FTC Seeks to Derail Hospital’s Acquisition of A Physician Practice Group on Competitive Grounds

The FTC, together with the Idaho Attorney General, recently announced that they have filed an action in the United States District Court for the District of Idaho seeking to block St. Luke’s Health System from acquiring Idaho’s largest independent, multi-specialty physician practice group, Saltzer Medical Group.  In announcing the decision to challenge the transaction, which has already closed, the FTC maintained that the acquisition provides St. Luke’s with a nearly 60% market share in the market for adult primary care services in Nampa, Idaho, and that the addition of the practice group will permit St. Luke’s to extract higher reimbursement rates from health care plans for its services, ultimately harming consumers.
The FTC’s action is significant for several reasons, including the following:
  • The FTC’s action is its second recent challenge to a hospital acquisition of a physician group (following its 2011 challenge to Reno, Nevada-based Renown Health’s acquisition of a cardiologist group).  These challenge make clear that while the FTC continues to pay considerable attention to hospital mergers, the FTC’s health care focus is not limited exclusively to such matters;
  • The St. Luke acquisition of Saltzer was a transaction that was below the Hart-Scott-Rodino premerger reporting guidelines (i.e., valued at less than $71 million), and thus confirms that even relatively small deals face scrutiny, and challenge, if the FTC believes they will have adverse competitive consequences;
  • The FTC’s challenge continues an increasingly common pattern of the FTC “partnering” with a State Attorney General in bringing healthcare merger challenges, following similar coordination with the Nevada Attorney General in the Renown Health matter and coordination with the Pennsylvania Attorney General in FTC v. Reading Health.  Both of those matters led to restructured and/or terminated transactions;
  • The FTC’s action against St. Luke’s is also another challenge to a consummated transaction, as was the case in both the Renown matter and the FTC’s challenge to ProMedica’s purchase of a rival Toledo, Ohio hospital in 2011; and
  • The FTC’s acquisition follows an unsuccessful effort by one of St. Luke’s competitors – Saint Alphonsus Medical Center – to enjoin the transaction from closing.  That action remains pending in the Idaho District Court. 
Notably, the FTC’s complaint, which was only “unsealed” days ago, suggests that internal company documents may have played a significant role in the FTC’s decision to challenge the deal.  The FTC complaint specifically alleges that “St. Luke’s own documents confirm that the acquisition likely will lead to higher healthcare costs” in Nampa, and suggests that the acquisition is designed by St. Luke’s to reduce the ability of health plans to “contract around” St. Luke’s by creating, or threatening to create, a network of primary care physicians that did not include St. Luke’s (principally by a combination of Saltzer and St. Alphonsus doctors).  Post-merger, according to the FTC, that option would no longer exist, creating an environment in which St. Luke’s could increase rates above competitive levels.  Consistent with that claim, the FTC further notes that St. Luke’s has also made over 16 additional smaller physician group acquisitions over the last two years.  
The FTC action and the earlier-filed private action by Saint Alphonsus have now been consolidated, with a trial date in the matter set for September 2013.  If the matter is not resolved before then – either by settlement or otherwise – the trial is likely to provide the first real opportunity for the FTC to test its hospital/physician practice merger theories in court.  Stay tuned.   
To read the full FTC complaint, please click here.