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Report from the Ninth Circuit Hearing

By Dr. David C. Pate, News and Community
November 19, 2014

I am sitting in the Pioneer Courthouse in the heart of Portland, Ore., where a three-judge panel from the San Francisco-based U.S. Court of Appeals for the Ninth Circuit has just heard oral arguments in our appeal from the District Court decision in the case of Saint Alphonsus Medical Center-Nampa, Inc. et al. vs. St. Luke’s Health System et al., in which Saint Alphonsus and the FTC challenged St. Luke’s acquisition of the Saltzer Medical Group as a violation of federal antitrust law.

U.S. District Judge B. Lynn Winmill found that the acquisition violated the Clayton Act and ordered divestiture of the group earlier this year. The Ninth Circuit agreed to hear our appeal and ordered a stay of Judge Winmill’s order to divest the group until the court of appeals could hear and render an opinion in the case.

This case is one of first impression, meaning that no similar case has been decided by a court before. It has garnered national attention as industry experts look to see whether the government will be able to block a leading health system’s attempts to transform health care and do exactly the kinds of things that policy experts have indicated must take place to improve public health and lower healthcare costs.

Judge Winmill acknowledged in his opinion that the challenged affiliation between St. Luke’s Health System and Saltzer Medical Group “was intended by St. Luke’s and Saltzer primarily to improve patient outcomes” and would, “if left intact,” accomplish that objective.

He went on to write that the affiliation would promote the movement toward integrated, value-based health care that is a “consensus … solution to the cost and quality concerns” about healthcare delivery in this country, and that the affiliation would “increase access to medical care for the significant population of Medicaid and Medicare patients in Canyon County.”

The District Court undertook a rigid application of market share data for a very constrained geographic area, holding that Nampa was a discrete geographic market and that the people of Nampa would be unwilling to leave the area for neighboring Meridian or nearby Boise for primary care services were St. Luke’s to raise prices through an exercise of market power, despite the fact that a significant number of people in Nampa work in and travel to Boise every day and that nearly a third of the patients in our Meridian hospital come from Nampa and areas further west.

The court took no notice of a natural experiment that occurred when Micron offered an insurance product to employees and their families who live in Nampa that included neither St. Luke’s nor Saltzer Medical Group and that turned out to be quite successful in Micron’s opinion, indicating that neither St. Luke’s nor Saltzer was essential to a properly functioning healthcare market in Nampa and that there were sufficient alternatives in the market.

For this and other reasons, St. Luke’s believes that the judge erred in defining the geographic market and not incorporating evidence such as the Micron experience in reaching his decision.

Even after wrongly concluding that Nampa was the appropriate geographic market and using patient visit information that was only available through subpoena and could not have been known to St. Luke’s other than through this litigation, Judge Winmill ruled against St. Luke’s, making no finding that the transaction has led or would lead to anticompetitive consequences in the relevant market.

And though concluding that the affiliation would improve patient outcomes, would improve access to care, and would provide other procompetitive benefits, the judge gave no weight to the procompetitive effects, and wrongly concluded that he had no choice under current antitrust law than to find the transaction in violation of the law. This despite the fact that the Supreme Court has said that market shares and concentration data are only the beginning of an antitrust inquiry and not “conclusive indicators of anticompetitive effects.”

While the court noted the procompetitive benefits of the Saltzer integration, and even “admirable” intentions of St. Luke’s and Saltzer, the court concluded without evidence that St. Luke’s and Saltzer could achieve these efficiencies without integration. Evidence, however, was presented that this had been attempted in the past when the two were separate entities and had failed.

So, why is St. Luke’s appealing this case?

  1.  St. Luke’s has always believed and still believes that it is doing the right thing for the communities we serve by partnering with physicians who share our vision and commitment to transforming health care, as the Saltzer physicians do.
  2. The District Court judge made numerous errors of law:
    1. Nampa is not a relevant geographic market.
    2. The plaintiffs failed to prove that St. Luke’s had market power.
    3. There is no evidence of market power in Nampa for adult primary care services, the product market identified by plaintiffs.
    4. The trial court erred in not considering the procompetitive benefits of the transaction.
    5. The court was wrong to order divestiture when other remedies would better preserve competition in the market.
    6. The judge agreed that St. Luke’s and Saltzer’s affiliation would improve care for the people of Canyon County. The judge also said St. Luke’s was to be commended for taking steps to address the needs of healthcare reform.
    7. While the judge lamented that “the existing (antitrust) law seemed to hinder innovation and resist creative solutions” and that “flexibility and experimentation” are “two virtues that are not emphasized in the antitrust law,” we disagree that the law is so rigid and not flexible enough to allow a health system and a physician group that want to transform health care to improve the health of people, to improve the care for patients, and lower the healthcare spending for the community they serve to venture into this new world and give it their best shot.
We believe the people of Idaho are counting on us to make these changes. It is our communities and our patients that have always been the driving force of all we do.

About The Author

David C. Pate, M.D., J.D., is president and CEO of St. Luke's Health System, based in Boise, Idaho. Dr. Pate joined the System in 2009. He received his medical degree from Baylor College of Medicine in Houston and his law degree from the University of Houston Law Center.