Documents, testimony offer clues to Saltzer’s price

Witness statements, emails and court records offer clues to St. Luke’s investment in the Nampa physicians’ practice.

adutton@idahostatesman.comOctober 18, 2013 

Two doctors who joined St. Luke’s Health System in a 2012 buyout of their Nampa practice, Saltzer Medical Group, testified Friday about their reasons for joining the larger organization.

Pediatrician Thomas Patterson’s voice cracked as he talked about giving children the best health care possible instead of worrying about making enough money to sustain an independent group. That’s something he fears will be impossible if U.S. District Judge B. Lynn Winmill decides the buyout violated antitrust laws and orders St. Luke’s to release Saltzer.

“I’m closer than ever to [getting] out of this rat race that I was warned about” early in his career, said Patterson, who has practiced for about 15 years.

His coworker Harold Kunz, a family doctor, then testified that Saltzer would face crushing debt if made independent again.

A lawyer for Saint Alphonsus Health System — one of four organizations suing St. Luke’s over the deal — countered that by showing a video of Kunz saying he believed financial insolvency was a “doomsday scenario.”

Later, Kunz’s testimony and lawyers’ statements helped answer a different question: How much did St. Luke’s pay for the Nampa practice?

Kunz told the court that St. Luke’s offered Saltzer a deal that, in terms of money, was “virtually identical” to what Saint Alphonsus offered in January 2012, after some of Saltzer’s doctors decided to shop around before deciding to sell to St. Luke’s.

That means it is likely that St. Luke’s offered around $27 million to $29 million for Saltzer.

According to emails and other documents, a consultant for Saint Alphonsus said on Jan. 23, 2012, that Saltzer’s medical practice was worth $6.7 million to $7.7 million, counting employees and intangible assets but excluding tangible assets such as medical equipment. The consultant also estimated salaries, including $13.5 million for an expected 49 full-time doctors and more than $10 million for almost 300 full-time support staffers.

Saint Alphonsus offered Saltzer a range of options on Jan. 31, 2012, including:

• A five-year agreement for Saltzer physicians to work for Saint Alphonsus, with guaranteed compensation of $19 million for 49 doctors in the first two years. Saint Alphonsus would pay a one-time lump sum of $8 million to $9.8 million for Saltzer’s assets and nonphysician employees.

Saltzer now is under this style of contract — known as a physician-services agreement — with St. Luke’s.

• A five-year agreement for the doctors to work for Saint Alphonsus, while the practice itself would remain independent. Saint Alphonsus would pay a management fee for billing and day-to-day operations. The offer included $16 million in guaranteed doctor pay for the first two years and a one-time payment of $2.9 million to $3.4 million for the doctors.

• A joint-equity deal allowing Saint Alphonsus to buy a majority share in Saltzer — an estimated $6.5 million for 51 percent of stock — and have a seat on Saltzer’s governing board. All Saltzer employees, compensation plans and operations would stay the same. The health system would have the option to buy the whole practice over a certain period.

• A total buyout, which Saint Alphonsus assumed was off the table unless Saltzer wanted to talk about it.

• An affiliation that could offer “a variety of medical directorships, joint ventures and co-management opportunities.” One pitch was for Saltzer to join the Saint Alphonsus Health Alliance, a clinically integrated system being formed at the time.

The nonfinancial terms were different from St. Luke’s, though, and Kunz said they made all the difference in his decision to favor St. Luke’s. Saint Alphonsus initially wanted the Saltzer doctors to sign a noncompete agreement with a 90-mile radius. The system later offered to “waive” its noncompete contract for Saltzer doctors, but Kunz said the request alone damaged his trust.

The group eventually took the St. Luke’s package, and the deal closed in December. Some of Saltzer’s doctors, including high-revenue surgeons, left to join Saint Alphonsus about the same time.

Court documents reference some kind of financial assistance St. Luke’s would provide to help Saltzer survive a breakup of the deal. The details came out Friday while Kunz was under cross-examination: St. Luke’s had paid about $9 million that Saltzer physicians can keep if Winmill orders the two businesses to separate.

An attorney for St. Luke’s then said he thought that information was supposed to be sealed by an “attorneys’ eyes only” rule — not for the public or competing businesses to know.

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Audrey Dutton: 377-6448, Twitter: @IDS_Audrey

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