Recent District Court Decision Highlights Potential Conflicts Between Goals of the Affordable Care Act and Antitrust Laws

by Paul L. Croce

The Affordable Care Act (“ACA”) promotes the formation of Accountable Care Organizations (“ACO”) designed to improve patient outcomes and lower the overall cost of medical care.  However, a recent decision by the United States District Court for the District of Idaho, in Saint Alphonsus Medical Center, et al. v. St. Luke’s Health System, LTD, Docket No. 1:12-CV-00560-BLW, highlights the fact that the goals of the ACA do not override the antitrust concerns regarding the potential anticompetitive effects such organizations may have on the healthcare market.

The Idaho suit was brought by the Federal Trade Commission as well as two of the merged entity’s competitors, who contended the acquisition would have anticompetitive effects.  The merged entity, which was formed by St. Luke’s Health System and a Saltzer Medical Group, argued that the acquisition was primarily intended to improve patient outcomes.

In its decision, the District Court noted that it believed that if left intact the acquisition would have indeed improved patient outcomes.  In fact, the court stated that “St. Luke’s is to be applauded for its efforts to improve the delivery of health care in the Treasure Valley.” Nevertheless, the District Court concluded that the potential for improved patient outcomes was outweighed by the potential anticompetitive effects including the risk that the combined entity would use its dominant market share to (1) negotiate higher reimbursement rates with health plans and (2) charge more for ancillary services at higher hospital-billing rates.  Thus, the District Court found the affiliation to violate Section 7 of the Clayton Act and ordered the acquisition to be unwound.

The decision reminds us that when forming ACOs through vertical and horizontal integration, health care organizations must remain cognizant of the potential effects of such organizations on market competition.  Regardless of the goals of the entities forming such organizations, it will be the potential effects on competition which determines whether the affiliations run afoul of the antitrust laws.