Federal Court Orders Unscrambling of Omelet

On January 24 the U.S. District Court for Idaho ordered the unscrambling of the omelet that St. Luke’s Health System created when it acquired Saltzer Medical Group at the end of 2012.  The transaction had not required a Hart-Scott-Rodino filing and had survived an earlier request by competitors for a preliminary injunction.

Before the combination, St. Luke’s owned six hospitals and a number of other facilities and physician clinics.  With 44 physicians, Saltzer had been Idaho’s largest multispecialty group.

The court ruled that the combined St. Luke’s-Saltzer entity simply had too much leverage in negotiating prices with insurance companies.  It permanently enjoined the transaction under Clayton Sec. 7 and the Idaho Competition Act and ordered St. Luke’s to divest itself of Saltzer.

What’s noteworthy about the decision?  Five things: (1) the transaction closed 13 months before the decision; (2) the transaction had prevailed at the temporary injunction stage; (3) the court acknowledged the need for a shift from fragmented delivery to integrated delivery; (4) the court was “convinced” that the combination would “improve patient outcomes”; and–fascinatingly–(5) in concluding that the combination had too much market power, the court cited not only its size and market share, but also the “sterling reputations” of the two combining entities.

Today’s post was contributed by Norman G. Tabler, Jr.

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