In Highly-Anticipated Decision, Ninth Circuit Affirms That Hospital-Physician Group Merger In St. Luke’s Violated Section 7 And Casts Serious Doubt On Viability Of Efficiencies Defense

On February 10, 2015, the Ninth Circuit issued its highly-anticipated decision at the intersection of health care and antitrust, affirming the lower court's finding that a hospital-physician group merger completed nearly three years ago violated Section 7 of the Clayton Act. St. Alphonsus Med. Ctr. - Nampa Inc. v. St. Luke's Health Sys., Ltd., No. 14-35173 (9th Cir. Feb. 10, 2015) ("St. Luke's"). The significance of St. Luke's cannot be overstated. It is the first challenge of a hospital-physician group merger by the Federal Trade Commission that proceeded to trial. And, the Ninth Circuit's opinion includes significant judicial guidance for future health care mergers, casting serious doubt on the viability of a "post-merger efficiencies defense" to a prima facie case of a Section 7 violation and declaring that proof of "extraordinary efficiencies" that are "merger-specific" is required to successfully offset anticompetitive concerns in highly concentrated markets.

St. Luke's was the result of a 2012 acquisition by St. Luke's Health Systems (a not-for-profit health care system which operated an emergency clinic in Nampa, the second-largest city in Idaho) of Saltzer Medical Group, P.A. (the largest multi-specialty physician group in Idaho) ("Saltzer"). Saltzer was also the largest primary care physician ("PCP") provider in Nampa, with 16 PCPs. While the acquisition resulted in a combined share of 80% of the PCPs in Nampa, it did not require Saltzer physicians to refer patients to St. Luke's Boise hospital, nor to use St. Luke's facilities for ancillary services.

Following on the heels of a private antitrust suit brought by competing hospitals, the FTC and the State of Idaho joined in challenging the merger, alleging anticompetitive effects in the Nampa PCP market. A five-week bench trial culminated in the district court's holding that while the merger was intended primarily to improve patient outcomes and "St. Luke's is to be applauded for its efforts to improve the delivery of health care," the same effects could have been achieved in other ways, and the high post-merger market share could not be overcome. St. Alphonsus Med. Ctr. - Nampa Inc. v. St. Luke's Health Sys., Ltd., 2014 WL 407446 (D. Id. Jan 24, 2014).

Reviewing the district court's findings of fact for clear error and its conclusions of law de novo, the Ninth Circuit affirmed the district court's findings that: (1) Nampa was the relevant geographic market; (2) plaintiffs easily...