Saint Alphonsus Medical Center-Nampa Inc. v. St. Luke's Health System, Ltd.
2015 U.S. App. LEXIS 2098
| 9th Cir. | 2015Background
- In 2012 St. Luke’s Health System acquired Saltzer Medical Group (a large multi‑specialty physician group) and entered a five‑year professional services agreement with its physicians; Saltzer received $9 million for goodwill.
- Before the transaction Saltzer was the largest adult primary care provider (PCP) in Nampa, Idaho; Saint Alphonsus operated the only hospital in Nampa and, with Treasure Valley Hospital, ran an outpatient surgery center.
- The FTC and the State of Idaho (joined by two local hospitals) sued under Clayton Act § 7 and state law, consolidated with a private complaint, and after a 19‑day bench trial the district court found the merger likely to substantially lessen competition in the Nampa adult PCP market and ordered divestiture.
- The district court relied on a geographic market limited to Nampa, very high post‑merger concentration (HHI ≈ 6,219; increase ≈ 1,607), findings that insurers would need Nampa PCPs in-network (so insurers couldn’t discipline prices), and high barriers to timely entry.
- St. Luke’s argued the merger produced procompetitive efficiencies (integration, risk‑based reimbursement, shared EMR) that would rebut the prima facie case and proposed conduct remedies; the district court found efficiencies neither merger‑specific nor sufficient and chose divestiture.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Relevant geographic market | Nampa is the market for adult PCP services because insurers must include local PCPs to compete for Nampa residents | Market is broader (e.g., Boise); consumers would travel or insurers could steer to non‑Nampa PCPs, so Nampa is too narrow | Court found no clear error in defining the Nampa geographic market; insurers need Nampa PCPs and consumers unlikely to respond to a SSNIP by switching outside Nampa |
| Prima facie case under §7 | High post‑merger HHI, likely insurer inability to negotiate, and high entry barriers show appreciable risk of higher PCP reimbursement | Transaction unlikely to lessen competition materially; internal PSA limits and no mandatory referral requirements | Prima facie case established based on extreme HHI, probable post‑merger bargaining leverage, and entry barriers (ancillary‑services theory dismissed) |
| Efficiencies rebuttal | Efficiencies (integrated care, Epic EMR, risk‑based payment) are merger‑specific, verifiable, and will increase competition | Efficiencies are not merger‑specific, speculative, and do not show reduced market power | Court (assuming efficiencies defense conceivable) held St. Luke’s failed to clearly demonstrate merger‑specific, verifiable efficiencies that would negate anticompetitive effects |
| Remedy | Divestiture unnecessary and destroys procompetitive gains; prefer conduct remedies (separate bargaining groups) | Divestiture will not restore competition; conduct remedy could address harms | Court did not abuse discretion in ordering divestiture; divestiture preferred and conduct remedy rejected as insufficient/entangling |
Key Cases Cited
- Brown Shoe Co. v. United States, 370 U.S. 294 (prediction of future competitive effects required under §7)
- United States v. Philadelphia Nat’l Bank, 374 U.S. 321 (§7 aimed to arrest anticompetitive tendencies in their incipiency)
- United States v. Marine Bancorporation, 418 U.S. 602 (market definition prerequisite to §7 analysis)
- Olin Corp. v. FTC, 986 F.2d 1295 (burden‑shifting framework in merger cases)
- H.J. Heinz Co., 246 F.3d 708 (efficiencies defense discussion; extraordinary efficiencies required to offset high concentration)
- E. I. du Pont de Nemours & Co., 366 U.S. 316 (divestiture as primary §7 remedy)
- Procter & Gamble Co., 386 U.S. 568 (possible economies do not justify otherwise unlawful mergers)
- FTC v. Univ. Health, Inc., 938 F.2d 1206 (analysis of efficiencies in hospital merger context)