Amicus brief supports St. Luke's request to rehear antitrust case

A group of 17 law professors filed an amicus brief this week that supports a petition to rehear the anti-trust case involving an Idaho health system's purchase of the state's largest independent physician practice.

St. Luke's Health System in Boise late last month asked the U.S. Court of Appeals for the Ninth Circuit to rehear its case before a full panel of judges. In February, St. Luke's lost its first-round appeal before the Ninth Circuit, where a panel of three judges upheld a District Court ruling that St. Luke's violated antitrust laws when it purchased the Saltzer Medical Group of Nampa, a practice of 40 physicians, and ordered it to unwind the acquisition.

The case, the first to go on trial to challenge a health system acquisition of a physician practice since the passage of the Affordable Care Act, has national implications for physician referrals and competition in the marketplace.

St. Luke's argues that the acquisition improved patient outcomes and healthcare delivery in the area. However, the Federal Trade Commission, the Idaho attorney general and the system's competitors--St. Alphonsus Health System and Treasure Valley Hospital--claim that the merger gave St. Luke's an unfair and illegal marketplace advantage by dominating primary medical care in Canyon County. They also claimed it would drive up healthcare prices in the area.

The District Court and the Ninth Circuit rejected St. Luke's argument that anticipated post-merger efficiencies excused the potential anticompetitive price effects. In the most recent opinion, Judge Andrew D. Hurwitz wrote that it's not enough to say the merger would allow St. Luke's to better serve patients. The hospital system would have to prove that the acquisition wouldn't hurt competition.

But the amicus brief filed this week by law professors and the International Center for Law and Economics argues that the Ninth Circuit's position is "inconsistent with modern antitrust jurisprudence and economics, which treat improvements to consumer welfare as the very aim of competition and the antitrust laws."

"If permitted to stand," the brief states, "the panel's decision will signal to market participants that the efficiencies defense is essentially unavailable in the Ninth Circuit, especially if those efficiencies go towards improving quality. Companies contemplating a merger designed to make each party more efficient will be unable to rely on an efficiencies defense and will therefore abandon transactions that promote consumer welfare lest they fall victim to the sort of reasoning employed by the panel in this case."

Furthermore, the brief states that the panel implied that only price effects can be cognizable efficiencies, noting that the District Court "did not find that the merger would increase competition or decrease prices." The professors claim that price divorced from product characteristics is irrelevant. The relevant concept is quality-adjusted price and "showing that a merger would result in higher product quality at the same price would certainly establish cognizable efficiencies."

Decision creates obstacles to the Triple Aim

The professors also wrote that the original decision creates an obstacle to healthcare innovation and the country's need for greater healthcare integration that takes a "Triple Aim" approach to improve the care experience and overall health of the population while reducing costs.

It is undisputed, they said, that through vertical integration, St. Luke's and Saltzer were able to improve healthcare within the Nampa region and move away from a fee-for-service model to one focused on population health.

"By creating a barrier to considering quality-enhancing efficiencies associated with better care, the approach taken by the panel will deter future provider realignment and create a 'chilling' effect on vital provider integration and collaboration," they wrote.

Furthermore, they said, if the panel's decision is upheld, providers will be less likely to engage in realignment aimed at improving care and lowering long-term costs. "As a result, both patients and payers will suffer in the form of higher costs and lower quality of care," the brief states. "This can't be--and isn't--the outcome to which appropriate antitrust law and policy aspires."

There's little chance statistically for St. Luke's to prevail at this point, according to the Idaho Statesman. Only 17 of 785 petitions for full-court reviews were heard in 2014, the newspaper said. 

But David Balto, an antitrust attorney and former policy director for the Federal Trade Commission who filed the amicus brief on behalf of the professors, told FierceHealthcare in an exclusive interview Tuesday that the professors who wrote the brief are lumninaries that lawyers turn to when addressing anti-trust laws. They raise serious issues of national significance and there is a good chance the Ninth Circuit will agree to a full-court review.

"I think it wll resonate with the court," he said. "We are not talking about adding a better quality picture to a $6,0000 Apple wristwatch. We are talking about providing the level of care to save lives. To dismiss quality of care arguments is sort of stunning."

For more:
- read the amicus brief via the law office of David Balto (.pdf)
- here's the petition for rehearing filed by St. Luke's via the Idaho Statesman (.pdf)
- check out the Idaho Statesman article

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