Judge says St. Luke's buyout violates antitrust law, must be undone

The Saltzer Medical Group in Nampa.
The Saltzer Medical Group in Nampa.

A federal judge ruled Friday against Idaho's largest hospital system in an antitrust lawsuit that observers believe may shape the future of hospital-physician buyouts at a time of rapid consolidation in the nation's health care industry.

U.S. District Judge B. Lynn Winmill in Boise said St. Luke's Health System broke antitrust laws when it bought Saltzer Medical Group, Idaho’s largest independent physicians’ practice, slightly more than a year ago.

"The acquisition was intended by St. Luke's and Saltzer primarily to improve patient outcomes. 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 wrote. "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. For all of these reasons, the acquisition must be unwound."

The lawsuit accused St. Luke's of illegally thwarting competition in a way that would drive up prices for medical care in parts of Southwest Idaho and give St. Luke's an iron grip on the market.

The Boise-based St. Luke's and Nampa’s Saltzer defended their deal as necessary to launch a new payment scheme where 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.

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

Winmill said in his ruling that while it may not have been the goal of the acquisition, 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."

St. Luke's expects to appeal Winmill's decision, according to a statement from the health system Friday.

"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 at Baker Hostetler in Washington, D.C.


During a four-week trial last fall, two competing businesses — Saint Alphonsus Health System and the Treasure Valley Hospital surgical center — argued that St. Luke's would steer patients away from competitors 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 will cost them business and force them to cut services and jobs, they claimed.

Federal and state consumer-protection agencies also sued St. Luke's, saying it broke antitrust laws. The Federal Trade Commission and Idaho attorney general said the Saltzer deal gave St. Luke's control of nearly 80 percent of the primary-care market in Nampa. They said that with such a large foothold, St. Luke's could charge whatever it wants, driving up insurance premiums and patient costs. They cited a spike in prices after St. Luke's took over a large share of hospitals and clinics in the Magic Valley two hours east of Boise.

Lawyers for the government pointed to internal emails and private conversations to suggest St. Luke's officials want to employ doctors to make more money and that Saltzer doctors didn't want to fight St. Luke's for the Nampa market.


St. Luke's executives and board members denied claims that the system tries to steer patients away from competitors. St. Luke's argued that other hospitals are doing fine and that they don't truly suffer a loss in overall business after St. Luke's buys independent practices. The health system also pointed a finger back at competitors, alleging they cut off referrals to doctors who join St. Luke's.

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

Lawyers for St. Luke's argued that the system’s goal isn't to raise prices and make money. They said the system has persuaded previously independent doctors to accept lower payments from insurers and that it already has started paying some doctors based on performance.


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 stands up to legal challenges.

Many hours of witness testimony and hundreds of documents were sealed from the public because they were said to contain trade secrets. The U.S. Court of Appeals for the Ninth Circuit is now considering a lawsuit by Idaho news outlets to unseal evidence and trial proceedings.


The ruling shows there is legal power to the FTC's arguments that doctor buyouts can increase a hospital system's bargaining power with health insurers, leading to higher prices, said Lewis, who is not personally involved in the lawsuit.

"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."