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FTC v. St. Lukes: a Successful Challenge to a Hospital/Physician Group Merger - Vertical or Horizontal?

Thomas P. Brown, James F. Owens, MJ Moltenbrey, James Holden, and Emily Dodds Powell, Paul Hastings, Insights, March 2014

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On January 24, 2014, the United States District Court for the District of Idaho ordered St. Luke’s Health System to unwind a merger with the Saltzer Medical Group. The outcome represented a significant victory for the various parties, including the Federal Trade Commission (“FTC”) and the State of Idaho, that had challenged the merger under § 7 of the Clayton Act. Because St. Luke’s operates seven hospitals across Idaho and because Saltzer is the largest independent multi-specialty physician group in the state, the outcome has been likened to a warning shot across the bow of the many hospitals and physician groups that have been contemplating closer affiliations in the wake of the changes to the health care industry wrought by the Affordable Care Act. However, the FTC did not challenge the merger on vertical grounds. Rather, the FTC challenged the merger and the district court struck it down on an entirely horizontal theory. The FTC based its theory of competitive harm on a reduction of competition between St. Luke’s and Saltzer in a market for adult primary care in a single city, Nampa, Idaho. Viewed from that perspective, St. Luke’s reflects garden-variety structure-conduct-performance analysis and demonstrates the FTC’s laser-focus on horizontal market overlaps regardless of the industry.

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