United States: Classic Antitrust Principles Apply To Health Care Mergers Even Post-ACA

The Ninth Circuit last week held that St. Luke's Health System's purchase of a physician practice group violated federal antitrust laws. In doing so, it upheld a district court's order that the merger be dissolved.

The ruling has added significance given the Affordable Care Act's (ACA) emphasis on health care integration. It shows that even against the backdrop of the ACA, courts' antitrust analysis for horizontal mergers remains unchanged.

The case concerned St. Luke's 2012 acquisition of Saltzer Medical Group, the largest physician practice group in Idaho. The Federal Trade Commission (FTC), the State of Idaho, and two local hospitals sued, alleging that the merger violated the Clayton Act and state law.

The Ninth Circuit rejected St. Luke's argument that the benefits of the deal outweighed any harms to competition. In particular, St. Luke's maintained that the merger would allow the hospital to "improve the quality of healthcare and move to a value-based rather than volume-based system of payment for services—in accord with federal policy as reflected in the Affordable Care Act." The Ninth Circuit, however, found no reason to disturb the district court's conclusion that "St. Luke's would likely use its post-merger power to negotiate higher reimbursement rates from insurers for primary care services."

The Ninth Circuit also found lacking St. Luke's argument that the merger would benefit patients by creating a team of physicians with access to St. Luke's electronic medical records system. The court explained that an anti-competitive merger cannot be excused "simply because the merged entity can improve its operations."

Lastly, the Ninth Circuit disagreed with St. Luke's assertion that the district court erred in ordering divestiture. In particular, it found that the district court had "ample basis" for rejecting St. Luke's contention that Saltzer would no longer be able to compete post-divestiture, and that, therefore, divestiture would not restore competition.

In short, health care providers considering mergers to meet the ACA's goals of integration must still play by classic antitrust rules.

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