The Ninth Circuit upheld the district court's conclusion that the relevant market is adult PCPs serving the residents of Nampa, Idaho. Although the parties agreed that the relevant product market is adult PCPs, St. Luke's disputed that Nampa is the relevant geographic market. The Ninth Circuit agreed with the district court that Nampa residents strongly prefer access to local PCPs and, as a result, a hypothetical Nampa PCP monopolist could profitably impose a small but significant and non-transitory price increase on insurers. The Ninth Circuit rejected St. Luke's argument that, because one-third of Nampa residents travel to Boise, Idaho for PCPs, the relevant geographic market should include Boise. The Ninth Circuit found that Nampa residents who used Boise PCPs did so because the PCPs were near their workplaces, which did not show that other Nampa residents would be willing to travel that far for primary care services.

The Ninth Circuit affirmed the district court's finding that the plaintiffs established a prima facie case that the merger would lead to anticompetitive effects in the market.

The Ninth Circuit agreed with the district court's conclusion that the plaintiffs established a prima facie case because:

The Ninth Circuit agreed with the district court that the HHI numbers were well above the Horizontal Merger Guidelines thresholds for a presumptively anticompetitive merger. In addition, the Ninth Circuit agreed that St. Luke's would use its post-merger power to negotiate higher reimbursement rates from insurers for PCP services, because St. Luke's and Saltzer were each other's closest substitutes in Nampa. As a result, the merger would limit the ability of insurers to negotiate with the merged firm because insurers had few alternatives to post-merger St. Luke's in order to provide PCP services to their Nampa members. Additionally, internal correspondence indicated that the merged firm would use this increased bargaining power to raise prices.

However, the Ninth Circuit rejected the district court's finding that St. Luke's would raise prices in the hospital-based ancillary services market. The district court had found that a post-merger St. Luke's would exercise its enhanced bargaining leverage to charge more services at the higher hospital-based billing rates because insurers and providers typically negotiate for all services as part of the same contract. However, the Ninth Circuit noted that the district court made no findings about St. Luke's market power in the ancillary services market, making it difficult for the appellate court to conclude that the merged firm could easily demand anticompetitive prices for those services. Among other things, the Ninth Circuit found that the documents cited by the district court stated only that St. Luke's intended to increase revenue from ancillary services, not that it planned to charge higher prices. The Ninth Circuit further noted that the district court did not:

As a result, the Ninth Circuit found that the district court's ancillary services finding was not supported by the record.

The defendants had largely defended the merger on efficiencies grounds, arguing that the merger would result in integrated, better care for local residents. Notably, the Ninth Circuit expressed skepticism about the use of an efficiencies defense in general, and the scope of the defense in particular. The Ninth Circuit stated that, to be valid, an efficiencies defense had to show that the merger was not actually anticompetitive, in spite of the prima facie case, through the clear demonstration of extraordinary merger-specific efficiencies.

The Ninth Circuit agreed with the district court that, even if the merger benefited patients by, among other things, creating wider access to St. Luke's electronic medical records system, the efficiencies did not rebut the prima facie case. The Ninth Circuit stated that it was not enough to show that the merger would allow St. Luke's to better serve patients. Rather, the defendants had to show that the merger would increase competition or decrease prices.

The Ninth Circuit also upheld the district court's findings that the claimed efficiencies were not merger-specific, including:

The Ninth Circuit cited the testimony of independent physicians who had adopted risk-based reimbursement and had access to analytic tools (including St. Luke's system). The Ninth Circuit further agreed with the district court that, even if the efficiencies were merger specific, they would not have a positive effect on competition.

The Ninth Circuit upheld the FTC's proposed divestiture remedy. St. Luke's argued that the district court erred in ordering divestiture because:

The Ninth Circuit noted that the district court had ample evidence for rejecting St. Luke's contention that Saltzer would no longer be able to compete post-divestiture. St. Luke's had previously argued in the preliminary injunction hearing that divestiture was feasible and Saltzer had assured its employees that they would have their jobs no matter the result of the litigation. The Ninth Circuit also found that the district court did not abuse its discretion in its consideration of the costs and benefits of divestiture. The district court expressly determined that divestiture was appropriate because any benefits of the merger were outweighed by the anticompetitive concerns.

Lastly, the Ninth Circuit found that the district court did not abuse its discretion in rejecting St. Luke's proposed conduct remedy of the establishment of separate bargaining groups to negotiate with insurers. The Ninth Circuit found that divestiture is simpler and surer than conduct remedies, and noted that divestiture is especially preferred when the government is the plaintiff. This is the latest example of courts rejecting conduct remedies in hospital mergers, including the Sixth Circuit's decision in the FTC's challenge to the ProMedica hospital merger in Ohio, and a Massachusetts state court's recent rejection of a conduct remedy negotiated between the Massachusetts state Attorney General and Partners Health System (see Legal Update, State Court Rejects Conduct Remedy in Massachusetts Hospital Merger).