UPDATE: The trial between St. Luke's Health System and Saint Alphonsus Health System began Monday morning with opening statements. Follow @IDS_Audrey and stay tuned to IdahoStatesman.com for updates.
Two of Idaho’s largest health care systems will commence a monthlong battle in federal court this week, with federal and state governments joining Saint Alphonsus Health System in a lawsuit to stop St. Luke’s Health System from owning a large physician practice that used to be independent.
The fight is more than a year in the making. It will determine the future of health care in Canyon County, and it also might be a game-changer for health care in Idaho, where St. Luke’s executives say they plan more growth and consolidation in the name of better health care, healthier people and lower costs.
WHAT CAUSED THIS FIGHT?
Boise-based St. Luke’s has been acquiring physician practices and hospitals for several years. It ramped up its buyouts under the leadership of CEO David Pate, a doctor and lawyer who moved to Boise from Houston four years ago to run the system. The system now includes seven hospitals, more than 70 clinics and medical offices, and about 11,000 employees in Idaho and eastern Oregon. Five years ago, St. Luke’s owned four hospitals and employed about 7,600 people.
But St. Luke’s isn’t being sued over growing too much. Though it is the dominant health care provider in places such as the Magic Valley — where the system’s legal opponents argue its dominance caused a spike in health care prices — its overall growth in recent years is just the background scenery for this lawsuit.
Instead, a single acquisition drew the scrutiny of the Federal Trade Commission and Idaho Attorney General Lawrence Wasden: a buyout of Nampa-based Saltzer Medical Group, which was the largest independent practice in the state.
Both Wasden and the FTC are in charge of enforcing federal and state antitrust laws that protect competition so that consumers can shop around.
Wasden’s office first asked, then warned, both businesses not to close on the deal until the FTC and Wasden had finished investigating whether St. Luke’s was breaking the law. St. Luke’s decided that might take years, so it pressed on.
Saint Alphonsus Health System and Treasure Valley Hospital, a small Boise surgical hospital, sued late last year to stop the Saltzer deal. The St. Luke’s competitors said the buyout would seriously harm their businesses. But Chief District Court Judge B. Lynn Winmill decided to allow the deal to close at the end of 2012, under a few conditions, including that both sides prepare for a full-blown trial.
The FTC and Wasden filed their own lawsuit earlier this year, saying data and paper-trail evidence show that the deal would position St. Luke’s to chip away at competition in Canyon County and to charge health insurers and patients more for services. The two lawsuits were then combined.
Before the lawsuits, Saint Alphonsus — owned by a national Catholic health-care company based in Michigan — made a competing offer to buy Saltzer. Saint Alphonsus now employs some doctors who defected from Saltzer during the negotiations. Saint Alphonsus also has acquired physician practices in recent years, but at a slower rate.
WHAT DO BOTH SIDES HAVE TO PROVE?
The main question is whether St. Luke’s owning Saltzer would substantially reduce competition for primary care in the market Saltzer serves. But there are a few other questions Winmill wants answered.
Where do patients go for health care?
This question is one of the most important, because it’s a sticking point for both sides. To figure out whether a merger is illegal, experts use a formula for how much of a certain “market” each business controls before the merger and after. In St. Luke’s case, the product market is “primary care” and the geographic market is up for debate.
St. Luke’s says Winmill shouldn’t think of Nampa as an island. St. Luke’s says Canyon County residents often make a half-hour drive to Meridian for health care, and patients choose primary-care doctors based on idiosyncratic factors, such as where the patients work.
The opponents say Winmill should ignore that argument, because St. Luke’s hasn’t really defined a better “market” boundary and evidence shows that people in Nampa want health care close to home.
Does St. Luke’s hoard patients by keeping referrals in-house?
St. Luke’s says it encourages doctors to make their own decisions about where they send patients and gives them no reason to keep patients in the St. Luke’s system. The governments and competing hospitals say that’s not what they’ve seen in the data. The competitors say referrals drop when a doctor goes on the St. Luke’s payroll, though the reason for that drop-off is in dispute.
Would St. Luke’s raise prices if it owns Saltzer for good?
Idaho health insurers think it would, according to court documents. The state and federal governments have mined data and found a steep price increase in the Twin Falls area, where they argue that St. Luke’s owns almost the entire market for primary care. Their lawyers say St. Luke’s might reduce competition and raise prices, and that just this possibility is enough to break the law. St. Luke’s attorneys say that if the merger survives, St. Luke’s would lower prices through a contract it penned last year with Utah-based health insurer SelectHealth — a deal that St. Luke’s says can succeed only if it owns plenty of doctors in Nampa.
WHO STANDS TO GAIN FROM THIS? WHAT IS THE PAYOFF?
If St. Luke’s loses, Saint Alphonsus would maintain a larger share of the Nampa market, where it has a hospital and medical plaza. Saint Alphonsus and Treasure Valley Hospital also would keep the patients they think St. Luke’s would siphon away, as well as the money they make from those patients.
If St. Luke’s wins, it will have a foothold in Canyon County, where it currently has no hospital. Its attorneys and executives say it could fully execute a plan to provide lower-cost care by paying doctors for high-quality, efficient work.
For everyone else, what it means is unclear. Both sides argue that if they win, consumers will have lower-cost medical care, Idahoans with Medicaid will have more access to physicians, and people at their organizations won’t lose their jobs.
WHO WILL TESTIFY?
Both sides gave the judge a road map of their arguments, with testimony and evidence they might bring up in the trial.
The people who provide testimony — some of whom will take the stand — include executives and doctors from the two health systems and their hospitals, Saltzer Medical Group, consultants, economists, health care experts, and the directors of the Idaho Department of Health and Welfare and the Idaho Department of Insurance. They also include executives from Blue Cross of Idaho, Regence BlueShield of Idaho and SelectHealth insurance.
St. Luke’s opponents have subpoenaed their first witnesses: Lance Coleman, senior medical director for Blue Cross of Idaho; Jeff Crouch, vice president of provider services for Blue Cross of Idaho; Linda Duer, executive director of the Idaho Physicians Network, a statewide independent health care provider association; Patrick Otte, the vice president of human resources for Micron; and David Peterman, president of Primary Health Medical Group, an independent chain of clinics in the Treasure Valley.
ST. LUKE'S IN THE VALLEY
See the health system's locations in an interactive map below. Red crosses are hospitals. Red dots are clinics or other medical offices. Red balloons with the letter "S" are Saltzer locations. Zoom out to see the whole state and eastern Oregon.