IN RESPONSE TO THE AFFORDABLE CARE

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1 Antitrust, Vol. 28, No. 3, Summer by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. Antitrust Treatment of Physician-Hospital Integration Post-FTC v. St. Luke s R O B E R T W. M C C A N N A N D K E N N E T H M. V O R R A S I IN RESPONSE TO THE AFFORDABLE CARE Act and interest in health reform generally, there has been a swift rise in health care provider consolidation in recent years. This increase includes hospitals and health systems that are working to develop strategies aimed at aligning or integrating with physicians. Although hospital-physician acquisitions, for the most part, have historically escaped antitrust scrutiny, today these transactions are receiving increasing attention from antitrust authorities, such as the Federal Trade Commission and state attorneys general. The most recent and notable example of this is FTC v. St. Luke s Health System, an important victory, 1 in which the FTC and the Idaho Attorney General successfully challenged St. Luke s Health System s acquisition of a group of primary care physicians, the Saltzer Medical Group, in Nampa, Idaho. 2 This article examines the FTC s case against St. Luke s, as well as other recent antitrust enforcement directed at hospital-physician integration, to assess how antitrust authorities are analyzing these transactions today and what the recent antitrust enforcement in this area portends for future antitrust scrutiny of hospital-physician acquisitions. The FTC s Case against St. Luke s Health System s Acquisition of Saltzer The Complaint. In March 2013, the FTC and the Idaho Attorney General filed a complaint for an injunction against St. Luke s, alleging that its acquisition of Saltzer would substantially lessen competition for health care services in Nampa and Caldwell, Idaho. 3 In its complaint, the FTC alleged that Saltzer is the leading group of independent multi-specialty Robert W. McCann and Kenneth M. Vorrasi are partners in the Washington, D.C. office of Drinker Biddle & Reath LLP. Messrs. McCann and Vorrasi represent some of the health care providers discussed in this article, and the views expressed herein do not necessarily represent the views of their clients. physicians in Nampa, 4 followed by St. Luke s and then St. Alphonsus Health System; 5 and that the combination of St. Luke s and Saltzer would give St. Luke s close to a 60 percent share of the market for primary care physician (PCP) services in the Nampa area; 6 and that this combination of the two largest providers of PCP services in the Nampa area would create a highly concentrated market and was, therefore, presumptively unlawful under the U.S. Department of Justice and Federal Trade Commission s Horizontal Merger Guide - lines. 7 The FTC alleged that the acquisition would bring about two different types of anticompetitive effects: (1) increased negotiation leverage with commercial payors that would result in higher prices for St. Luke s PCP services; and (2) an increase in the cost of ancillary services, such as laboratory tests and X-rays, from PCPs referring patients to St. Luke s higher-cost facilities. 8 Regarding the former, the FTC alleged that the Saltzer acquisition was the latest in a series of physician additions that St. Luke s had made in recent years in the Treasure Valley of Idaho (which includes Nampa), 9 and that St. Luke s had thereby progressively gained ever increasing bargaining leverage and the ability to extract higher rates through its negotiations with its health plans. 10 It asserted that, prior to the Saltzer transaction, health plans had been able to counteract St. Luke s leverage because there were sufficient physician alternatives, namely Saltzer and St. Alphonsus, 11 and those alternatives constrained St. Luke s pricing decisions. With the elimination of Saltzer as a credible alternative to St. Luke s, however, health plans allegedly would be compelled to accept St. Luke s price demands. That is, because St. Luke s would control 60 percent of the PCP market in Nampa, payors could not offer a commercially viable network to employers in the Nampa area that did not include St. Luke s-saltzer. 12 The FTC further alleged that anticompetitive effects would result from an increase in the prices health plans would pay for ancillary services as a result of the Saltzer acquisition. St. Luke s (like most hospitals) received higher rates from payors for ancillary services performed at St. Luke s, compared to payments for the same services performed at facilities owned by independent physicians, and St. Luke s allegedly encouraged its physicians to direct patients to St. Luke s for ancillary services. Thus, patients would be forced to use St. Luke s more expensive facilities for the same ancillary services that they had previously obtained at facilities owned by independent physicians, and health plans would not be able to deter use of those higher-cost services at St. Luke s. 13 Based on those allegations, the FTC asked the court to permanently enjoin St. Luke s acquisition of Saltzer and order that St. Luke s divest all of the assets it acquired in order to restore competition in the Nampa area. 14 St. Luke s Defenses. St. Luke s put forward three principal defenses to the FTC s claims. First, St. Luke s challenged the FTC s delineation of Nampa, Idaho as a relevant geographic market, asserting the FTC failed to show that S U M M E R

2 A R T I C L E S Photo: SuperStock consumers could not practicably seek PCP services from outside of Nampa. St. Luke s further argued that there would remain sufficient alternatives to St. Luke s and Saltzer for PCP services both inside and outside of Nampa to combat any attempted post-acquisition price increase. 15 Second, St. Luke s asserted a dominant buyer defense, arguing that the Saltzer acquisition would not enable it to charge supracompetitive prices because of the dominant position of Blue Cross of Idaho (BCI) as a purchaser of health care provider services. St. Luke s contended that it could not walk away from a BCI contract without substantial economic loss as significant patient volume moved to St. Alphonsus and other providers. 16 Third, St. Luke s argued that the combination would generate substantial efficiencies and procompetitive effects because it would enable integrated, value-based patient care consistent with the objectives of federal health reform legislation. 17 This would include shared use of St. Luke s information technology, including electronic medical records; aligned incentives to enable a transition to value-based compensation; and provision of outcome-based care to the local population. 18 St. Luke s further argued that these benefits could not be achieved through a less-integrated affiliation: The transaction s benefits are merger-specific because the transaction will enhance the ability of the combined St. Luke s/saltzer to offer coordinated, patient-centered care; to support physicians in the practice of evidence-based medicine in an environment that rewards teamwork and value of care rather than volume of care; to accept risk and accountability for patients outcomes; and to manage population health. 19 It asserted that full integration was necessary because St. Luke s and Saltzer could not achieve these benefits as effectively or as quickly by any looser affiliation or other means. 20 The District Court s Decision. U.S. District Court Judge B. Lynn Winmill presided over a four-week bench trial in the Fall On January 24, 2014, the court issued its final decision, holding that St. Luke s acquisition of Saltzer violated Section 7 of the Clayton Act and the Idaho Com - petition Act. The court permanently enjoined the acquisition and ordered St. Luke s to fully divest itself of Saltzer s physicians and assets. 21 Before turning to the evidence, Judge Winmill noted that although many view the U.S. health care system as offering quality care (as is the view in Idaho), health care costs are ever-increasing at a rate that outpaces inflation. 22 The court noted that there is a rough consensus that the way to address this cost-quality dilemma is to move away from our current fee-for-service reimbursement model, which rewards high volumes, not quality procedures, to a system that focuses on maintaining a patient s health and rewards successful patient outcomes, innovation, and use of less-expensive means of achieving quality care. In the court s words, such a system would move the focus of healthcare back to the patient, where it belongs. 23 Judge Winmill acknowledged that there has been a broad if not slow movement to such a system, and St. Luke s has been one of the few hospitals that saw it coming and got out in front of it. The judge noted that St. Luke s began assembling physician groups who worked together to practice integrated medicine and compensated physicians based on patient outcomes an effort for which the court said St. Luke s should be applauded. 24 St. Luke s acquisition of Saltzer, the court explained, was consistent with St. Luke s intention to improve patient outcomes, and the court believed that the Saltzer acquisition likely would achieve that objective. But, the court concluded, the evidence also showed that the Saltzer acquisition would enable St. Luke s to extract higher reimbursement rates that would be passed on to employers and consumers in higher premiums. Because less-restrictive means were available to achieve the benefits of integrated medicine, the court concluded that the acquisition violated the antitrust laws and should be unwound. 25 The court found the evidence to support the FTC s complaint. It determined that Nampa was a relevant geographic market because the evidence showed that Nampa residents strongly prefer to use local PCPs and PCPs outside of Nampa did not view the Saltzer physicians as competitors. Saltzer and St. Luke s in combination controlled nearly 80 percent of the PCP services in that market. Thus, health plans such as BCI must have Nampa PCPs in their network to offer a competitive insurance product, and could not defeat a 5 10 percent price increase from Nampa PCPs. Given the high market shares and concentration, the court held that the acquisition was presumptively unlawful. 26 In this regard, the court also observed that the evidence established that Saltzer s closest competitor in Nampa was St. Luke s, and vice versa. Specifically, 33 percent of Saltzer s patients would switch to St. Luke s if those patients could not see Saltzer s physicians, and 50 percent of St. Luke s patients would switch to Saltzer s physicians if they could not see St. 7 6 A N T I T R U S T

3 Luke s physicians. 27 By eliminating each other s closest competitor, the court found that the merged firm could force health plans to pay greater reimbursement rates because there was no viable third Nampa option. 28 The court also agreed with the FTC that it was likely that the acquisition would enable St. Luke s to charge higher prices for ancillary services because it could direct those services to its higher-priced hospital facilities. 29 Before it was acquired, Saltzer performed routine ancillary services, such as laboratory tests and diagnostic imaging, at its own independent facilities. The court found that once Saltzer was acquired, St. Luke s had the ability and incentive to have those services performed at St. Luke s facilities, at an additional cost of percent to health plans. 30 Finally, the court rejected St. Luke s efficiency arguments because it found that the proffered efficiencies were not merger-specific, i.e., that St. Luke s could use less restrictive means than acquiring the Saltzer physicians and still be able to achieve the same procompetitive benefits of integrated medicine. 31 Relying in part on testimony from BCI, the court found that integrated care delivery does not require physicians to be employed and that there is no empirical evidence to suggest that an employment model is essential. The court observed that [t]here are a number of organizational structures that will create a team of unified and committed physicians other than [one]... that employs physicians and [creates] a substantial concentration of market power. 32 In the court s view, so long as the physicians are committed to improving the quality of health care and lowering costs, it is irrelevant whether they are employed or independent. 33 It concluded that because a committed team can be assembled without employing physicians, a committed team is not a merger-specific efficiency resulting from the acquisition. 34 The court similarly concluded that the proffered efficiencies associated with St. Luke s use of electronic medical records could be created without employing the physicians. 35 Based on the evidence, the court ordered St. Luke s to divest the Saltzer physicians and assets that it had acquired. 36 St. Luke s had proposed an alternative to divestiture that it and Saltzer separately negotiate their contracts with payors, but the court rejected that proposal, finding that although the acquisition had already occurred, it would not be unduly complex or burdensome for St. Luke s to divest the acquired physicians and assets from Saltzer. 37 Implications of St. Luke s for Physician-Hospital Acquisition Competitive Effects in the Physician Services Market and Foreclosure in the Hospital Services Market. A notable aspect of the St. Luke s litigation is the FTC s election to focus its complaint on the physician services market i.e., to bring a straightforward case alleging harm to purchasers of PCP services and not to challenge the acquisition s competitive effects in the hospital services market. Consolidation within physician services markets has provoked very little interest from the federal enforcement agencies in the past, even though it is undeniable that many local physician services markets are highly concentrated. 38 There are likely explanations for this previous lack of interest. Physician services markets, at least historically, have been thought to have low barriers to entry. Also, the growth of large medical practices often occurs incrementally rather than through major acquisitions. And, of course, growth that occurs through employment (as opposed to acquisition) is beyond the purview of the antitrust laws. Section 6 of the Clayton Act provides that labor is not a commodity or article of commerce. 39 The FTC s decision to pursue the physician services market in St. Luke s is also interesting because PCP services are far from the largest driver of health insurance premiums. For a typical health plan, only about 11 percent of premium revenue is paid out for primary care services. 40 This means that even a 10 percent increase in PCP prices would have an average effect on premiums (if fully passed on to customers) of only about 1 percent. The FTC s perspective has shifted as hospitals pursue vertical integration into the physician services market. Where the relevant physician market is primary care, this shift certainly would seem to be grounded in concerns about the impact of vertical integration on competition in the hospital services market. Primary care physicians control a high proportion of patient referrals to hospitals, both directly (for outpatient diagnostic tests and procedures and for the services of hospital-employed specialists) and indirectly (for inpatient admissions). 41 A hospital that employs a large share of the PCPs in a market has a leg up on its competition. Indeed, this competitive concern was at the forefront of the complaint filed against St. Luke s by St. Alphonsus Med - ical Center, the only other hospital in Nampa. It alleged that St. Luke s will gain a near monopoly share in the Nampa, Idaho market for adult primary care physician services market. It will continue its practice of foreclosing virtually all competition for the hospital admissions of the physician practices it acquires. 42 This allegation would certainly portend greater consumer harm than a simple rise in the price of primary care services. Nonetheless, the FTC complaint touched this issue only lightly 43 and the court s opinion focused exclusively on pricing effects for primary care and ancillary services. 44 One might speculate that this decision was legally pragmatic. Given the relatively low bar of Section 7 s standard of liability, 45 demonstrating a likelihood of adverse effects in the primary care market was both feasible and sufficient. How - ever, a case built on adverse effects in the hospital services market arguably could require circumnavigation of the Supreme Court s current restrictive view of monopoly leveraging, as well as the vagaries of enforcement of Section 2 of the Sherman Act. 46 Given that St. Luke s acquisition of Saltzer could not directly increase its market power in the hospital services market, St. Alphonsus s complaint as to expected adverse effects in that market begins to sound quite S U M M E R

4 A R T I C L E S like a Section 2 claim, particularly under the once-popular monopoly leveraging theory. 47 Under that theory, a firm with substantial market power in one market (here, PCP services) allegedly violates Section 2 by using its monopoly to gain a competitive advantage in a second market (here, hospital services). 48 However, monopoly leveraging as a distinct Section 2 cause of action was effectively quashed by the Supreme Court s 2004 decision in Trinko. 49 In that case, the Supreme Court refused to recognize such a theory separate from a traditional attempted monopolization claim, in which proof of a dangerous probability of successful monopolization of the second market is a necessary prerequisite to liability. 50 Look ing at the St. Luke s case from that angle, it is not surprising that the FTC avoided a Section 2 analysis altogether, instead relying on its Section 7 claims. 51 Evidentiary Requirements for an Efficiency Defense. One of the more important observations from the St. Luke s decision for future enforcement and litigation is that, as the court noted, St. Luke s efficiency defenses were hampered by a lack of empirical evidence concerning the effectiveness of employment models in achieving the objectives of clinical integration. Indeed, the Idaho court s rejection of the efficiency defense in this case is striking in light of the fact that a truly modest gain in overall network (hospital + physician) efficiency would more than offset any rise in PCP rates. 52 This evidentiary hurdle is likely to recur with regularity in future investigations and litigation concerning hospital-physician combinations because, to the extent it exists, evidence concerning the results of physician-hospital alignment and clinical integration is conflicting and mainly concerns past time periods in which the impetus for change in clinical practice was not as strong as it is today. Recent studies suggest that physician-hospital integration has tended to result in increased costs and prices. 53 There likely are a number of reasons for this result, including the fact that many (perhaps most) hospital-employed physicians continue to practice in a predominantly fee-for-service environment that has inherent incentives to increase the volume of services delivered. In addition, most health plans (including Medicare) continue to pay higher fees for hospital-based services than for the same services performed in physician offices. Empirical evidence concerning the clinical tools associated with integrated care delivery tends to be, at best, mixed. For example, earlier Medicare demonstration projects concluded that care coordination programs had an appreciable effect on utilization or health care spending. 54 Most of these projects were undertaken ten years ago, however. Evaluations of disease management programs funded by Medicare generally have found that net costs increased in most programs, and there was no widespread evidence of improved compliance with evidence-based care or behavioral change by patients. 55 The Medicare pay-for-performance demonstration (conducted ) yielded mixed results. Although all participating groups reached program benchmarks on most quality measures, only half generated actual savings. 56 In contrast, evaluations of medical home models undertaken by Group Health, for example, report improvement in prevention and chronic disease management, and reduced utilization of hospital emergency departments. 57 If the clinical integration model is to provide a basis for a viable antitrust defense, it is certain that courts, like the court in St. Luke s, will require evidence of consumer benefits beyond good intentions, and even if those benefits exist, that evidence will take time to accumulate. Remedies. The FTC and state attorneys general at times have taken different approaches to fashioning remedies that address competitive concerns created by hospital-physician acquisitions. In St. Luke s, the FTC successfully argued for complete divestiture of the Saltzer physicians. 58 St. Luke s asserted that a structural remedy of that sort would not restore competition because it was likely that Saltzer would dissolve, or carry on substantially weakened, making the PCP market less competitive than if the acquisition were allowed to stand. 59 Instead, to address concerns of increased bargaining power, St. Luke s proposed that Saltzer would negotiate its fee-for-service payor contracts separately from St. Luke s, relying on the FTC s willingness to accept a similar conduct remedy in the final order resolving its challenge to Evanston North western s acquisition of Highland Park Hospital. 60 In response, the FTC explained that the circumstances in Evanston were unique and that the Commission s decision ordering separate payor contracting in that case expressly reaffirmed that divestiture remained the proper remedy in the vast majority of cases. 61 The FTC also noted that since Evanston, it has successfully blocked attempts by merging parties seeking a similar conduct remedy, such as in FTC v. Promedica Health System, confirming the narrow applicability of the conduct remedy the Commission imposed in Evanston. 62 Although St. Luke s failed to persuade the court to refrain from ordering complete divestiture of the Saltzer physicians, the FTC and state attorneys general have been willing to agree to different remedies, including conduct remedies, in other enforcement actions challenging physician acquisitions. We examine those actions below. FTC v. Renown Health. In August 2012, the FTC, along with the Nevada Attorney General, announced that it reached a settlement with Renown Health, the largest health system in Reno, Nevada, concerning Renown s consummated acquisitions of two cardiology practices in 2010 and The FTC alleged that by acquiring the two leading cardiology practices (which contained 15 and 17 physicians, respectively), the acquisitions gave Renown control of over 88 percent of the market for adult cardiology services in the Reno area. 64 It further alleged that upon acquiring the physicians, Renown entered into employment agreements with each of the cardiologists that contained restrictive non-compete, non-solicitation, and non-interference covenants. As a 7 8 A N T I T R U S T

5 result of those acquisitions and the subsequent employment agreements, the FTC alleged that Renown would have a greater ability to raise prices for cardiology services to commercial health plans. It asserted that because of Renown s market power, health plans would no longer be able to threaten to exclude Renown from their networks if Renown sought a supracompetitive price increase for cardiology services. 65 To resolve those concerns, the FTC required that Renown allow a certain number of cardiologists to be released from their employment agreements. The FTC achieved this in two steps. First, it ordered that the non-compete covenants in the employment agreements immediately be suspended so that Renown s cardiologists could explore other professional opportunities should they wish to do so. 66 This suspense period lasted until the FTC s final order was entered, which occurred nearly four months after the settlement was announced. 67 Second, in its final order, the FTC created a second release period during which up to ten of Renown s cardiologists could terminate their employment agreements without penalty, provided that the cardiologist agreed to practice in the Reno area for at least one year. 68 Renown had no obligation under the FTC s order to release any more than ten cardiologists, and the release period remained opened under the order until at least six cardiologists elected to leave Renown. 69 The remedy in Renown Health is noteworthy for two reasons. First, unlike St. Luke s, the FTC did not require Renown to completely divest all of the cardiologists from Renown s second acquisition (17 physicians), which was the acquisition that allegedly conferred on Renown substantial control of the cardiology services market. 70 Instead, the FTC was comfortable requiring Renown to divest as few as six cardiologists to maintain competition. Second, in addition to accepting a partial divestiture, the FTC believed that suspending the non-compete covenants in the employment agreements would give physicians the contractual relief to explore other opportunities and thereby potentially increase competition in the Reno, Nevada area. 71 Pennsylvania v. Geisinger Health System Founda - tion. The Pennsylvania Attorney General imposed a different combination of remedies when it announced in June 2012 that it reached a settlement with Geisinger Health System Foundation regarding Geisinger s acquisition of hospital and physician assets of Bloomsburg Health System in Columbia County, Pennsylvania. 72 In this action, the Penn - sylvania Attorney General challenged both Geisinger s acquisition of Bloomsburg s sole hospital and Geisinger s acquisition of Bloomsburg s employed physicians, as unlawful under Section 7 of the Clayton Act. 73 Pennsylvania s complaint alleged that Bloomsburg em - ployed approximately 25 primary care and other non-tertiary specialty physicians in Columbia County and that Geisinger, through its Geisinger Clinic, employed over 900 primary and specialty physicians throughout central and northeastern Pennsylvania. 74 Although the complaint does not provide market share data for the physician services market, it alleged that Geisinger would control over 85 percent of the acutecare services market in Columbia County post-merger. 75 It further alleged that because the Geisinger hospital that competes most closely with Bloomsburg (Geisinger Medical Center) has a closed physician staff i.e., one in which only employed physicians may have privileges the acquisition would eliminate direct competition between Geisinger and Bloomsburg s employed physicians as well as independent physicians who had privileges at Bloomsburg s hospital. 76 The settlement imposed several conditions on Geisinger s post-closing conduct to address the alleged anticompetitive effects. First, Geisinger is prohibited from raising reimbursement rates for any services performed at the Blooms - burg hospital by a Bloomsburg physician who accepts em - ployment with Geisinger. 77 Second, Geisinger must ensure that ancillary services from former Bloomsburg physicians accepting employment with Geisinger will not be performed in a hospital-based setting if those services formerly were done on an outpatient basis. 78 Third, Geisinger agreed to offer employment to all of Bloomsburg s physicians and to release any physician who did not accept employment with Geisinger from any restrictive covenant, such as non-compete provisions. 79 Unlike the remedies in St. Luke s and Renown Health, the Geisinger settlement did not require Geisinger to divest any of the Bloomsburg physicians. Instead, the Pennsylvania Attorney General mandated that Geisinger not increase reimbursement rates for any Bloomsburg physicians in an effort to preserve the competition (and the prices) that would exist but for the acquisition. Similar to Renown Health, though, the Pennsylvania Attorney General also believed that by removing the covenant restrictions in the acquired physicians employment agreements, competition for physician services would be maintained. Maine v. MaineHealth. A 2011 complaint and settlement by the Maine Attorney General went further than other antitrust agencies to date in imposing conduct remedies in lieu of divestiture to address competitive concerns from a hospital s physician acquisition. Maine s Attorney General sought an injunction under state antitrust law to prevent MaineHealth from acquiring the two largest cardiology practices in the Portland, Maine area. 80 The state s complaint alleged that under the proposed transaction, 36 of the 39 cardiologists would become employees of MaineHealth, and three cardiologists would become employees of Mercy Hospital, a competing health care system to MaineHealth s Maine Medical Center in Portland. Maine alleged that if the transaction was consummated, MaineHealth would control a high share of the cardiology services in southern Maine and that the market would become highly concentrated. It further alleged that the merger would eliminate head-tohead competition among the two practices and would foreclose other hospitals that compete with MaineHealth from having access to physicians to provide cardiology services. 81 S U M M E R

6 A R T I C L E S Maine s consent order, which allowed MaineHealth s physician acquisitions to proceed, 82 contains a series of conduct restrictions, including notably: (1) MaineHealth must accept from commercial payors the default rate the payors offer for cardiology services throughout Maine; 83 (2) if Maine Health Center elects to raise its rates for cardiology services, any increase cannot exceed the weighted average increase for all services in a given fiscal year; 84 (3) MaineHealth must not increase rates for physician services even though those services will become hospital-based and it must not steer ancillary services to higher-priced hospital facilities; 85 and (4) MaineHealth must not include non-compete covenants in the cardiologists employment agreements. 86 While the MaineHealth settlement (like the settlements in St. Luke s and Renown Health), did not require any divestiture of physicians, MaineHealth agreed up front to allow Mercy Hospital, its competitor, to employ three of the to-beacquired cardiologists, and presumably this fact was material to the settlement. Similar to Renown Health and Geisinger, Maine s settlement seeks to maintain competition by releasing the physicians from any restrictive covenants under their employment agreements. The MaineHealth settlement, furthermore, parallels the Geisinger settlement in two additional respects: it puts limitations on MaineHealth s ability to raise rates paid by payors; and it prohibits MaineHealth from increasing the price of ancillary services post-closing by make those services hospital-based. The FTC did not pursue any conduct remedies of this sort in St. Luke s or Renown Health. Conclusion The St. Luke s case is an early-stage decision in what promises to be a lengthy examination of the tension between clinical integration and the acquisition of market power through growth and consolidation. Whether stated or not, concern about foreclosure of future competition in the hospital services market is bound to be a significant driver of enforcement decisions over acquisitions of physician clinics and practices. In cases presenting those concerns, defense counsel will be challenged to offer credible evidence of efficiency gains that can be achieved through clinical integration, and to tie the ability to achieve those gains to vertical acquisition models. Moreover, merging parties likely will continue to face roadblocks convincing the FTC that a conduct remedy, as opposed to a divestiture, will suffice to allay competitive concerns, although those arguments may carry more weight in challenges brought by state attorneys general. 1 Press Release, Fed. Trade Comm n, Statement of FTC Chairwoman Edith Ramirez on the U.S. District Court in the District of Idaho Ruling in the Matter of the Federal Trade Commission and the State of Idaho v. St. Luke s Health System Ltd. and Saltzer Medical Group, P.A. (Jan. 24, 2014), available at statement-ftc-chairwoman-edith-ramirez-us-district-court-district. 2 Findings of Fact & Conclusions of Law at 51, Fed. Trade Comm n v. St. Luke s Health Sys., Ltd., No. 13-cv-116 (D. Idaho Jan. 24, 2014) [hereinafter St. Luke s Decision]. 3 Press Release, Fed. Trade Comm n, FTC and Idaho Attorney General Chal - lenge St. Luke s Health System s Acquisition of Saltzer Medical Group as Anticompetitive (Mar. 12, 2013), available at 4 Id. at 7, Id. at Complaint at 3, St. Luke s Health Sys., Ltd., No. 13-cv-116 (D. Idaho Mar. 26, 2013) [hereinafter FTC Complaint]. 7 Id. (citing to U.S. Dep t of Justice & Fed. Trade Comm n, Horizontal Merger Guidelines (2010), pdf). 8 Id. at See id. at Id. at See id. Before the FTC and the Idaho Attorney General filed their complaint, St. Alphonsus brought suit against St. Luke s under Section 7 of the Clayton Act to enjoin the acquisition. See Amended Complaint, St. Alphonsus Med - ical Center-Nampa v. St. Luke s Health Sys., Ltd., No. 1:12-cv (D. Idaho Jan. 15, 2013) [hereinafter St. Alphonsus Complaint]. That complaint alleged different theories of competitive harm from those put forth by the FTC. See id. St. Alphonsus s case was subsequently consolidated with the FTC s for discovery and trial. See Order of Consolidation, St. Luke s Health Sys, Ltd., No. 13-cv-116 (D. Idaho Mar. 19, 2013). 12 See FTC Complaint, supra note 4, at See id. at See id. at 5, See Defendants Corrected Proposed Findings of Fact and Conclusions of Law at , St. Luke s Health System, Ltd., No. 13-cv-116 (D. Idaho Jan. 7, 2014) [hereinafter St. Luke s Findings of Fact]. 16 See id. at See id. at See id. at 149, 155, Id. at Id. 21 See St. Luke s Decision, supra note 2, at Id. at 2 ( In Idaho, the quality of our health care is outstanding, but we pay substantially more than the national average for that quality. ). 23 Id. 24 Id. at See id. at See id. at See id. at See id. at See id. at See id. at 24. The court found that St. Luke s projected a revenue increase from hospital-based billing of $750,000 for lab work and $900,000 for diagnostic imaging. See id. 31 See id. at Id. at See id. at Id. at See id. at See id. at See id. at For example, the omnibus report on competition in health care issued by the FTC and the Department of Justice in 2004 contains no discussion of physician market concentration or vertical integration between hospitals 8 0 A N T I T R U S T

7 and physicians. See U.S. DEP T OF JUSTICE & FED. TRADE COMM N, IMPROVING HEALTH CARE: A DOSE OF COMPETITION (2004), available at gov/sites/default/files/documents/reports/improving-health-care-dosecompetition-report-federal-trade-commission-and-department-justice/ healthcarerpt.pdf U.S.C. 17 ( The labor of a human being is not a commodity or article of commerce. ). Section 6 of the Clayton Act was enacted to immunize labor unions from antitrust scrutiny, but the declaratory effect of Section 6 bars any antitrust claim based solely on the existence of an employment relationship. 40 See, e.g., Capitation, Rate Setting, and Risk Sharing, in UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT 627 (Louis C. Gapenski & George H. Pink eds., 5th ed. 2007), available at companion/gapenski_finance/online%20chapter%2020.pdf. 41 PCPs do not ordinarily admit patients to hospitals for inpatient services but they may direct patients to particular specialists (who have admitting privileges at a particular hospital) or may in some cases direct patients to a hospital s emergency department. 42 St. Alphonsus Complaint, supra note 11, at 2 (emphasis added). The St. Alphonsus complaint went on to detail prior instances in which St. Alphon - sus believed that physician practice acquisitions by St. Luke s resulted in a shift of patients from St. Alphonsus. See, e.g., id. at See FTC Complaint, supra note 4, at 3 ( PCPs generally determine what additional care and services their patients need, and refer them to other physicians, labs, or testing facilities accordingly. As St. Luke s own documents show, St. Luke s reaps the benefits of its physician acquisitions in part by relying on those physicians to shift patients to its own facilities. ). 44 See St. Luke s Decision, supra note U.S.C. 18 (in which the standard of liability is whether the effect of such acquisition may be substantially to lessen competition ). 46 See Verizon Commc ns, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004). 47 The St. Alphonsus complaint contained only claims under Section 7 of the Clayton Act and Section 1 of the Sherman Act, along with parallel state law claims. See St. Alphonsus Complaint, supra note 11, at Monopoly leveraging had its origin in the Second Circuit s 1979 opinion in Berkey Photo, and was later embraced by the Sixth Circuit. Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263 (2d Cir. 1979); Kerasotes Mich. Theatres v. Nat l Amusements, Inc., 854 F.2d 135 (6th Cir. 1988). Not all federal circuits embraced the theory, however. See, e.g., Fineman v. Armstrong World Indus., Inc., 980 F.2d 171 (3d Cir. 1992); Alaska Airlines, Inc. v. United Airlines, Inc., 948 F.2d 536 (9th Cir. 1991). 49 Trinko, 540 U.S Id. at 415 n The FTC has been critical of recent judicial views of Section 2 enforcement. See, e.g., William Kovacic & Marc Winerman, Competition Policy and the Application of Section 5 of the Federal Trade Commission Act, 76 ANTITRUST L.J. 929, (2010). 52 See supra note 40 and accompanying text. In the authors experience, health plans often are willing to increase PCP rates to obtain contracts with clinically integrated networks, in recognition of the role that PCPs play in managing patient utilization of specialist and hospital services. 53 See, e.g., Lawton R. Burns & Mark V. Pauly, Accountable Care Organizations May Have Difficulty Avoiding the Failures of Integrated Delivery Networks of the 1990s, 31 HEALTH AFF (2012) (expressing doubt that accountable care will lower costs); Ann S. O Malley et al., Rising Hospital Employ - ment of Physicians: Better Quality, Higher Costs?, Issue Brief No. 136, CTR. FOR STUDYING HEALTH SYS. CHANGE (Aug. 2011) ( While hospital-employed physicians may spur clinical integration that will ultimately improve efficiency and help control costs, they are more likely to increase costs in the short run. ); Robert A. Berenson et al., Unchecked Provider Clout in California Foreshadows Challenges to Health Reform, 29 HEALTH AFF. 699 (2010); Lawrence P. Casalino et al., Hospital-Physician Relations: Two Tracks and the Decline of the Voluntary Medical Staff Model, 27 HEALTH AFF (2008). 54 See Burns & Pauly, supra note 53, at ; see also Lyle Nelson, Lessons from Medicare s Demonstration Projects on Disease Management, Care Coordination, and Value-Based Payment, Congressional Budget Office Issue Brief (Jan. 2012), available at files/cbofiles/attachments/ medicaredemobrief.pdf. 55 See Burns & Pauly, supra note 53, at 2411; see also Nelson, supra note See Burns & Pauly, supra note 53, at 2412; see also Nelson, supra note See Burns & Pauly supra note 53, at See St. Luke s Decision, supra note 2, at See St. Luke s Findings of Fact, supra note 15, at See id. at ; see also Decision and Order at 4 5, Evanston Nw. Healthcare Corp., FTC Docket No (Apr. 28, 2008) (ordering that the combined hospitals separately negotiate contracts with commercial payors), available at /04/080424finalorder.pdf. 61 See Plaintiffs Amended Corrected Proposed Findings of Fact and Conclu - sions of Law at , St. Luke s Health System, Ltd., No. 13-cv-116 (D. Idaho Dec. 30, 2013) [hereinafter FTC s Findings of Fact]. 62 See id. at 240 (discussing Promedica Health Sys., Inc., FTC Docket No. 9346, at 57 (June 25, 2012)). 63 See Press Release, Fed. Trade Comm n, FTC Order Will Restore Competition for Adult Cardiology Services in Reno, Nevada (Aug. 6, 2012), available at 64 See Complaint at 4, Renown Health, FTC Docket No. C-4366 (Aug. 6, 2012) [hereinafter Complaint, Renown Health], available at sites/default/files/documents/cases/2012/12/120806renownhealth cmpt.pdf. 65 See id. at 3, Order to Suspend Enforcement of Renown Non-Compete, Renown Health, FTC Docket No. C-4366 (Aug. 6, 2012). 67 The suspense order was entered on August 6, 2012, see id., but the decision and order did not become final until December 4, See Decision and Order, Renown Health, FTC Docket No. C-4366 (Dec. 4, 2012) [hereinafter Decision and Order]. 68 See Decision and Order, supra note 67, at 4 5; Renown Health, Analysis of Agreement Containing Consent Order in Aid of Public Comment, 77 Fed. Reg. 47,844, 47,846 (Aug. 10, 2012) [hereinafter Analysis of Agreement]. 69 See Decision and Order, supra note 67, at 5 6; Analysis of Agreement, supra note 68, at 47, See Complaint, Renown Health, supra note 64, at See Analysis of Agreement, supra note 68, 47,845 47, See Press Release, Penn. Attorney Gen., Agreement Reached with Geisinger over Acquisition of Bloomsburg Hospital (June 7, 2012), available at See Complaint at 14 17, Pennsylvania v. Geisinger Health Sys. Found., No. 12-cv-1081 (M.D. Pa. June 7, 2012). 74 See id. at 4 5, See id. at See id. at See Final Order at 12 13, Geisinger, No. 12-cv-1081 (M.D. Pa. June 27, 2012). 78 See id. at See id. 80 See Complaint at 1, 3, Maine v. MaineHealth, No. BCD-CV-1108 (Maine Sup. Ct. Mar. 21, 2011). 81 See id. at 4, See Consent Decree, MaineHealth, No. BCD-CV-1108 (Maine Sup. Ct. Dec. 19, 2011). 83 See id. at See id. 85 See id. at See id. at 12. S U M M E R