If the deal were allowed to stand, it likely would drive up costs for patients and insurers, he said.

CLAIMS BY BOTH SIDES

During a four-week trial last fall, St. Luke's biggest competitors, the Saint Alphonsus Health System and the smaller Treasure Valley Hospital in Boise, argued that St. Luke's would steer patients away from them if it were allowed to keep Saltzer. They said records show referrals from independent doctors plummet after St. Luke's buys their practices. The Saltzer deal would cost them business and force them to cut services and jobs, they claimed.

The Federal Trade Commission and Idaho Attorney General Lawrence Wasden joined the lawsuit last spring. With so big a foothold, St. Luke's could charge whatever it wants, driving up insurance premiums and patient costs, they said. As evidence, they cited a spike in prices after St. Luke's took over a large share of hospitals and clinics in the Magic Valley.

St. Luke's and Saltzer defended their merger as crucial for the successful launch of a new payment scheme in which health care providers are rewarded for high-quality work. They said the deal would help stabilize insurance rates in Idaho and allow more poor patients in the Treasure Valley to get medical care.

St. Luke's argued that a $200 million investment in electronic records and other software makes it possible for both St. Luke's and Saltzer to survive major shifts in the health care industry, and for the system to make good on its promise of a new insurance model that honors the aims of the Affordable Care Act.

The health system said, essentially, that its opponents in the lawsuit had cherry-picked records and made specious arguments to foil a benevolent merger.

PRICES FOR CONSUMERS

Although marginalizing competition might not have been St. Luke's and Saltzer's goal, it "appears highly likely that health care costs will rise as the combined entity obtains a dominant market position that will enable it to (1) negotiate higher reimbursement rates from health insurance plans that will be passed on to the consumer, and (2) raise rates for ancillary services (like X-rays) to the higher hospital-billing rates," Winmill concluded.

One of the major arguments St. Luke's made in defense of its purchase was that it could more easily execute its plans for a new payment system if it employed a large enough number of medical providers and patients in Nampa. The system had long-term plans for the area, including a new hospital in Canyon County.

"It remains to be seen how we will accomplish" the goal of moving fully to a pay-for-performance system, said Christine Neuhoff, a lawyer for St. Luke's. "I certainly think the timeline will be substantially longer without Saltzer."

However, the ruling does not change a new agreement St. Luke's has with Utah-based SelectHealth, she said. That agreement created a new insurance plan that gives St. Luke's the leftover premiums when it provides efficient care.

Gundars Kaupins, a human resources professor at Boise State University, said both St. Luke's and Saltzer likely gained some knowledge about each other's businesses that might help create some efficiencies even when they become separate businesses again. Kaupins said he thinks the outcome of Winmill's ruling will be "reduced costs for health care consumers in Western Idaho."

WHAT'S NEXT?

St. Luke's said it expects to appeal.

People who work in health care antitrust law think the ruling could spur more lawsuits from the FTC as it seeks to unwind similar hospital-doctor mergers.

"This is a significant victory for the (Federal Trade Commission) and should serve as a clear signal to hospitals looking to, and those that have already, acquired physician groups," said Jonathan Lewis, an antitrust attorney for Baker Hostetler in Washington, D.C., who is not personally involved in the lawsuit.

The ruling shows that there is legal power in the FTC's arguments that doctor buyouts can increase a hospital system's bargaining power with health insurers, leading to higher prices, Lewis said.

"What all this means going forward is difficult to predict, especially since St. Luke's has announced its intention to appeal the court's decision," Lewis said. "If St. Luke's ultimately decides to give up the ghost, or loses on appeal, it will be required as it has represented to the court in the past to reconstitute Saltzer as a standalone entity. What that all means and how it will do that is the big question. We are ultimately talking about people, not manufacturing plants."

STILL UNANSWERED QUESTIONS

Documents and testimony indicate St. Luke's offered $27 million to $29 million for Saltzer, with the practice's doctors keeping about $9 million whether or not the merger stood up to legal challenges. The trial also shed light on how insurance companies negotiate with doctors and hospitals.

But many hours of witness testimony and hundreds of documents were sealed from the public because they were said to contain trade secrets. A federal appeals court is now considering a lawsuit by Idaho news outlets to unseal evidence and trial proceedings.

Audrey Dutton: 377-6448, Twitter: @IDS_Audrey

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