By: Jeff Cohen
A January 24, 2014 court ruling in Idaho that will require the unwind of a hospital system’s purchase of a large primary care medical practice will cause mega practices to think twice about their size. The Idaho court ruled that St. Luke’s Health System’s purchase of the 40 physician Saltzer Medical Practice violated pertinent state and federal antitrust laws because the group had 80% of the primary care physicians in Nampa, Idaho, a city of roughly 85,000. The suit was brought by two competing hospitals and succeeded, despite St. Luke’s claims that integrating the practice would improve the quality of care.
The decision was the first time a hospital’s acquisition of a physician practice was challenged. Though the hospital is expected to appeal, the court has ordered that the practice purchase be unwound.
Such antitrust based challenges are certainly more sustainable as mega physician practices are established and later become acquisition targets. They are more of a reality in smaller communities, with less competition and a smaller “relevant geographic area.” States like Florida are inherently less vulnerable to attacks, since the relevant geographic and service areas are a little more fluid and competition is fierce, even in the face of integration choices like mega practice formations. Moreover, the federal antitrust Safety Zones (the DOJ Statements of Antitrust Enforcement Policy in Health Care) provide some comfort and guidance to those looking at such opportunities, since they shed some light of how big the Justice Department would find to be “too big.” The 20% and 30% thresholds set forth in the Safety Zones and subsequent cases examined by the DOJ are very helpful.
Even arrangements that violate applicable antitrust law are not the “end of the story,” in light of the many integration opportunities available which would not violate the law, like ACOs, clinical integration arrangements, IPAs and the like. Still, particular attention and skill need to be applied to the up-front examination of antitrust issues, since no party would want to face an expensive investigation or unwind.