Details of St. Luke's buyout revealed

Courtroom battle uncovers salary offers, years-long negotiations and high hopes for health care transformation.

adutton@idahostatesman.comOctober 12, 2013 

The CEO of St. Luke's Treasure Valley and the president of Saltzer Medical Group took the stand Friday to talk about the vast improvements in patient care they believe they can accomplish as a unified organization.

St. Luke's Health System and Saltzer employees spent the week in U.S. District Court defending St. Luke's decision to buy Nampa-based Saltzer last year. The health system is being sued by its main competitor, Saint Alphonsus Health System, as well as a small Boise surgical center - Treasure Valley Hospital - the Federal Trade Commission and the Idaho attorney general. The plaintiffs want to undo that purchase, which they say will reduce competition for primary care in the Nampa area.

Lawyers for St. Luke's opponents are laying the groundwork to argue before U.S. District Judge B. Lynn Winmill that Saltzer and St. Luke's had ulterior motives when they joined forces: to control patient referrals, gain market share and pressure insurance companies to pay them more.

Those lawyers pulled up evidence - handwritten notes, emails and other documents - in court Friday that shed a sliver of light on what happened during the Saltzer buyout, which was years in the making. They also disclosed that St. Luke's offered to raise salaries up to 40 percent for Saltzer primary-care doctors.

But first, the men who lead Saltzer and St. Luke's largest regional unit talked about their reasons for marrying the businesses.

HOW IT BEGAN

The Nampa-based medical group was Idaho's largest independent practice before it joined St. Luke's. The businesses had signed a nonbinding agreement several years ago to work together to improve medical care in certain areas, including urology and cardiovascular medicine.

That agreement wasn't very effective in changing how the organizations collaborated, said Saltzer President John Kaiser, an obstetrician and gynecologist. But it got a conversation going, he said.

"I said, 'I think we need to take more formalized steps to actually move in that direction,' " toward integrating with a local health system, he said. "I went (to St. Luke's) very skeptical and was actually quite impressed."

Saltzer wanted the freedom to send patients anywhere it pleased, not just to St. Luke's, and St. Luke's executives said that was "totally acceptable," Kaiser said.

Eric Wilson, a lawyer for the Idaho attorney general, showed the courtroom two sets of Saltzer meeting notes. One was from late 2009, about a year after Saltzer had begun working more closely with St. Luke's. The other was dated July 2010. The 2010 notes referenced financial benefit.

The 2009 notes listed "fundamental reasons for why we should do this." Among them: "competition - control market share" and "we need a plan to bring primary care in Canyon County."

Wilson asked Kaiser if Saltzer wanted to join St. Luke's for the extra clout it would provide in negotiations with insurance companies. A former Saltzer executive had said in previous testimony that negotiations with Blue Cross of Idaho, the state's largest health insurance, were a losing battle because Saltzer couldn't afford to lose Blue Cross's business. Kaiser said the desire was just to keep from being left out of insurance contracts as the health care market in Canyon County grew.

THE PATH TO A DEAL

Over time, the Meridian hospital owned by St. Luke's began seeing a larger number of patients come in from Canyon County. That led St. Luke's to get serious about partnering with Saltzer, said Chris Roth, CEO of St. Luke's Treasure Valley.

"Saltzer wanted to work with us; they were clear that they wanted to sit down with St. Luke's and only St. Luke's and discuss a relationship," Roth told the court. "Saltzer was, and is, an incredibly well-respected group. ... When a group like that says, 'We're interested in pursuing an additional further relationship,' absolutely we were interested."

Roth said both businesses shared a "vision to transform health care" and to deliver "integrated, seamless, quality care across all of our settings."

The talks about merging took years. They hit a slowdown in late 2011, when some Saltzer doctors decided they wanted to shop around.

Saltzer asked Saint Alphonsus Health System for an offer.

Saint Alphonsus in 2012 offered Saltzer a range of options, one with an estimated $19 million in guaranteed compensation for the first two years, plus a one-time payment for assets valued at $8 million to $9.8 million, according to court documents.

St. Luke's told Saltzer that if it kept up talks with Saint Alphonsus, "we were not interested," Roth said.

At one meeting, according to Roth, St. Luke's executive Gary Fletcher "stood up and said, 'We're not here to twist arms. What's important here is that we have a shared vision.' "

After that, St. Luke's gave Saltzer 90 days to decide whether it would keep talking to Saint Alphonsus. The doctors voted "overwhelmingly" to join St. Luke's, Roth said.

To pay those doctors at the level of other St. Luke's primary care physicians, the health system offered the Saltzer primary care doctors raises of 30 percent to 40 percent.

David Ettinger, an antitrust lawyer for Saint Alphonsus, showed a St. Luke's document from 2012 that placed a value on Saltzer and said St. Luke's could "adjust" doctor charge rates. Ettinger said that suggests St. Luke's planned to recoup the "above market norm" salary increases by charging higher prices for Saltzer doctors.

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Audrey Dutton: 377-6448, Twitter: @IDS_Audrey

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