St. Luke's vs. St. Alphonsus: Battle of health systems centers on market share, quality of care

The deal, on paper, was simple enough. St. Luke's Health System, an Idaho-based, not-for-profit health system, would purchase the Saltzer Medical Group in Nampa--the state's largest independent physician practice.

The acquisition, which took place in December 2012, would allow the entities to transform healthcare in the region by offering integrated care across all settings. But the deal quickly became more complicated than St. Luke's ever imagined, said 

Christy Neuhoff, St. Luke's chief legal counsel told FierceHealthcare in an exclusive interview.

St. Luke's and Saltzer have yet to fully realize that vision because the health system's main competitor, Saint Alphonsus Health System in Boise--as well as the Boise surgical center Treasure Valley Hospital, the Federal Trade Commission (FTC) and the Idaho attorney general--are suing St. Luke's in an effort to undo the purchase, which they claim is illegal and will reduce competition for primary care in the Nampa area.

Both sides recently wrapped up their closing arguments of a four-week trial and are awaiting a judge's ruling.

The case, according to U.S. District Judge B. Lynn Winmill, was "undoubtedly one of the most difficult" he's had to preside over, because the "stakes are extremely high not only for the entities here, but for the community," the Idaho Statesman reported.

The case has national repercussions as it is the first to go on trial to challenge a health system acquisition of a physician practice since the passage of the Affordable Care Act.

St. Luke's argues that its goals are consistent with the ACA and with the objectives that health policy experts believe is the best way to deliver higher quality at a lower cost, Neuhoff told FierceHealthcare.

"So if we are to address the healthcare crisis the country has found itself in then we can't deliver care in a fragmented way as we have done in the past," she said.

The implication of the case is whether a mid-size market or a small community gets to have the benefits of a new healthcare delivery model or whether it is only available in a large city, Neuhoff said.

Also at risk is the future of the Saltzer group and its 40 physicians, which have served patients in Canyon County for 50 years. The practice decided it needed to work with a system in order to provide the care it wanted to deliver to patients and believed St. Luke's was the right partner, according to Neuhoff.

"If they can't partner with us, they can't partner with another health system either and they don't get to practice the medicine they want to for the benefit for the community. And that would be a real shame," she said.

But the heart of the case centers on competition in the marketplace. The FTC and St. Alphonsus argue the physician group acquisition gives St. Luke's an unfair and illegal marketplace advantage by dominating primary medical care in Canyon County. And Tom Greene, who represents the FTC, told the Associated Press that the buyout will raise healthcare prices and won't lead to better care.

St. Alphonsus representatives couldn't be reached for comment by deadline today, but Brett DeLange, Idaho's deputy attorney general, told FierceHealthcare that state law prohibits acquisitions if they will substantially lessen competition in the marketplace. "At issue is whether St. Luke's acquisition of Saltzer violates the law and we believe it does," he said.

If the buyout remains in place, DeLange said it will create an 80 percent hold on the primary care market in Nampa, which he believes is a detriment to consumers.

"This lawsuit doesn't stop St. Luke's from pursuing healthcare reform, evidence-based medicine, integrated care or more risk-based contract arrangements. But you can't buy your way to a market power position," he said. 

It will likely be weeks before Winmill reaches his decision due to the complexity of the case. And the ruling may not necessarily be a winner-take-all. Under consideration is a compromise hybrid merger that would allow St. Luke's to still own Saltzer and employ its physicians, according to the Idaho Statesman. But the hospital and the medical group would negotiate insurance contracts as separate companies.

St. Luke's says this approach should alleviate concerns that the medical group would have an advantage through its ownership of forcing higher payments from insurance companies, according to the article. Yet it would keep St. Luke's plans for an efficiency-based contract with Utah insurer SelectHealth, which the system says it can't accomplish without Saltzer. 

DeLange, however, is opposed to the hybrid plan.

"It's up to the judge to decide, but in short, Saltzer would still be owned by St. Luke's," he said. 

For more:
- here's the Idaho Statesman article
- check out the AP piece via the Idaho Business Review