LAST MONTH, A FEDERAL JUDGE RULED that St. Luke’s Health System of Boise, Idaho, violated antitrust laws when, in 2012, it acquired Saltzer Medical Group, the largest independent medical practice in the state.
In ruling against the merger of a hospital and physician group, the judge said that the combined entity violated antitrust law and would drive up costs by having physicians charge more for routine laboratory tests and imaging scans.
This antitrust case has interesting implications for hospitals and clinical lab companies. That’s because internal documents of the defendants outlined their plans to raise prices after the merger was completed, including prices for lab tests.
Essentially, the federal government’s position was that St. Luke’s was illegally altering competition in a way that would allow it to increase prices for medical services, particularly in Southwest Idaho.
For its part, St. Luke’s and Saltzer asserted the defense that their merger was essential to institute a new payment arrangement where healthcare providers would be rewarded for high-quality work. The defendants also said that the merger would help stabilize insurance rates in Idaho while allowing more poor patients in the region to have access to care.
In his decision issued on January 24, B. Lynn Winmill, Chief Judge of the US District Court in Idaho, ruled that the St. Luke’s Health System in Boise needs to unwind its acquisition of the Saltzer Medical Group, a 40-physician multispecialty practice in nearby Nampa. The merger would have an anticompetitive effect on the delivery of care, Winmill wrote. Other hospitals in Boise had sued to stop the merger, and the FTC joined the case to oppose the merger as well.
During the trial, Winmill agreed to a request from defendants to withhold much of their testimony from public view. Following his ruling, Winmill unsealed the testimony and public documents, offering an inside look at the financial factors behind the deal.
Increase Insurer Payments
“St. Luke’s own analysis of the acquisition considered the possibility that it could increase commercial reimbursements by insisting that health plans pay higher ‘hospital-based’ rates for routine ancillary services, such as x-rays and laboratory tests, even when those services are performed in the same physical location as before the acquisition,” Winmill wrote.
Before the acquisition, Saltzer performed many routine ancillary services at its own facilities, including laboratory and diagnostic testing, Winmill wrote. “After the acquisition, if St. Luke’s were to bill for these ancillary services at the higher ‘hospital-based’ rates, Blue Cross of Idaho estimates that costs under its commercial contracts would increase by 30% to 35%,” he added.
Internal documents produced during the trial showed that St. Luke’s projected that it could gain an extra $750,000 per year for laboratory testing from commercial payers by billing lab specimens from Saltzer through its hospital-based billing department. using the same methods, St. Lukes estimated it could generate $900,000 per year more for diagnostic imaging.
Billing at Hospital Prices
It was revealed during trial that the physicians alone could not bill at these higher rates. “Consultant Peter LaFleur prepared an analysis at the direction of St. Luke’s showing how office/outpatient visits could be billed for higher amounts if the visit was hospital-based rather than Saltzer-based. The hospital-based billings were more than 60% higher,” Winmill explained. “After the acquisition, if St. Luke’s were to bill for [routine services such as lab tests or X-rays] at the higher ‘hospital-based’ rates, [Blue Cross of Idaho] estimates that costs… would increase by 30% to 35% percent.”
To acquire the Saltzer Medical Group, St. Luke’s planned to spend as much as $16 million and would give the physicians a pay raise of 30% after the acquisition, Winmill wrote. To pay for this raise, St. Luke’s planned to obtain “higher hospital reimbursement from the health plans,” he added. even before the acquisition, Idaho insurance rates for a routine doctor’s office visit were already higher than 95% of those paid by other insurers nation- wide, Winmill wrote.
Following St. Luke’s announcement of its acquisition of Saltzer, it was sued by Saint Alphonsus Health System and Treasure Valley Hospital. The Federal Trade Commission and Idaho Attorney General Lawrence Wasden also joined the lawsuit, saying that the Saltzer deal gave St. Luke’s control of nearly 80% of the primary care market in Nampa. The plaintiffs noted the precedent of the Magic Valley region in eastern Idaho, where prices spiked following St. Luke’s acquisition of a large share of hospitals and physician groups in that market.
St. Luke’s is expected to appeal this case. If it does, a final determination may take another year.
This case attracted national attention because it went beyond the antitrust issue that were the core of the lawsuit. Following conclusion of the trial phase, a variety of interests, including media outlets, sued in the Ninth U.S. Court of Appeals to unseal and make public the pricing data and similar evidence presented during the trial. Both St. Luke’s and Blue Cross of Idaho opposed that request.
The defendants opposed that lawsuit because, in antitrust lawsuits, pricing information is considered to be a trade secret. That is why the 575 written exhibits, 38 witness depositions, and approximately a third of the live testimony given in the trial were initially sealed by the judge.
Repercussions from this Case
In the meantime, the disclosure of how St. Luke’s planned to generate additional revenue from its acquisition of a physician group will have repercussions. As discussed by the judge, St. Luke’s own analysis of the acquisition of Saltzer Medical Group showed that it could increase revenue from the Saltzer lab specimens by $750,000 per year simply by moving the billing from the medical group to the hospital billing department.
Because of the publicity of this antitrust lawsuit, many health insurers are likely to review the prices they are paying hospital laboratories for outreach specimens—those lab tests that originate in physicians’ offices. For hospital lab outreach programs that do bill using hospital lab test prices, this will be an unwelcome development. It means more downward pressure on lab test prices.