9th Circuit affirms: St Luke’s/Saltzer merger violates Section 7

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The Ninth Circuit today affirmed the district court’s ruling that the merger of St. Luke’s Health Systems, Ltd. and Saltzer Medical Group violated Section 7 of the Clayton Act. Nearly two years ago, the Commission and the State of Idaho filed a complaint in federal court alleging that the combination of St. Luke’s and Saltzer would give it the market power to demand higher rates for health care services provided by adult primary-care physicians in Nampa, Idaho and surrounding areas, ultimately leading to higher costs for health care consumers.  After an extended trial, the federal district court held that the acquisition violated Section 7 of the Clayton Act and the Idaho Competition Act, and ordered St. Luke’s to fully divest itself of Saltzer’s physicians and assets.

In today’s decision, the Ninth Circuit reaffirmed the forward-looking orientation of the Clayton Act, and in particular, Section 7’s prohibition on mergers whose effect “may be to substantially lessen competition”:

“The great Yankee catcher Yogi Berra is reputed (likely apocryphally) to have said that it’s “tough to make predictions, especially about the future.” The Perils of Prediction, Economist, June 2, 2007. Yet that is precisely what this case requires.”

I made a similar observation last year, and noted that, in order to prevent this forward-looking analysis from veering into mere speculation, the agencies and courts focus on facts.  In reviewing the facts as determined by the trial court, the Ninth Circuit found that the FTC had met its burden of showing that the St. Luke’s/Saltzer merger was anticompetitive.

There are many lessons in the Ninth Circuit’s opinion about the interpretation and application of Section 7, including the evidentiary burden-shifting that allows a court to make the final determination that a merger is likely to harm competition.  At every juncture, the Ninth Circuit returned to the language and intention of the Clayton Act to determine the type of evidence that appropriately bears on the question of the merger’s likely effects, including the type of evidence relating to efficiencies claims:

“Because we deal with statutory enforcement, the language of the Clayton Act must be the linchpin of any efficiencies defense. The Act focuses on “competition,” so any defense must demonstrate that the prima facie case “portray[s] inaccurately the merger’s probable effects on competition.” Am. Stores, 872 F.2d at 842. In other words, a successful efficiencies defense requires proof that a merger is not, despite the existence of a prima facie case, anticompetitive.”

Another reminder that Section 7 is all about the future, and in this case, the future of competition for adult primary-care physician services in Nampa, Idaho looks brighter.