David Pate moved to Boise three years ago to captain the St. Lukes Health System. The Texas doctor and lawyer has since led the system through growth that has made St. Lukes the largest private employer in Idaho. He says the systems growth isnt itself a strategy. Instead, its a step in a strategy of integration to give patients better care at a lower cost.
But the pace of St. Lukes buyouts has caught the attention of state and federal antitrust investigators and Saint Alphonsus Health System, which compares its four physician-practice acquisitions in the past two years with St. Lukes more than 20 acquisitions in the past four. St. Lukes has added about 170 doctors to its payroll in the past two years, while Saint Als added 24.
In February, Attorney General Lawrence Wasden asked St. Lukes and Saltzer Medical Group to put off merger talks until his antitrust investigation is complete. St. Lukes agreed to wait 90 days but said in August that it would move forward. St. Lukes, which said it has been negotiating with Saltzer for more than two years, said it would give Wasden 30 days notice before closing on a deal.
Wasden wrote that St. Lukes acquisitions might substantially lessen local competition in health care. He and the Federal Trade Commission are studying whether St. Lukes has broken the Idaho Competition Act or federal laws aimed at blocking monopolies and preserving competition. The FTC says diminished competition can lead to higher prices. St. Lukes officials say the health system hasnt broken any laws and its acquisitions dont significantly raise prices.
Wasden and the FTC have now issued subpoenas or demands for information to St. Lukes.
Were fully cooperating with all of their requests for information, spokesman Ken Dey said. The investigators are asking for a broad list of information.
Neither the St. Lukes nor Saint Alphonsus health systems talk about each other as rivals. Until recently, they even co-owned a regional diabetes center.
But St. Lukes has been snapping up hospitals and medical practices from Hailey to Baker, Ore., and opening new centers, often in step with or after Saint Als, which is growing, too. St. Lukes plans to build a $30 million, two-story medical plaza in Fruitland by spring 2014. It sold $150 million in bonds this summer for a wish list of projects including a $90 million Nampa hospital.
For 100 years, St. Lukes was just one hospital in Downtown Boise. It grew with the Treasure Valley, adding new capacity, a childrens hospital and cancer care.
In 2001, St. Lukes opened a $50 million second hospital on Eagle Road off I-84 in Meridian to serve the western Treasure Valley fast-growing subdivisions. Since then, St. Lukes has expanded to include six hospitals, 1,100 staff doctors of which 380 to 400 are employed and more than 10,000 workers.
In some cases, St. Lukes is moving into the same communities as Saint Als:
Æ St. Lukes just announced its plan for a health plaza in Fruitland, where Saint Als is about to open one.
Æ There are now two physician practices owned by St. Lukes in eastern Oregon, where Saint Als has doctors and two hospitals.
Æ St. Lukes is planning to expand in Nampa, where Saint Als has a hospital, after finding that 20 percent of the patients at St. Lukes Meridian have been driving there from Nampa. The system just opened an emergency department in Nampa that it says serves an average of 40 patients a day.
Pate, St. Lukes CEO, said the health system is responding to the new realities of health care, not building an empire. Under his leadership, he told the Idaho Statesman, the system is helping Idaho hang onto its doctors, keeping rural hospitals afloat and making sure low-income patients throughout southern Idaho can get health care.
When doctors worry about losing money on Medicaid, they may stop taking on new Medicaid patients, Pate said. But employment under a nonprofit health system can reverse that, because taking Medicaid patients or uninsured patients who cannot pay is part of the nonprofit hospitals role, he said.
The system also keeps rural areas stocked with doctors who wouldnt be there otherwise, Pate said. The health system owns three of the 27 Idaho hospitals that the federal government says are so critically needed in their communities that it will pay them at 101 percent of their costs for most of their patient care.
Doctors are just not going to come to a town thats so small that it may not be able to wholly support them, Pate said. Theres got to be physicians, or frankly, the studies show, people are going to die.
The medical industry is awash in new rules, the threat of lower Medicare payments and new incentives that favor well-oiled health systems. For example, Medicare payments will be tied more and more to quality of patient care. That is critical for a hospital like St. Lukes, which gets about 40 percent of its patient-care revenue from Medicare.
But the rules and incentives are overwhelming many physicians. Some independent doctors seek employment by a hospital to avoid hassles with new technologies, regulations and shaky reimbursements.
Pate says St. Lukes recruits high-demand specialists from other states but doesnt usually recruit doctors locally. It does respond to invitations to buy physician practices, he said. That helps keep doctors in Idaho who have similar beliefs in the way health care should be done, he said.
Theres a physician shortage around this country, Pate said. these physicians can find jobs in other states where they will give them income protection and that kind of stuff with no problem at all. They can go anywhere they want, basically.
But St. Lukes is happy to keep working with independent practices, he said: We have relationships with lots of independent physicians, and thats perfectly fine.
Pate said St. Lukes doesnt hire doctors by offering them top dollar. Most doctors want to stay in Idaho because they love it here, and most choose St. Lukes for personal reasons, he said.
A lot of physicians have looked at offers between us and Saint Als, Pate said. What I find is theyre more often making the decision around, Is that the right fit for me? based on things like corporate culture and relationships with administrators.
Its also not the first time St. Lukes has employed doctors to make sure they stick around. About 20 years ago, there was a major shortage of internal-medicine physicians in the Valley. St. Lukes created an internal-medicine division to hire doctors and ease the shortage.
COMPETITION FOR MARKET SHARE
Today, hospitals in the Treasure Valley employ some doctors on their payrolls and operate others practices by providing offices and staffs under service agreements. Both Saint Als and St. Lukes also hire physician groups as independent contractors, such as radiologists or emergency-room doctors.
Saint Alphonsus, part of Michigans Trinity Health, says it has half as many doctors on payroll or under service agreements as Boise-based St. Lukes does. Many of its medical staff leaders are independent doctors.
It also has about 20 percent fewer hospital beds than St. Lukes and reported about 30 percent lower gross receipts than St. Lukes for its Treasure Valley hospitals in its latest tax year.
Controlling too many doctors in a community can allow a health system to funnel business back to its own specialists and its own hospitals and give that system more leverage when it deals with patients, employers and health plans, Saint Als told the Idaho Statesman. The FTC has unwound physician acquisitions in other places to keep that from happening.
Saint Als says Saltzer, with 51 doctors the largest private practice in Idaho, should remain independent. A St. Lukes acquisition will seriously harm patient choice and give St. Lukes even more control over health care, Saint Als said in a statement to the newspaper.
However, Saint Als also made Saltzer an offer. The system told Saltzer its preference was for the doctors to stay independent but that it would offer a bid if Saltzer wanted to join a hospital system, Duncan said.
The St. Lukes system has gone from 218 employed doctors in September 2010 to between 380 and 400 doctors now, Dey said. It also has acquired or announced plans to acquire three small rural hospitals in the past two years.
Saint Als, which acquired a hospital in Nampa and two in Oregon in 2010, has added doctors to its payroll more slowly. That system went from 153 doctors in September 2010 to a current tally of 177, according to spokeswoman Elizabeth Duncan. It has added more physician assistants and nurse practitioners bringing its total number of employed providers to 261 from 216 in September 2010.
Saint Als says the sharp difference in the pace of acquisitions matters in part because doctors acquired by St. Lukes cut their admissions or referrals to Saint Als by more than 90 percent.
If a hospital controls too many physicians, the hospital may decide to direct referrals exclusively to its own specialists and direct admissions to its own hospital, Saint Als said. This can lead to one hospital system leveraging its market power in connection with dealings with patients, employers and health plans. That hospital is then in a position to demand higher prices, driving up the cost of health care.
In addition, it faces less pressure to compete in the marketplace through better quality and lower cost. We believe that free competition among both doctors and hospitals is best for health care and best for patients.
Pate and others at St. Lukes say referrals are each doctors prerogative, not a St. Lukes demand.
If there was a physician at Saint Als who for some reason decided they wanted to leave and come and join St. Lukes, then that probably has more to do [with] why those patients arent going there anymore than anything else, Pate said.
St. Lukes spokesman Dey added that, after being hired by St. Lukes, doctors may find it too burdensome to be on call at two hospitals at once. Being on call is a responsibility that generally comes with having privileges at a hospital.
Saint Als says it lets its doctors admit patients wherever they want, but it doesnt let its employed doctors work for competitors if they leave their jobs.
ONE WHO JOINED
Mark C. Johnson is a family medicine doctor who had worked in Boise for about 21 years when he sold his practice, Mountain View Medical Center, to St. Lukes. That was about four years ago. Johnson now runs the 50- to 60-doctor family medicine division for St. Lukes.
Johnson said the St. Lukes buyouts have come in a wave over the past five years, starting with a cardiology group that split up so its members could join either health system. There are almost no independent cardiologists in Boise now, according to state licensing records.
Its just the uncertainty of where health care is going, Johnson said.
He said the business model of the future may reward health system integration, and doctors want to get on board now rather than be left behind. This is especially true as the health systems launch alliances with health insurers, as theyve announced in the past few months. If a large Treasure Valley employer decides to go with just one of those alliances to insure its employees, you may lose a significant share of some of the patients you have taken care of for many years, Johnson said.
He added that, while he does not have full privileges at Saint Als, he works with doctors there when his patients need to be admitted.
Historically, our practice had a lot of patients who used Saint Als, he said, and they still do. Weve not twisted anybodys arm to no longer use a particular physician because theyre [under] Saint Als. ... Bottom line for me is the patient makes that call.
St. Lukes tries to keep its own network flush with specialists, Pate said, and it brings in doctors to fill gaps. Johnson said St. Lukes is hiring a local family-medicine resident to staff a new clinic in Eagle and will bring in a physician from outside the area in the next few months.
The overriding reason I think most doctors in the Valley have decided to team up with one hospital or another is because they know health care delivery is transforming, and we know that its to our benefit to be part of a health care delivery system [rather] than out on our own, Johnson said.
Attorney General Wasdens office declines to comment on its investigation.
Audrey Dutton: 377-6448,Twitter: @IDS_Audrey