The cost of doctor buyouts: Charges rise, patient choice suffers, critics say

Charges rise as health care providers join Idaho’s largest systems

adutton@idahostatesman.comOctober 28, 2012 

Edward Smith of Boise went to see his doctor a while back and noticed something different. Mountain View Medical Center had become St. Luke’s Clinic — Mountain View Family Medicine.

A few other things had changed. The doctors had new laptops. There was new equipment.

“Right after he got bought out, my knee was bothering me when I was in there (for a physical), and he said, ‘Well, I got this new X-ray machine,’ ” said 65-year-old Smith, who had a Regence BlueShield health insurance plan at the time. He remembers the doctor finding the cause: bone spurs.

When Smith saw the charges, he thought, “This is higher than I’ve ever paid before.” That’s because the bill listed charges for a radiologist on top of the usual doctor’s visit and the X-ray itself, he said.

Bigger bills for procedures including X-rays and simple checkups have surprised many Idaho patients whose doctors have joined hospital systems.

As hospital systems grow by absorbing the providers and centers around them, patients often spend more in out-of-pocket costs and higher insurance premiums. Patients also have fewer choices, say some competitors of the two largest systems in the state, St. Luke’s Health System and Saint Alphonsus Health System.

With about one in six Idahoans skipping visits to the doctor because of cost, the price of a visit or a test can mean everything to a person’s health.


Hospital systems have been acquiring private practices around the nation, partly because federal health care reforms put pressure on independent physicians. Doctors worry about Medicare paying them less, having to set up electronic medical records systems, getting left behind as the health industry adapts to reforms, taking care of newly insured people when the heart of Obamacare takes effect in 2014, and meeting the practical challenges of new rules and rapid advances in technology. Some just don’t want to be small-business owners anymore.

The federal government is cracking down on acquisitions that may limit competition and raise prices. But it also is dangling financial rewards in front of systems so that they become robust, well-oiled health care delivery machines.

“All of these changes are part of a grand experiment to bring down health care costs in the U.S., and in our local market,” said Bill Bodnar, a former Idaho hospital executive who now consults with systems around the country as president of Boise-based The Leader’s Board.

In southwestern Idaho, the market share for medical services is fairly concentrated. About 45 percent of all physicians licensed with Boise addresses work for either Saint Alphonsus or St. Luke’s, with two-thirds of those working for St. Luke’s. The remaining doctors are independent, members of smaller groups like Primary Health, or practicing at the Boise VA Medical Center or the Family Medicine Residency of Idaho.

St. Luke’s employed 393 doctors as of Sept. 30, while Saint Alphonsus reported about 40 percent that many. When contracts and service agreements are included, the St. Luke’s system has about 630 doctors working for it. Saint Alphonsus has about 260.

Both hospitals say their business strategy is not to grab market share or revenues, or to control physicians.

Elizabeth Duncan, spokeswoman for Saint Alphonsus, said the system wants a mix of independent and employed doctors and joint ventures. It employs or contracts with the doctors it needs to carry out the core functions of a hospital, like trauma physicians, oncologists and radiologists, she said.

About two-thirds of St. Luke’s-affiliated physicians are not actually employed by the system. Of those who are, a large share are primary-care doctors.


Why employ any primary care doctors at all?

“Family medicine is the first touch that somebody has on you,” Duncan said. “As we move to new models of care due to health reform and market pressures, health systems will be required not just to provide care for accidents, injuries and illness, but to help to manage chronic disease and help people be healthier. Primary care physicians are the front line in this effort.”

Primary care is also part of the St. Luke’s approach to an integrated system. An integrated system means smoother transfers between a primary doctor and, say, a back-pain specialist. Providers are on the same page with treatment decisions. The ideal result is better health outcomes and lower costs — a point that Dr. David Pate, St. Luke’s chief executive officer, makes when he talks about the system’s growth.

“I came here because I wanted to fix what is wrong with health care,” Pate wrote recently on his blog. “I honestly believe that by the time I retire, we can lower health care costs so that health care is affordable to more and better value to all.”

As a patient, Smith is skeptical.

“They say (they are) going to do all this prevention stuff to save us money. That’s a crock,” he said. “If it does, it’ll be so darn many years down the road before it kicks in.”

There is already at least one measurable benefit to employing doctors, St. Luke’s says. The system has found a direct correlation between its acquisitions and those doctors taking more “charity care” patients than they did before the buyouts.

“Once they come under our umbrella, (doctors) can’t turn anyone away,” said Ken Dey, a St. Luke’s spokesman.

One example is a general surgeon who joined St. Luke’s in August 2011. The surgeon’s Medicare billings nearly doubled as he treated more Medicare patients, and his Medicaid billings went from 1 percent to 6 percent of all of his charges.


One reason bills go up after physicians go to work for hospitals is that the federal government allows them to.

Medicare, the national health insurance system for senior citizens, pays a “hospital facility charge” and a doctor’s fee when a patient visits a hospital-employed doctor, even if the doctor’s office is in an office strip. Similar charges are allowed for certain tests and procedures, too.

The Medicare Payment Advisory Commission, an independent congressional agency, says that’s a problem. The commission said in March that Medicare paid about 80 percent more last year for 15-minute office visits to hospital-owned offices than it did for visits to independent doctors’ offices. Treating all visits the same “would save money for the Medicare program, lower cost-sharing for beneficiaries and reduce the incentive to provide services in the higher-paid sector,” the commission said.

Idaho’s two largest private health insurers, Regence BlueShield of Idaho and Blue Cross of Idaho, said they do not follow Medicare’s payment practice. They said they pay the same rates for a routine office visit regardless of who employs the doctor.

“We’ve worked really hard to eliminate those differences in what we pay,” said Karen Early, spokeswoman for Blue Cross of Idaho. “That’s really important in terms of holding down the cost of health care.”

And higher prices for hospital-based services aren’t universal, either. While a sleep study may be more expensive through St. Luke’s and Saint Alphonsus, an outpatient colonoscopy can be cheaper.


But insurers do get charged more for some hospital-based services. That’s why a patient who goes to a clinic one day and gets a chest X-ray, then returns a few months later for the same X-ray after the clinic has joined a hospital system, might find a higher charge for the second visit.

An analysis of the 20 most common medical-imaging procedures for Blue Cross of Idaho shows the average hospital in the Blue Cross network charges $110.81 more for a chest X-ray than the average freestanding clinic charges. Hospital charges for MRIs are, on average, more than $300 higher than at freestanding clinics.

Blue Cross of Idaho and Regence BlueShield of Idaho say they won’t actually pay the clinic more for an office visit after it’s part of a hospital system. But a patient without insurance or a patient who goes to an out-of-network doctor might. And depending on the hospital’s contract with the insurance company, the insurer might also pay more for a service like Smith’s X-ray. However, “It is our goal to pay the same before and after the acquisition,” Early said.

The hospital systems say higher rates are justified for several reasons. Their overhead expenses — staffing, legal compliance, electronic medical records systems, debt payments, equipment upgrades — are usually higher than at independent practices. Also, patients tend to go to a hospital because their problems are more complex.

But a major reason for the higher charges is that hospitals like Saint Alphonsus and St. Luke’s must take patients regardless of whether they can pay.

That take-all-comers responsibility is the main reason why nonprofit hospitals get a break on property taxes. Both systems said those exemptions don’t make up for losses on government-insured or nonpaying customers. And if the hospitals don’t make money, they can’t invest in new equipment, build and renovate their centers or hire more people.

“Hospitals need to fully cover their costs and to earn a reasonable margin,” Duncan said. Hospitals “need to obtain these revenues somewhere. Commercial insurers are the only potential source of revenues to make up for this governmental shortfall.”

Dey added that, “Ultimately people need to understand that St. Luke’s supports a broad patient population, and over half of our patient population are either Medicaid or Medicare, which don’t reimburse at a sufficient level to cover our costs.” The hospital must “shift the burden of helping offset some of that cost to the insured and self-pay patients, so the charges are often higher.”

Some local independent providers argue they take plenty of those patients without raising prices.


Still, St. Luke’s is working to bring down prices, Dey said. The system charged 15 percent to 29 percent less for its top five X-ray procedures in fiscal year 2012 than in 2011, and charged 4 percent to 24 percent less for its top five labs.

Saint Alphonsus said it launched a medical-imaging partnership to give patients an option that costs about 50 percent less than Saint Alphonsus outpatient imaging.

The consolidations of hospitals, clinics and doctors into megaproviders may increase health care prices “in the short-term, two- to four-year timetable,” Bodnar said. The trend “may shift some of the bargaining power of insurance companies. However, the advent of insurance exchanges should change the dynamics of the marketplace radically by creating more cost-conscious health care consumers. In the long term, overall health care spending should be moderated.”


Jeff Hessing, an orthopedist and partner at the private Treasure Valley Hospital, a small acute-care surgical hospital in Boise, says the acquisitions hamper a patient’s freedom to choose where they get medical care. Hessing and other independent providers said patient choice disintegrates when hospital-employed physicians stop practicing at the other hospital system and stop using other surgery and diagnostic centers.

Hessing was once a partner in a surgery center that sold to St. Luke’s in 2009 when a majority of the physicians who owned it voted to sell.

“Overnight our prices doubled at the facility, absolutely doubled,” he said.

The facility charge for a knee scope jumped from $2,500 to $6,058, and a patient’s portion went from $230 to $856, based on his records of patient bills, insurance documents and information from Blue Cross of Idaho.

He adds that his business writes off about one-third of its charges and gets one-fifth of its outpatient revenue and one-third of its inpatient revenue from Medicare and Medicaid patients. But it doesn’t receive a property tax exemption for doing that, and it doesn’t charge more as a result, he said.

Hessing was one of several providers accused by the U.S. Department of Justice and the Idaho attorney general of conspiring to drive up payments by denying care to injured workers and threatening to pull out of Blue Cross of Idaho health insurance plans. The providers settled and admitted no wrongdoing. The allegations concerned fees he and other doctors charged, not facility charges, he said.

Edward Smith, the St. Luke’s clinic patient with the bothersome knee, said he pays attention to medical bills even when the extra charges don’t directly hit him in the wallet. It isn’t the quality of his no-longer-independent clinic he questions; it’s the cost.

“They were good doctors before they got bought out; they’re still good doctors,” he said. “The rates are just higher than they used to be.”

Audrey Dutton: 377-6448, Twitter: @IDS_Audrey

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