Hospital purchase of physician practices raise Anti-Trust concerns

Hospitals-Physician Integration where hospitals acquire physician practices raises Anti-Trust concerns Federal Trade Commission and State of Idaho, Plaintiffs, v. St. Luke's Health System, Ltd, and Saltzer Medical Group, P.A., Defendants

FTC Matter/File Number:

121 0069

Civil Action Number:

112-cv-00560-BLW-REB

Enforcement Type:

Federal Injunctions

Federal Court:

District of Idaho

Physician Practice Acquisition

The newest trend for hospital-physician integration is through the development of accountable care organizations (ACOs):

* Typical ACO includes a hospital, primary care physicians, specialists and potentially other medical professionals

*Services billed under fee-for-service, but the organization's members coordinate care for their shared Medicare patients with the goal of meeting and improving on quality benchmarks

* ACO members held jointly accountable for care so members share in any cost savings that stem from the quality gains

* Antitrust challenges with ACOs

* Anti-kickback and Stark challenges with ACOs

We all recall the 1990’s rush where hospital began purchasing local medical practices in order to control local health markets and reduce competition between otherwise independent medical practices that would compete for like services such as imaging, laboratory services, and physical therapy. Hospitals once again seem to have interest in such acquisition. However, a recent case will give this trend pause.

The Federal Trade Commission (FTC) scrutinizes the purchase or acquisition of physician practices culminated by hospitals. In January, 2014, a federal judge reviewed a charge by the FTC that Boise, Idaho-based St. Luke's Health System violated federal antitrust laws in is purchase of Saltzer Medical Group, a 40-physician multi-specialty practice in Nampa, Idaho. The judge agreed with the FTC that this acquisition would have created a monopolistic 80 % force by increasing St. Luke's control of resident primary care patient in the local market.

FTC v. PPACC

Section 1 of the Sherman Act (15 U.S.C. § 1) prohibits agreements that unreasonably restrain competition. Section 5(a) (1) of the FTC Act. Only the FTC can enforce and there is no private cause of action. The Act prohibits “ [u]nfair methods of competition.” Among other practices, it prohibits conduct that violates Section 1. In contrast, Patient Protection and Affordable Care Act (PPACC) incentivises the creation of integrated health systems such as UPMC (University of Pittsburgh Medical Center Health System). The FTC monitors and restricts ventures that have the impact or potential of reducing competition. Large health systems may be more cost efficient in delivering healthcare but at the cost of decreasing competition regionally while having a stronger position to demand higher fee arrangements with health insurers. Thus, they deliver cheaper care but at the cost of demanding higher reimbursements with the net effect of costing the healthcare system more. The development of Affordable Care Organization (ACOs) is designed to incentivize cheaper and more efficient cost systems without impairing regional competition so long as the arrangement results in control of less than 30% of the primary care service market. However, while higher levels of penetration and control by ACOs may still fall within safe harbor protections, ventures controlling more than 50% share are disfavoured and subject to greater scrutiny by the FTC as exemplified by the St. Luke’s case.

In St. Lukes, the judge opined that clinical integration would be possible without the need for mergers. However, where a merger is contemplated, it might be best to seek voluntary expedited review by the FTC. Even if a merger is approved by the FTC, the merger’s activity will be monitored for prospectively.

Therefore, avoiding monopolistic activity, particularly activities that evidence greater control over the local market through reduction of competition or increasing costs through the demand for higher reimbursements, is advised as such activity has the net effect of increasing the cost of healthcare per capita.

Leslie Tar, Esq., LLM*

*Florida Health Law Attorneys, Florida Medical Board Defense Attorneys, Florida Medical License Defense Attorneys.

* Office location in Port Charlotte, Florida with service to Sarasota, Ft Myers, Naples, Tampa, Orlando, Vero Beach, West Palm Beach, Boca Raton, Ft Lauderdale, Miami, Gainesville, Tallahassee, Pensacola and throughout Florida and nationally.