United States: FTC Successfully Obtains Divestiture Of Physician Group Previously Acquired By Hospital System

In a significant groundbreaking victory, on January 24, 2014 after a bench trial, an Idaho federal district court judge upheld the FTC's antitrust challenge to a hospital system's (St. Luke's) acquisition of a multispecialty physician group (Saltzer Medical Group) and ordered divestiture as a remedy. FTC v. St. Luke's Health System, Ltd., (D. Idaho, Jan. 24, 2014). The case is notable in several respects. Particularly if upheld on appeal, it validates the increased antitrust scrutiny that physician consolidations and physician acquisitions by hospital systems are undergoing. Moreover, the hospital system defended the acquisition as a necessary step toward practicing integrated medicine and population health management—goals that underlie much of today's health care reform. The district court, while acknowledging these beneficial objectives underlying the transaction to improve the quality of medical care, said those objectives were deemed not merger specific nor sufficient to trump the substantial risk of anticompetitive price increases, where the acquisition led to a 80 percent market share for primary care physicians (PCPs).

The case involved the acquisition of Saltzer, a 41 physician multispecialty group, nearly three-quarters of whom provided primary care services, located in Nampa, Idaho. The acquiring system, St. Luke's, operated an emergency clinic with outpatient services in Nampa. It had no hospital in Nampa, but had 7 hospitals in Idaho, including the 400-plus bed St. Luke's Boise Medical Center.

The relevant product market was not disputed—Adult Primary Care Services (Adult PCP services) sold to commercially insured patients. In many health care antitrust cases, particularly in hospital merger challenges, the relevant geographic market definition has been a contentious, often dispositive, issue. While not a hospital merger, it was an important issue here as well. The court determined the geographic market here by purportedly applying the "SSNIP test"—whether all the sellers would be able to impose a small but significant, non-transitory increase in price (5 to 10 percent) and still make a profit. Relying upon payer testimony, and the facts that Blue Cross of Idaho (BCI) attempts to have PCPs in-network in every zip code where they have enrollees and that 68 percent of Nampa residents obtain their primary care in Nampa, so that health plans must offer Nampa Adult PCP services to Nampa residents to successfully compete, the court concluded that Nampa PCPs could successfully band together and obtain a 5 to 10 percent price increase. Nampa was therefore found to be a relevant geographic market.

Those conclusions led the court to calculate market concentration numbers that set off alarm bells under the Horizontal Merger Guidelines. Combined, St Luke's and Saltzer account for nearly 80 percent of Adult PCP services in Nampa. As a result of the merger, the Nampa PCP market has a post-merger HHI of 6,219, and an increase in HHI of 1,607, both of which are above the thresholds for a presumptively anticompetitive merger. Hence, the FTC received the benefit of the presumption of establishing a prima facie case under Section 7 of the Clayton Act, established in United States v. Philadelphia Nat'l Bank, 374 U.S. 321 (1963).

The court did not stop there in making findings of anticompetitive effect. Looking at St. Luke's hospitals, it found that St. Luke's had leverage preacquisition, and if St. Luke's chose not to contract with BCI, BCI would have an immediately unsustainable product. The court then concluded that the acquisition would increase St. Luke's bargaining leverage. In Nampa, it found that St. Luke's and Saltzer were each other's closest substitutes. The court concluded that the acquisition adds to St. Luke's market power and weakens BCI's ability to negotiate with St. Luke's. The court found this conclusion buttressed by an internal St. Luke's email suggesting that they could improve their financial performance through a price increase and by internal Saltzer documents suggesting that they would have increased bargaining leverage to win back concessions that they had made to BCI. The court also "found" that it is likely that St. Luke's will exercise its enhanced bargaining leverage from the acquisition to charge at the higher hospital-based billing rates for more services. Finally, the court made findings of anticompetitive effects in that Saltzer referrals to St. Luke's would increase.

In the introduction to its 52-page opinion, the court acknowledged the cost and quality concerns in the health care delivery system and the need to move away from the fee-for-service reimbursement system. The court complimented St. Luke's "foresight and vision" in being early to assemble "a team committed to practicing integrated medicine in a system where compensation depended on patient outcomes." The court indicated: "The Acquisition was intended by St. Luke's and Saltzer primarily to improve patient outcomes. The Court believes that it would have that effect if left intact, and St. Luke's is to be applauded for its efforts to improve the delivery of health care in the [relevant market.] But there are other ways to achieve the same effect that do not run afoul of the antitrust laws and do not run such a risk of increased costs."

As a consequence, the court concluded that the "efficiencies" of enhancing coordinated care, accepting risk, and managing population health advanced by St. Luke's did not outweigh the anticompetitive effects and save the acquisition. St. Luke's argued that it believed that the best way to create a unified and committed team of physicians required to practice integrated medicine was to employ them. The court rejected that defense by making the following findings:

  • There is no empirical evidence to support the theory that St. Luke's needs a core group of employed primary care physicians beyond the number it had before the acquisition to successfully make the transition to integrated care.
  • Integrated care—and risk-based contracting—do not require a large number of physicians because the health plans "manage the level of risk proportionate to the level of the provider organization."
  • In Idaho, independent physician groups are using risk-based contracting successfully.
  • It is the committed team—and not any one specific organization structure—that is the key to integrated medicine.
  • Because a committed team can be assembled without employing physicians, a committed team is not a merger-specific efficiency of the acquisition.

Similarly, the court rejected the common electronic medical record (EMR) as a merger specific efficiency. While St. Luke's touted its roll out of the EPIC EMR system, it acknowledged that it was developing an Affiliate Electronic Medical Record program that would allow independent physicians access to EPIC.

Drawing on historical case law, the court recognized that divestiture is the "remedy best suited to redress the ills of an anticompetitive merger." It was comforted by the fact that St. Luke's had represented to the court that it "will not oppose divestiture on grounds that divestiture cannot be accomplished" and that "any financial hardship to Saltzer from divestiture would be mitigated by St. Luke's payment of $9 million for goodwill and intangibles as part of the Acquisition, a payment that does not have to be paid back if the Acquisition was undone." The court rejected St. Luke's proposal to substitute separate negotiations by St. Luke's and Saltzer with health plans as an alternative to divestiture. It also rejected the FTC's proposal that St. Luke's be ordered to give the FTC prior notice of all future proposed acquisitions.

The court summarized its thinking in its conclusion. It acknowledged "health care is at a crisis point" and "the Acquisition is an attempt by St. Luke's and Saltzer to improve the quality of medical care." Nonetheless, the court determined that "the particular structure of the Acquisition—creating such a huge market share for the combined entity—creates a substantial risk of anticompetitive price increases." It reasoned: "In a world that was not governed by the Clayton Act, the best result might be to approve the Acquisition and monitor its outcome to see if the predicted price increases actually occurred. In other words, the Acquisition could serve as a controlled experiment. But the Clayton Act is in full force, and it must be enforced. The Act does not give the Court discretion to set it aside to conduct a health care experiment."

St. Luke's has already indicated it will appeal. For now, however, this case stands as an important precedent indicating that in situations with high market shares and evidence of price increases, efficiency claims and goals consistent with health care reform may not be a sufficient shield against traditional antitrust analysis.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Bruce D. Sokler
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions