Antitrust & Competition Law Client Alert - February 18, 2015

Recent Ninth Circuit Decision a Reminder that a Merger Falling Below Hart-Scott-Rodino Thresholds is Not a Safe Harbor

The Ninth Circuit Court of Appeals recent decision in the St. Luke’s Health System case serves as a stark reminder that merely because a transaction is not reportable under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR”) does not exempt it from antitrust scrutiny. St. Luke's Health Systems, Ltd., a health system in Nampa, Idaho which had eight adult primary care physicians (“PCP’s”), acquired Saltzer Medical Group, a physician group that had 16 PCP’s. The transaction fell below the size of transaction and size of person thresholds under HSR. After the acquisition closed, the Federal Trade Commission (“FTC”) sued the health system under Section 7 of the Clayton Act, contending that the acquisition was anticompetitive, and sought a mandatory injunction ordering the unwinding of the acquisition. The district court ruled in favor of the FTC and ordered the health system to divest itself of the physician group. On appeal, the Ninth Circuit affirmed and rejected the health system’s arguments that the merger’s increased efficiencies outweighed any anticompetitive effects.

The decision underscores the apparent tension between the goals of the Affordable Care Act and the antitrust laws, particularly the Clayton Act. The decision also arguably calls into question whether efficiency defenses have continued viability in merger cases. Most importantly, however, the St. Luke’s case is a cautionary tale about the risks of not fully considering the potential anticompetitive effects of a merger or acquisition that falls below the HSR thresholds. Merely falling below HSR thresholds does not exempt a transaction from antitrust scrutiny. Section 7 of the Clayton Act operates independently of the pre-merger reporting requirements of the HSR (Section 7a of the Clayton Act). It is far better to critically analyze the potential anticompetitive effects of a transaction before it is consummated than to face the prospect of unwinding the transaction based on an after-the-fact challenge by the FTC or a competitor in the relevant market.

To read the full opinion on this case, please click here.