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FTC’s Ninth Circuit St. Luke’s Win Deals a Blow to Efficiency Defenses in Health Care Merger Cases

In a much anticipated appellate health care antitrust decision, the United States Court of Appeals for the Ninth Circuit recently upheld a district court’s finding that a consummated hospital-physician group merger violated Section 7 of the Clayton Act, despite the provider-defendants’ assertion of an efficiencies defense.  St. Alphonsus Med. Ctr. – Nampa Inc. v. St. Luke’s Health System, Ltd., No. 14-35173 (9th Cir. Feb. 10, 2015).  As discussed further in "Ninth Circuit Affirms FTC's Challenge to Hospital-Physician Group Merger", this decision is a big win for health care antitrust enforcers as it limits the viability of an efficiencies defense for proposed health care mergers.  It is also significant in the health care context because the court did not acknowledge that quality was a cognizable element of competition that should be evaluated in the merger calculus. The case involved the $16 million acquisition by St. Luke’s Health System, Ltd. of Saltzer Medical Group PA, a physician multispecialty group in Nampa, Idaho.  The Ninth Circuit affirmed divestiture of the physician group as the appropriate remedy.  In defending the transaction, defendants had claimed that efficiencies would result based on integrated care and risk-based reimbursement.  The Ninth Circuit’s decision here will likely impact the strategy and plans of many hospitals and physician groups pursuing transactions designed to achieve improved quality and reduced costs to meet the goals of the Affordable Care Act.

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Dionne Lomax