UPDATED: Two hospital antitrust cases you should be watching
In markets as disparate as Toledo, Ohio and Boise, Idaho, federal courts are deciding hospital antitrust cases with broad implications for the industry. In Ohio, the Federal Trade Commission has successfully fought hospitals' merger plans in Toledo. In Idaho, the state's largest health system recently appealed a lower court's ruling that its purchase of the state's largest physician group would have anti-competitive effects.
Such judicial decisions are shaping the future of hospital mergers and acquisitions at a time of rapid consolidation in the U.S. healthcare field.
On the regulatory side, FTC seems to be aggressively pursuing antitrust enforcement activity, although agency officials told an April conference that FTC challenges less than 1% of healthcare transactions. FTC said the trial court's decision in Idaho demonstrates that the Affordable Care Act “is not a free pass,” and there are many ways to achieve the goal of an integrated healthcare delivery system.
Yet attorney Steve Libowsky, a partner in the antitrust practice for global law firm Dentons, said nothing is having a dampening effect on healthcare deals of all sorts.
“People are just being careful, like in any business transaction,” he told Healthcare Dive. “The rules of the road are out there. The question is how much people want to push the envelope. The real question is at what point the government will say, 'Enough is enough.'”
Here are the latest developments in the hospital antitrust cases in Idaho and Ohio, both cited by Libowsky as significant:
St. Luke's Health System
On June 12, St. Luke's Health System, Idaho's largest hospital network, asked the Ninth Circuit Court of Appeals to reverse a federal district judge's January ruling. The lower court ordered St. Luke's to undo its December 2012 purchase of Saltzer Medical Group, the state's largest independent physician practice — a deal that resulted in St. Luke's owning about 80% of doctor practices in the area.
This became the first lawsuit challenging a hospital's physician buy-out since passage of the Affordable Care Act. The case pitted St. Luke's against its main competitor, St. Alphonsus Health System, Idaho's Attorney General and FTC. Although nonprofit St. Luke's acquisition of the 40-doctor practice would have improved patient outcomes and general delivery of healthcare in the area, there were other ways to achieve this without violating antitrust laws and running the risk of rising costs, the lower-court judge said. The AG said state law prohibits acquisitions that would substantially lessen market competition.
St. Luke's CEO David Pate recently told the Idaho Statesman the appeals court's decision could have broad implications on whether antitrust laws can bar health systems in small- and mid-sized markets from “tightly affiliating” with doctor groups to build new models of payment and delivery. St. Luke's argued the district court erred in anticipating anti-competitive effects from the deal.
ProMedica Health System
In April, a U.S. appeals court upheld FTC's administrative ruling that ProMedica Health System's 2010 acquisition of. St. Luke's Hospital in Toledo violated antitrust laws. The Sixth Circuit Court of Appeals' opinion came nearly four years after FTC began to fight the nonprofits' merger. In addition to ProMedica's three hospitals and St. Luke's, there are two other hospital systems in Toledo's Lucas County in northwest Ohio.
It has been a lengthy court battle for ProMedica. The three-hospital system closed its deal with St. Luke's but, under an agreement with FTC, didn't integrate certain parts of the business. After FTC won a preliminary injunction halting further integration, and won an administrative trial and appeal, ProMedica appealed to the Sixth Circuit and lost. In defining “relevant service market,” FTC typically clusters inpatient services. But in ProMedica's case FTC separated out obstetrical services, noting the merged entities' OB services would comprise 81% of the market, and their general acute-care services, 58%.
Libowsky said it's conceivable that Ohio's ProMedica could appeal to the U.S. Supreme Court. “I believe that would be a futile case, but it doesn't mean [ProMedica] won't do it,” he said. As for Idaho's St. Luke's Health System, he said he is sure it will undertake a “hard-fought” appeal.
In the end, Libowsky said there is strong guidance for the healthcare industry from FTC and the Justice Department on antitrust matters, and courts are making it clear that they will traditionally apply basic principles about what a given health-care transaction would do to prices, availability of care and quality of care. But “this will crash into market reality,” he said.
Pick a city with a commonplace history of two competing hospitals, Libowsky said. Both are now overbuilt, filling only 50% to 55% of beds. Both have bonds to pay off and need significant upgrades to keep up with medical technology. Both are running on thin margins. What can they do? Try to merge? Hang on until one loses the fight for survival? That is the open and recurring question now, he said.
On June 17, ProMedica asked the full Sixth Circuit appeals court for a rehearing: the next step toward Supreme Court review. In April, the court's three-judge panel ruled against ProMedica; ProMedica now is asking that the full court of 12 justices review the case.
On June 18, the U.S. District Court for the District of Idaho ruled that St. Luke's Health System must immediately begin divesting its acquisition of Saltzer Medical Group while it appeals the divestiture order. The judge denied St. Luke's motion for a stay of the divestiture order pending appeal, asserting that St. Luke's is unlikely to succeed on appeal because the law and the facts clearly require divestiture of the merger as anti-competitive. Without a stay of the judge's order, St. Luke's must begin removing Saltzer from its operations now, even if it succeeds in defending the merger's validity upon appeal.