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

U.S. District Judge B. Lynn Winmill acknowledged that the combination in 2012 of St. Luke’s Health System and the Saltzer Medical Group — the largest independent physician group in the state — was primarily intended to improve care for patients. But, he said, “there are other ways to achieve the same effect that do not run afoul of the antitrust laws.”
U.S. District Judge B. Lynn Winmill acknowledged that the combination in 2012 of St. Luke’s Health System and the Saltzer Medical Group — the largest independent physician group in the state — was primarily intended to improve care for patients. But, he said, “there are other ways to achieve the same effect that do not run afoul of the antitrust laws.” doswald@idahostatesman.com

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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