Antitrust Law Daily Wrap Up, ANTITRUST—DCIdaho: Hospital’s Takeover of Physician Group Not Preliminarily Enjoined Prior to Trial, (Dec 27, 2012)

By E. Darius Sturmer, J.D.

The operators of four hospitals in Idaho affiliated under the St. Alphonsus name (St. Al’s) were not entitled to a preliminary injunction blocking competitor St. Luke’s Health System, Ltd., from acquiring an independent physician group based in Nampa prior to an antitrust trial anticipated to begin in July 2013, the federal district court in Boise has ruled (Saint Alphonsus Medical Center – Nampa, Inc. v. St. Luke’s Health System, Ltd., December 20, 2012, Winmill, B.). An injunction was unwarranted because St. Al’s failed to show that it would suffer irreparable harm from the combination between now and next July, the court said.

St. Al’s challenged the acquisition under Sec. 7 of the Clayton Act and Sec. 1 of the Sherman Act, asserting that it would give St. Luke’s such a dominant market share in the Nampa area that it could negotiate higher fees with health insurers, leading to higher health insurance premiums. St. Al’s further alleged that it would suffer harm in the form of lower referrals.

According to the lawsuit, St. Luke’s currently accounts for about 24% of the primary care physicians in Nampa, but that figure would rise to 67% were it to be permitted to take over the independent physician group, Saltzer Medical Group. Saltzer consists of about 40 physicians, including 16 providing adult primary care services and another 8 providing pediatric services out of Saltzer’s main clinic in Nampa. The group employs 43% of the adult primary care physicians and about 90% of the pediatric physicians in the Nampa market.

St. Al’s alleges that if the merger occurs, St. Luke’s would put pressure on Saltzer’s physicians to steer patients away from St. Al’s to St. Luke’s. Saltzer referrals accounted for nearly half of all adult primary care admissions—and 100% of the pediatric admissions—at St. Al’s Nampa hospital for the past nine years.

The court rejected the argument by St. Al’s that irreparable injury would occur as a result of the combined entity’s increased leverage with health insurers. St. Luke’s had already entered into a Memorandum of Understanding with the state’s largest insurer, Blue Cross of Idaho, setting forth an agreement to enter into a two-year contract on January 1, 2013, the court noted. “Even assuming the acquisition would give St. Luke’s leverage at some point,” the court said, “it would come too late to be exercised with regard to Idaho’s largest insurer, at least until 2015,” by which point the case “should have been long-since resolved on the merits.”

Moreover, prices would not go up to supracompetitive levels in Nampa simply by virtue of St. Luke’s charging higher prices than Saltzer, in the court’s view, because patients would then likely choose to have their necessary procedures performed at St. Al’s Nampa hospital instead.

The court also disagreed with the additional contention that the merger would result in an immediate loss of referrals to St. Al’s, thereby causing irreparable injury in the form of forced layoffs of 150 employees or more. Given assurances by St. Luke’s that Saltzer’s physicians would retain the right to make referral decisions based on patients’ best interests and it would not be prompting the physicians to steer patients toward St. Luke’s, the court found St. Al’s prediction of an immediate referral drop occurring before trial unlikely.

Other factors indicating an unlikelihood that St. Al’s would suffer irreparable harm before trial were the appearance that integration of Saltzer into St. Luke’s was to take place gradually and the existence of a built-in unwinding process in the acquisition agreement executed between the parties, the court added.

The court explained that its decision was based on four critical assumptions: (1) that the case would proceed on a fast track to trial; (2) that, prior to trial, there would be no measureable reduction in referrals to St. Al’s from Saltzer physicians; (3) that the integration of St. Luke’s and Saltzer would proceed gradually; and (4) that the acquisition could be unwound and divestiture ordered if St. Al’s prevailed on its antitrust claims. If these assumptions proved unfounded, the court concluded, St. Al’s could then seek preliminary injunction to freeze and/or unwind the integration process.

The case is No. 1:12-CV-560-BLW.

Cases: Antitrust IdahoNews