Under fire, St. Luke’s says it’s trying to fix broken system

Are the efforts of the hospital system and its leader, which have led to a high-profile lawsuit, just misunderstood?

adutton@idahostatesman.comAugust 11, 2013 

  • ONLINE CHAT WITH PATE

    St. Luke’s CEO David Pate and Chief Financial Officer Jeff Taylor will join Statesman reporter Audrey Dutton to take your questions from 3:30 to 4:30 p.m. Monday at IdahoStatesman.com.

  • LOWER HEALTH COSTS?

    St. Luke’s says it has raised its net prices each year by 2.7 percent on average since 2009, when CEO David Pate arrived. That’s after discounts with insurers and others from the St. Luke’s sticker price, which has gone up an average of 7.3 percent each year since 2009.

    Saint Alphonsus, for a comparison, has raised its net price between zero and 4 percent a year in recent years.

    Pate said looking just at prices misses the point. A hospital could offer the cheapest surgery in the area, but that’s still too expensive if a patient doesn’t need surgery at all, he said.

  • BETTER HEALTH?

    Pate jumps on any opportunity to talk about obesity, especially child obesity. He worries that, left unchecked, it will chew up and spit out the health care system and the economy.

    In a column in May for the Idaho Statesman’s Business Insider magazine, Pate wrote that 30 percent of third-graders in Idaho are obese. “Projected future health care costs will overwhelm the efforts at cost-cutting that health care systems are making today if the epidemic of childhood obesity is not addressed,” he wrote.

    He also points to the health effects of smoking as a huge driver of health costs.

    To get a handle on these two risk factors, St. Luke’s created a family child obesity program that reduced the body mass index 60 percent among early participants and a tobacco-cessation program with an 81 percent success rate, compared with the typical 50 percent success rate, Pate said.

    “You can’t save everybody, and we’re not going to get somebody to do something they don’t want to do,” he said. “That’s too easy of a cop-out to say, ‘Well, people aren’t going to change.’ ... I think we’ve got to support them and help them.”

    The system dangles money in front of employees to encourage them to become healthier as well. Its insurance plan costs $800 to $1,000 more per year if a person smokes, isn’t managing their diabetes or is otherwise slipping when it comes to health, said Jeff Taylor of St. Luke’s.

    Saint Alphonsus also is trying to get a handle on health problems that lead to high costs later in life. It has adopted a “patient-centered medical home” approach in which all health care providers coordinate a patient’s care. The diabetes patients in that program are about 10 percent more likely to do what they should to control their diabetes and are taking more of a role in their own care, Saint Alphonsus said. Additionally, the system has a tobacco-cessation program that offers free support.

  • AUDREY DUTTON

    Audrey has covered the business of Idaho health care since joining the Statesman in 2011.

David Pate and his team at St. Luke’s Health System think they’re on track to finding a cure for Idaho’s — maybe even the nation’s — health and health care spending woes.

They believe the system’s rapid growth, its buyouts of independent physician practices, its foray into the health insurance business and its hundreds of millions of dollars spent on technology and construction will, together, pave the way to the “triple aim”: better health, better care and lower costs for Idahoans.

Some very powerful people disagree. Those people include the Federal Trade Commission, Idaho Attorney General Lawrence Wasden, and two St. Luke’s competitors. In a lawsuit headed for trial this fall, they argue that St. Luke’s is breaking federal and state antitrust and competition laws in pursuit of its goals, that a monopoly is brewing in the Treasure Valley, and that if St. Luke’s grows unfettered, it will have a grip on the market and be able to charge whatever it wants.

In his own writings and in a recent two-hour interview with the Idaho Statesman, Pate defended his choices as chief executive of the Boise-based hospital system. St. Luke’s, which has $1.44 billion in annual revenue and 11,000 employees in Idaho and eastern Oregon, is Idaho’s largest private employer.

THE CAPTAIN

Pate built a career in Texas, studying law and medicine and rising from a primary care doctor to CEO of a Houston hospital. At age 52, after more than 30 years in Houston, it hadn’t occurred to him to move. But when a job opened in 2009 to run St. Luke’s Health System, he visited Boise and saw potential to try new things that “you couldn’t even do in the largest medical center in the world,” he said.

“Physicians (in Idaho) understand things have to change,” he said.

Fast-forward to last winter and spring. Three years into his tenure in Boise, Pate learned that St. Luke’s was being sued by the FTC, Wasden, its rival Saint Alphonsus Health System, and Treasure Valley Hospital, a small Boise surgical facility.

The lawsuits claim that under Pate’s leadership, St. Luke’s broke antitrust laws by buying a large medical practice in nearby Nampa, the Saltzer Medical Group, and employing most of its previously independent doctors. St. Luke’s competitors said the acquisition would cost them money and jobs. St. Luke’s countered by saying that Saltzer couldn’t survive on its own and that the acquisition was essential to St. Luke’s improving health care.

St. Luke’s decided to buy the practice and fight the lawsuit — at a cost of “multiple millions of dollars” to both St. Luke’s and Saint Alphonsus, Pate said.

Pate knew lawsuits were a possibility. Wasden’s office had asked St. Luke’s not to close on the deal because it was under investigation for antitrust violations. Then, when the health system pushed on with its efforts, Deputy Attorney General Brett DeLange sent a letter telling St. Luke’s that it seemed as though it was trying to get itself sued.

The St. Luke’s leadership — senior managers, the board, employees and others — had “talked about the fact that if we were serious, if we’re really going to transform health care ... we are going to hit resistance,” Pate said. “I never expected it would be this degree of resistance.”

THE VISION

What exactly is Pate’s grand plan, if not to monopolize Idaho health care and make money? And is there evidence that St. Luke’s is heading in that direction?

Pate said he wants the nonprofit health system to follow in the footsteps of the Mayo Clinic — the renowned Minnesota-based system with clinics and hospitals in four states, a flagship clinic that has about 4,100 doctors and scientists on staff, educational and training programs, and $8.8 billion in revenue last year — or Kaiser Permanente, a California-based organization that had more than 9.1 million health-plan members, 17,157 doctors, 37 hospitals and $50.6 billion in operating revenue last year.

Those and other large, integrated systems are held up as paragons of efficient, high-quality health care, and “if not all of their physicians are employed, they have a core group of physicians that are employed,” Pate said.

St. Luke’s has hired independent doctors who, under the system’s umbrella, charge more for the same services.

In the redesigned system, all St. Luke’s providers would monitor and improve outcomes and be rewarded when patients are healthier. Pate said St. Luke’s needs a base of doctors on its payroll so it can reward them. Though St. Luke’s also has “alignments” with many independent doctors, Pate says looser arrangements don’t give doctors enough incentive to stop billing for unnecessary procedures.

Tom Greene, FTC attorney for the St. Luke’s lawsuit, said that’s where there is a fundamental disagreement.

“The basic fallacy at play in what Dr. Pate is trying to sell is that the only way to have integrated care is to have an employment model,” Greene said. “There are any number of situations in which ... groups of physicians are doing very integrated care, and they’re not employed (by) hospitals.”

Essential to the redesigned system’s success, Pate said, will be data-sharing among employers, insurers and health care providers. That’s one reason St. Luke’s listed for bringing Utah-based insurer SelectHealth into the Idaho market. The other reasons were to create a St. Luke’s-centric health plan that allows it to keep money left over from efficiencies, to then reduce premiums for that plan, and to boost competition in the Idaho insurance market.

St. Luke’s kick-started SelectHealth’s Idaho membership by moving St. Luke’s employees to that new plan.

Pate’s vision also involves St. Luke’s spending money on construction and acquisitions of hospitals, clinics and physician practices in Idaho and eastern Oregon. St. Luke’s has hired independent doctors who legally may charge more for the same services.

St. Luke’s officials say all of these decisions are meant to set up the system to become highly efficient — a Mayo or Kaiser in Idaho.

IS IT WORKING?

The Boise-based system isn’t the only one trying to hit that “triple aim.”

Saint Alphonsus Health System, which is based in Boise but owned by Trinity Health, a Michigan-based Catholic hospital network, has tried to do the “triple aim” one better: It created the “quadruple aim” (not to be confused with the “quadruple aim” moniker adopted for U.S. military health care). The fourth aim is “service to the community,” said Blaine Petersen, chief financial officer.

Petersen said Saint Alphonsus is taking different approaches than the larger St. Luke’s but making similar changes.

One example Pate offers is back and neck surgeries. Idaho has among the nation’s highest rates of those expensive, complicated surgeries. The Dartmouth Atlas of Health Care ranks Idaho second in the U.S. — after Wyoming — with 6.7 hospital back surgeries for every 1,000 Medicare enrollees. The Boise region has eight surgeries per 1,000 Medicare enrollees, about 1.7 times as many back surgeries per enrollee as the U.S. average.

“Is there something peculiar about us, why people should need more spine surgery than they do in other areas?” Pate asked.

St. Luke’s created a Center for Spine Wellness in 2009 on Americana Boulevard in Boise that sought more conservative treatments — physical therapy, ultrasounds, heat, massage — with the goal of not doing surgery.

“If we acted totally in our self-interest, we wouldn’t do this. It is much better for us to have people getting surgery, because surgeons get paid well for it, and hospitals get paid well for surgery,” Pate said. “But it’s not the right thing to do, and it’s not how we’re going to address this problem.”

St. Luke’s spokesman Ken Dey explained that St. Luke’s doesn’t have enough data yet to say how much it has affected surgery rates.

Dey offered a December 2012 presentation showing that 27 patients — about 2 percent of the center’s roughly 1,300 patients since it opened — were sent to surgeons. The majority — about 70 percent — were referred to physical therapists.

The patients ended up feeling as good as their peers who’d had surgery, Pate said.

Across town at Saint Alphonsus, executives and doctors also are targeting spine surgeries.

Saint Alphonsus recently put in place a protocol that requires any patient with lower back pain to have several weeks of physical therapy before having an MRI or being considered for surgery, said Petersen, the CFO.

That new protocol won’t make Saint Alphonsus more money, he said, but it cuts down on back surgeries, which are riskier for the hospital and the patient, not to mention costing thousands of dollars.

According to the Health Care Blue Book, a medical online pricing website, the average negotiated price for surgery to remove a spinal disk is $2,451 for the surgeon’s fee and $9,496 for the hospital fee, including five days in the hospital, he said. The average price for nine sessions of physical therapy is $783, he said.

Based on the number of Idahoans who are on Medicare, Saint Alphonsus calculated that reducing the rate of surgery by one person per 1,000 would save almost $2.7 million per year.

Another example Petersen offers is the hospital’s efforts to reduce early deliveries, such as when a doctor schedules a C-section for a woman who’s 38 weeks’ pregnant. The risk of a baby ending up in the neonatal intensive care unit — a massively expensive place to be — goes down when the mother hits 39 weeks of pregnancy. So the health system built a protocol for deliveries to cut down on those scheduled births.

What was once a 5 percent to 6 percent rate of early scheduled births has been cut, at least in the past three quarters, to zero in all Saint Alphonsus hospitals, Petersen said.

ST. LUKE’S AS MICROCOSM

In many ways, St. Luke’s is an example of what’s happening around the country.

None of the St. Luke’s initiatives is totally novel. Neither is the criticism of them.

“Value-based” reimbursement — rewarding providers for quality instead of quantity — has been around for years and is now built into the federal Medicare payment model.

Hospitals around the country are blurring the line between insurer and health care provider. Many, St. Luke’s included, are creating insurance plans that put the onus of frugality on the hospital, instead of giving it what experts call a “perverse incentive” to make money on sick people.

About 20 percent of hospital networks now sell an insurance product, according to a survey of 100 hospital officials by The Advisory Board Co., a health care information company.

In a 2012 article, Kaiser Health News cited worries that hospital-insurer arrangements would limit consumer choice and access to other providers.

And though St. Luke’s is ballooning in size, that’s not unique, either. Consolidation is a nationwide trend, largely driven by changes from the Affordable Care Act. Fewer than four in 10 doctors are independent today, compared with almost six in 10 a decade ago, according to a 2012 report from consultants at Accenture.

“We think we’ve been very thoughtful. We think the answer is not simple; it can’t be ‘do this, and health care will be fixed,’ ” Pate said. “It’s multifactorial.”

Pate says it will be years before there’s enough data to prove whether he’s right. But he believes St. Luke’s is one of the nation’s innovators — a groundbreaker in efficiency, not the market-hungry behemoth it is accused of being.

“I think that when the next president is in office, that he or she will be ... touting St. Luke’s Health System in Idaho,” Pate said. “ ‘Look what they’ve done to premium costs. Look what they’ve done to improve care.’ ... In two or three years? This will be a whole different world here.”

Audrey Dutton: 377-6448,Twitter: @IDS_Audrey

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