Antitrust Law Daily Wrap Up, STRATEGIC PERSPECTIVES: Ninth Circuit’s decision in St. Luke’s case likely to have lasting implications for health care acquisitions, (Feb 13, 2015)

By Jeffrey May, J.D.

Earlier this week, the U.S. Court of Appeals in San Francisco affirmed a trial court's finding that the 2012 merger of two health care providers in Idaho's second-largest city, Nampa, violated Section 7 of the Clayton Act. An order requiring St. Luke’s Health System, Ltd. to divest Saltzer Medical Group also was upheld.

The February 10 decision in Saint Alphonsus Medical Center-Nampa Inc. v. St. Luke’s Health Systems, Ltd. was a significant win for the FTC, the State of Idaho, and the private parties—Saint Alphonsus Medical Center-Nampa Inc. and Treasure Valley Hospital Limited Partnership—that challenged the acquisition of Saltzer by St. Luke's. In addition, the opinion will have an impact on the antitrust analysis of mergers and acquisitions for the foreseeable future.

Appellate court decisions considering the legality of mergers are relatively rare. Consequently, the Ninth Circuit's decision is worth a close look, particularly for attorneys doing deals in health care markets.

Efficiencies defense. Among the decision's important implications is its limitation of the efficiencies defense, which is often raised in merger challenges. Where plaintiffs establish a prima facie case that an acquisition is anticompetitive, defendants can rebut the presumption with evidence that the proposed merger will create a more efficient combined entity and thus increase competition. The Ninth Circuit explained that merging parties must provide verifiable, merger-specific efficiencies to defend their transactions.

In lauding the decision, FTC Chairwoman Edith Ramirez remarked that “the acquisition would have delivered no benefit to consumers that could not be achieved in ways other than the anticompetitive merger.”

David A. Ettinger, lead counsel for the successful private plaintiffs, called this one of the key lessons of the ruling. “Judge Winmill’s decision, as affirmed by the Ninth Circuit, makes clear that the desire to achieve efficiencies, including improvements of quality to address the goals of the Affordable Care Act, will not trump antitrust concerns,” said Ettinger. “That’s the case because the same benefits can be achieved without anticompetitive mergers. As a result, any suggestion that the antitrust laws are at loggerheads with the Affordable Care Act misunderstands the facts. Since providers all around the country are achieving important quality gains without acquisition, anticompetitive acquisitions are not necessary to improve quality.”

Structuring transactions. Ettinger, who chairs Honigman Miller Schwartz and Cohn LLP's Antitrust & Trade Regulation Practice Group, also believes that the decision will have an impact on the way attorneys counsel their clients as they structure transactions. “Providers considering hospital mergers and physician acquisitions will need to carefully analyze their markets to determine if they possess high market shares that create a prima facie antitrust case against them,” according to Ettinger. He noted that, on behalf of his provider clients, he is “now looking closely at new developments in health care, such as the greater use in some markets of narrow networks and tiered networks, the greater responsibility consumers face for the cost of their own health care, and the growth of retail and employer-owned clinics providing primary care, in analyzing mergers.”

“Parties considering acquisitions and mergers will have to carefully examine these and other emerging trends to see if they provide defenses to otherwise anticompetitive mergers based on the facts in specific markets,” Ettinger explained.

Next steps for St. Luke’s. St. Luke's has not yet disclosed how it will respond to the Ninth Circuit's decision. Following the opinion's release, the company issued a statement, indicating that it was evaluating next steps. Idaho Attorney General Lawrence G. Wasden has said that his office was prepared “to work with St. Luke’s in any way possible to fulfill what is now required by the court’s decision.”

While there is always the possibility that St. Luke's might seek U.S. Supreme Court review of the holding, the Ninth Circuit decision will likely stand. It is doubtful that the High Court would take up the case, since it has not issued a substantive decision interpreting Section 7 of the Clayton Act in the last four decades.

Pending Supreme Court petition in hospital merger case. Currently pending before the Supreme Court is a petition for certiorari, seeking review of a decision of the U.S. Court of Appeals in Cincinnati, concluding in an FTC action that the company's consummated acquisition of St. Luke's Hospital in Toledo by Ohio-based hospital operator ProMedica Health System, Inc. would adversely affect competition in violation of Section 7 of the Clayton Act. In its petition, ProMedica contends that the Sixth Circuit's decision will have a substantial chilling effect on procompetitive and beneficial mergers, particularly hospital mergers that are necessitated by the Affordable Care Act.

Attorneys: David A. Ettinger (Honigman Miller Schwartz and Cohn LLP).

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

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