Hospitals go to court over acquisition of medical group

Saint Alphonsus Health System and Treasure Valley Hospital have taken legal action to stop St. Luke’s Health System from acquiring the largest physician group in Nampa, alleging the acquisition would lead to a monopoly.

In a federal court complaint filed Nov. 12, Saint Alphonsus and TVH allege that a St. Luke’s takeover of the Saltzer Medical Group would violate antitrust laws, creating a monopoly that would raise health care prices, suppress competition and cause layoffs at other health facilities. It asks a federal judge to issue an injunction prohibiting the sale of Saltzer to St. Luke’s, as well as monetary damages.

“Most urgently and irreparably, St. Luke’s acquisition of Saltzer will deal a crippling financial blow to Saint Alphonsus Nampa hospital, which depends on the admissions from Saltzer physicians,” the lawsuit states.

St. Luke’s spokesman Ken Dey said Nov. 12 that there were a “number of inaccuracies” in the lawsuit and that it mischaracterizes St. Luke’s approach to providing health care to the Treasure Valley.

“This will be good for the community and will not in any way hurt competition and raise costs,” Dey said.

Saltzer Medical group is the largest physician-owned doctor group in the state, boasting membership of all of Nampa’s internists, all but one of the city’s pediatricians and all the city’s rheumatologists, according to the lawsuit.

The Federal Trade Commission and the Idaho Attorney General’s office have both confirmed they are conducting an investigation into whether the deal would violate antitrust laws and have asked St. Luke’s to hold off completing the deal until the investigations are completed.

St. Luke’s has indicated it will move forward with the acquisition anyway, prompting a Nov. 8 letter from Deputy Attorney General Brett T. Delange that complains of incomplete responses to record requests by the agency and warns of a potential legal fight if St. Luke’s does not delay its plans.

“To proceed to close under such circumstances is not constructive and counter-productive,” Delange writes. “Indeed, such a strategy would appear designed to invite litigation.”

The lawsuit from Saint Alphonsus is a civil complaint and is not related to the FTC and attorney general investigations – although its allegations mirror the subject matter under investigation.

Dey said Nov. 12 the company plans to move forward with the deal, despite the new lawsuit and investigations.

Over the past years, St. Luke’s and Saint Alphonsus have engaged in an arms race of acquiring physicians to work for the hospitals. The formerly independent doctors then refer their patients to the health giants for medical needs that cannot be met by personal physicians.

St. Luke’s has swallowed 22 independent practices, or about 200 doctors, in the past four years. Saint Alphonsus has acquired four physician groups in the same time period, said spokeswoman Elizabeth Duncan.

Saint Alphonsus complains that the larger doctor buildup by St. Luke’s, the larger of the two health care providers, has led to more local doctors only giving referrals to St. Luke’s, which has quashed competition.

“This is consistent with the pattern after St. Luke’s acquisitions of physician practices in Boise, where the physicians whose practices were acquired reduced their admissions at Saint Alphonsus by more than 90 percent after the acquisitions,” the lawsuit states.

Dey said Saltzer approached St. Luke’s for the acquisition deal, not the other way around. He said that has been the case with all of the acquisitions St. Luke’s has made of independent practices in the area.

“We did not approach Saltzer to acquire them; this was initiated by Saltzer,” Dey said, adding that Saltzer gave Saint Alphonsus the opportunity to bid on acquisition as well. “Obviously Saltzer believed we would be the best partner for them.”

Dey said any accusations that St. Luke’s forced its doctors to make referrals only to St. Luke’s facilities was completely false.

“That is simply not the case. We don’t have any policy that tells physicians (where to refer patients),” Dey said.

The lawsuit paints a dark picture of the Treasure Valley health care landscape if the deal goes through. Among the negative effects alleged by Saint Alphonsus and TVH in the suit:

• Health insurance plans would not be able to “credibly” threaten to drop St. Luke’s as a service provider, even if its prices skyrocket above competitive market costs.
• Employers and employees would be passed along significantly higher rates without any opportunity for redress.
• New competition that could come into the health care market would be stymied by St. Luke’s before it could begin.
• Saint Alphonsus Nampa would have to lay off 140 people and engage in “the reduction of termination of key services” at the hospital.
• A 10 percent reduction in staff at TVH would be needed and plans to add more hospital beds, buy new equipment and switch to electronic medical records would be delayed or cancelled.

Most of these alleged negative effects would be caused by St. Luke’s near-monopoly of specialists in the Nampa area, which would force health plans to include St. Luke’s or face the possibility of failing to provide a host of standard medical procedures locally, the lawsuit states.

“Thus, health plans in the area now must either reach agreement with St. Luke’s, likely at substantially higher rates, offer a commercially unattractive health care network to their members, or be forced to exit Nampa altogether,” the lawsuit states.

Dey said the data used by Saint Alphonsus and TVH is inaccurate and the lawsuit makes errors in reporting what St. Luke’s new market share would be after the acquisition. For example, the lawsuit states that St. Luke’s would have about two-thirds of the primary care physicians working for St. Luke’s after the merger. St. Luke’s projections show that number closer to 28 percent, he said.

Many of the arguments made in the lawsuit are contingent upon St. Luke’s having control of a significant number of doctors in the area to be considered evidence of antitrust activities.

Saint Alphonsus and TVH point to St. Luke’s activities in the Magic Valley as evidence of its plans for higher pricing for health care.

The lawsuit states that St. Luke’s control of about 70 percent of doctors, 80 percent of primary care facilities and all of some specialist fields in the Magic Valley has driven up prices.

“As a result of St. Luke’s consolidation of power in the Magic Valley, it has been able to charge prices far above competitive levels. The cost for services doubled the first year St. Luke’s Wood River Medical Center opened and price increases in the Magic Valley have only continued to increase from there,” the lawsuit states.

Dey said St. Luke’s will make public a more robust defense of its practices once it has time to properly evaluate the lawsuit, which it received the same time the media did.

“Obviously we’re disappointed that they chose to take this route,” he said.