The Economy

Peter Crabb: Why St. Luke’s is right and the law is wrong

Professor of finance and economics at Northwest Nazarene University in NampaFebruary 19, 2014 

Peter Crabb

Idaho is home to an experiment in health care. Not one that will necessarily lead to a new life-saving medicine or surgical procedure, but one that may lower health care spending and improve patient outcomes.

The power of the state was used to end this experiment. U.S. antitrust laws were used to nullify private business contracts between doctors and a hospital.

In a lawsuit brought by Saint Alphonsus Health System last fall, a federal judge ruled that St. Luke’s Health System broke federal and state antitrust laws when it entered into a merger with the Nampa-based physician’s practice Saltzer Medical Group.

As Audrey Dutton reported for the Idaho Statesman, the presiding judge in the case, B. Lynn Winmill, said U.S. antitrust law “is in full force, and it must be enforced.” Winmill also said, however, that the health care industry is in an “experimental stage,” and it may have been better to leave the merger in place. The judge thought time was needed to see if prices decline and patient outcomes improve as a result of the merger, the actual stated goal of the two parties to this contract.

But the law is the law.

U.S. antitrust law is a collection of statutes and rulings with the purported goal of promoting competition. Specifically, these laws are designed to break up potential monopolies.

Economic theory predicts that a firm with monopoly power (i.e., the power to raise prices above that in a competitive market) imposes costs on society. Antitrust laws are used to thwart this power.

These laws date back to the late 19th century when the Sherman Antitrust Act was passed to lower the market power of the large and powerful business trusts, or corporations, at work in the oil industry and manufacturing of the time. In 1914, the Clayton Act was passed by Congress to strengthen the government’s ability to curb monopoly power and provide for private lawsuits, like the one Saint Alphonsus brought against St. Luke’s and Saltzer.

But just as monopolies can be problematic, antitrust laws also impose costs on society. Many mergers provide synergies, which occur when costs in the joint operations decline. Globalization and rapidly advancing technology has made monopolies practically obsolete.

Synergistic benefits are exactly what the physicians at Saltzer and St. Luke’s are trying to achieve with their “experiment.” St. Luke’s CEO David Pate said the merger furthers the mission of St. Luke’s “to improve the health of people in our region.”

The government has other ways to respond to the potential social costs of monopolies. First, it can regulate the prices that the monopoly firm charges, as with public utility firms like Idaho Power. Second, it can turn the monopolist into a government-run enterprise, as it has in the mortgage industry with Fannie Mae and Freddie Mac.

The government has already taken both these actions in the health care industry. The Affordable Care Act increases regulations over both prices and operations in this industry. Add to that the increases in Medicare and Medicaid participation and you have what is essentially a government-run enterprise.

The St. Luke-Saltzer merger is in response to the monopoly power of the government over the health care industry, not the other way around. Using old antitrust laws to counteract the effects of the government’s own policies is counterproductive.

Let the experiment continue.

prcrabb@nnu.edu

Idaho Statesman is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service