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FTC Convinces Ninth Circuit That Improved Patient Care Is No Cure For Anticompetitive Healthcare Merger

Posted  February 11, 2015

By Matthew L. Cantor

The Federal Trade Commission (“FTC”) chalked up another victory against a healthcare merger yesterday as the U.S. Court of Appeals for the Ninth Circuit Court of Appeals affirmed the decision of the U.S. District Court for the District of Idaho blocking a merger between St. Luke’s Health System and a primary care physician (“PCP”) group in Nampa, Idaho.

The appellate court’s decision in the closely-watched case of St. Alphonsus Medical Center v. St. Luke’s Health System held that the district court correctly found that, even though the merger could have improved the delivery of health care in the Nampa market, such a defense was inadequate under antitrust law because there was no showing that the merger would increase competition or decrease prices.  Notably, the Ninth Circuit agreed with the lower court that the issue of patient outcomes was irrelevant to whether the merger offended antitrust law under Section 7 of the Clayton Act.  The Ninth Circuit held that the merger was anticompetitive, particularly because the merger would have increased concentration in the relevant market for PCP services in Nampa and barriers to entry in that market are high.

The Ninth Circuit also upheld the geographic market defined by the FTC – which only encompassed a single city.  The court noted that the market definition was supported by the facts that showed that insurers would likely pay a small, but significant, non-transitory increase in price – or a SNIPP – for PCP services to a hypothetical monopolist of such services in Nampa.

While the Ninth Circuit cast doubt on the propriety of an efficiencies defense under Section 7, it held that, even if such a defense were recognized, the defendants failed to produce evidence that would establish such a defense.  Specifically, the court noted that none of the purported efficiencies of the transaction were merger-specific – a pre-requisite for proving such a defense.

Finally, the Ninth Circuit upheld the district court’s remedy, requiring the defendants to divest the primary care physician practice that was acquired.

Edited by Gary J. Malone

Tagged in: Antitrust Litigation,