Antitrust Law Daily Wrap Up, ANTITRUST—D. Ida.: Damages claim, but not evidence of prior acquisitions, excluded in challenge to acquisition of Idaho physician practice, (Sep 26, 2013)

By Tobias J. Gillett, J.D., LL.M.

The federal district court in Boise, Idaho has granted partial summary judgment to an Idaho-based, not-for-profit health system on a claim for damages brought by hospitals challenging the health system’s proposed acquisition of the largest physician practice in the state (St. Alphonsus Medical Center - Nampa, Inc. v. St. Luke’s Health System, Ltd., September 24, 2013, Winmill, B.). The court, however, declined to grant partial summary judgment to the health system on claims “premised on an increase in prices,” or to exclude pre-trial evidence of price increases following prior acquisitions by the health system.

Last year, Boise-based St. Alphonsus Health System, Inc. and its hospitals, as well as Treasure Valley Hospital (TVH), a nine-bed physician-owned, short-term care, non-emergency hospital in Boise, filed a complaint over St. Luke’s Health System, Ltd.’s proposed acquisition of Saltzer Medical Group based in Nampa, Idaho. The acquisition was consummated after the federal district court denied a request for a preliminary injunction in December 2012. In March 2013, the FTC and the State of Idaho filed another complaint, seeking divestiture or rescission of the transaction. The government alleges that the combined entity will have market power in the Nampa region to demand higher rates for health care services provided by primary care physicians.

In the present motion, St. Luke’s sought summary judgment on the private plaintiffs’ claim for damages and on “any claim by the private plaintiffs that is premised on an increase in prices.” As the private plaintiffs responded that they were dropping their claim for damages, the court granted St. Luke’s summary judgment on that claim.

However, the court declined to grant summary judgment on the claims “premised on an increase in prices.” The private plaintiffs had responded that they were basing their claims on “the harm to them from exclusionary behavior,” rather than “the harm from increased prices.” Increased prices were “manifestations of market power” and “evidence of the power to engage in [exclusionary behavior],” in their view. The private plaintiffs pointed to past acquisitions by St. Luke’s that allegedly led to higher prices as evidence of its exclusionary conduct. St. Luke’s replied “that evidence of a price rise following a past acquisition is irrelevant without a showing that the price rose to a supracompetitive level in geographic and product markets that were identical to the markets at issue here.”

The court observed that these arguments had “transformed St. Luke’s motion for partial summary judgment into a motion in limine seeking to exclude evidence of price increases,” and that the private plaintiffs would have to show that St. Luke’s would have sufficient market power to control prices or exclude competition to pursue their Sherman Act Section 1 claim. Evidence of St. Luke’s ability to control prices would be directly relevant to that showing.

Even assuming St. Luke’s had correctly argued that evidence of its past acquisition was irrelevant in the absence of foundational proof that it was able to maintain prices at a supracompetitive level in identical geographic and product markets, the court could not decide at that stage of the proceedings that the private plaintiffs could not lay the necessary foundation. The court observed that St. Alphonsus would have to at least lay a foundation that the geographic and product markets involved in the prior acquisition were sufficiently similar, but declined to rule on the issue of whether evidence of St. Luke’s prior acquisition was relevant until it had seen the evidence at trial.

The cases are Nos. 1:12-CV-00560-BLW and 1:13-CV-00116-BLW.

Attorneys: David A. Ettinger (Honigman Miller Schwartz and Cohn LLP) and Douglas Eugene Litvack, Federal Trade Commission, for Saint Alphonsus Medical Center - Nampa Inc. and Treasure Valley Hospital Limited Partnership. Brett T. DeLange, Office of Attorney General, for State of Idaho. J. Walter Sinclair (Stoel Rives) and Jack R. Bierig (Sidley Austin LLP) for St. Luke’s Health System LTD.

Companies: Saint Alphonsus Medical Center - Nampa, Inc.; Treasure Valley Hospital Limited Partnership; St. Luke’s Health System, Ltd.; Saltzer Medical Group, P.A.

Cases: Antitrust IdahoNews