On January 24, a federal judge ruled against Idaho’s largest hospital system in an antitrust lawsuit that is likely to result in increased FTC scrutiny of vertical transactions. The case marked the first time that a hospital’s acquisition of a physician group has been found to be an antitrust violation.

U.S. District Judge B. Lynn Winmill in Boise said that St. Luke’s Health System broke antitrust laws when it bought Saltzer Medical Group, Idaho’s largest independent physicians’ practice, slightly more than a year ago. The court found that the acquisition gave St. Luke’s control of 80% of the primary care physicians in the Nampa, Idaho market.

During a four-week trial last fall, two competing businesses—Saint Alphonsus Health System and the Treasure Valley Hospital surgical center—cited records showing referrals from independent doctors plummeted after St. Luke’s bought their practices. They argued that the deal would cost them business and force them to cut jobs, if it were allowed to continue. Federal and state consumer protection agencies also sued St. Luke’s, pointing to a spike in prices after St. Luke’s took over a large share of hospitals and clinics in the Magic Valley, two hours east of Boise.

St. Luke’s and Saltzer defended their deal as necessary to reward providers for quality work, stabilize insurance rates and allow more poor patients in the area to access medical care. They accused their opponents of cherry picking records and trying to prevent a well-intentioned merger. They argued that competitors don’t suffer a loss in business after St. Luke’s buys independent practices.

Judge Acknowledges Good Intent but Finds Too Much Risk of Higher Costs

In his finding, the judge agreed that the acquisition “was intended by St. Luke’s and Saltzer primarily to improve patient outcomes.” He also said that St. Luke’s “is to be applauded for its efforts to improve the delivery of healthcare in the Treasure Valley.”

Nevertheless, the court concluded that the acquisition violated Section 7 of the Clayton Act, as it would likely lead to higher reimbursement from health plans and higher costs to consumers, due to St. Luke’s increased bargaining power. While the judge acknowledged St. Luke’s and Saltzer’s positive motivation to improve healthcare, he went on to say that “there are other ways to achieve the same effect that do not run afoul of antitrust laws and do not run such a risk of increased costs.”