THE BLOG
08/01/2014 03:51 pm ET Updated Oct 01, 2014

Ninth Circuit Hits Pause Button on Critical Idaho Hospital Merger

The main course for federal antitrust enforcement appears to be the Federal Trade Commission's efforts to challenge hospital mergers. These efforts hit a snag late last month when the Ninth Circuit Court of Appeals stayed a decision by an Idaho district court to unwind the acquisition of Nampa, Idaho-based Saltzer Medical Group by St. Luke's Health System. While not a decision on the merits, this largely unnoticed development could portend a ruling with significant impact on access to health care services for underserved patients in rural Idaho and across the country.

The underlying antitrust case is a challenge by private plaintiff hospitals, the Idaho Attorney General, and the FTC. Unlike many health care merger cases involving the horizontal combination of large and dynamic, multi-hospital health systems, the St. Luke's case involves a vertical affiliation between the St. Luke's health system and Saltzer's 41 physicians. In their initial complaint, the FTC and the State of Idaho argued that the acquisition of just 16 of Saltzer's primary care physicians could substantially lessen competition for primary care services for the 80,000 citizens of Nampa, Idaho, located in Canyon County.

In a Janus-like decision, the district court found the acquisition potentially anticompetitive and ordered divestiture. Although finding an antitrust violation, the district court spoke with unusual clarity that the transaction was intended "primarily to improve patient outcomes" and would "improve the quality of medical care" in Idaho. In particular, it would improve health care by making Saltzer physicians part of a clinically integrated system using a shared electronic record system, facilitating a movement by St. Luke's and Saltzer to value-based (rather than volume-based) payment, and instituting population health management. In addition, the transaction enables Saltzer physicians to now offer health care services to Idaho's most vulnerable patients. Despite all these benefits of the affiliation, the district court believed its hands were tied and ordered an immediate divestiture.

The Ninth Circuit saw things differently. And not surprisingly. As articulated in an amicus brief submitted to the Ninth Circuit by consumer groups, consumers, especially the underserved, have already received significant benefits from the acquisition in increased access and quality of care.

Prior to the acquisition, Saltzer, because of its limited size and available resources, could not transition to an efficient and integrated, patient-oriented health care model. Instead, Saltzer was stuck in a "siloed-approach" to medicine in which physicians worked autonomously and lacked coordination with other providers. Saltzer physicians were paid based on a fee-for-service model in which payment is tied to each, individual procedure instead of patient outcomes. As noted extensively during the debates on the Affordable Care Act, the fee-for-service system incentivizes providers to increase utilization of services on higher paying patient populations, i.e. Medicare and private insurance, to maximize total revenue. Saltzer's reliance on fee-for-service payments meant it could not afford to serve Medicaid and uninsured populations that offer low, and sometimes no, reimbursement.

The problem of Saltzer being unable to treat needy patients is compounded by the fact that Idahoans need improvements in their health care. As a state, Idaho faces two important health care problems. First, like many rural states, parts of Idaho face a shortage of physicians. According to the Idaho's Health Quality Planning Commission, 97 percent of Idahoans live in an area with a shortage of physicians limiting access to primary care services. Second, Idaho has a large number of patients who either lack insurance or rely on Medicaid. Both Medicaid and uninsured patients are likely to have worse health conditions and have higher instances of illness, making managing these patient populations' health outcomes of critical importance in improving quality of care within the state. Canyon County has both a shortage of primary care physicians and has the largest number of Medicaid enrollees of any county in Idaho.

While the merger is not a panacea for Idaho's health care issues, it has noticeably improved access and quality for some of the state's most needy patients. Since the transaction, Saltzer has effectively been serving all patients in Canyon County. By combining with St. Luke's and moving Saltzer's physicians into an integrated system focused on quality of care and risk-based reimbursement, Saltzer physician revenue is no longer tied to fee-for-service or influenced by the insurance status of their patients. Thanks to the merger, the uninsured and underserved patients of Canyon County are receiving expanded access to primary care and other offered services including increased physician outreach to patients in various disadvantaged communities.

But for the Ninth Circuit's decision to stay the divestiture of Saltzer, the acquisition would have been unwound, and patients and other consumers would have suffered. However, given the Ninth Circuit's acceptance of the defendants' motion to stay, the Court can consider the essential issue -- the merger's ability to improve care and access for Idaho's most vulnerable patients.