Patients who walked into a St. Luke’s Internal Medicine clinic a few years ago may have seen something that later became evidence in a federal lawsuit against Idaho’s largest health system: a notice to patients about exclusivity.
“If you need emergency care ... Please use the Emergency Department at St. Luke’s in Boise or Meridian. St. Luke’s Internal Medicine doctors admit patients only [bold italics in original] to St. Luke’s facilities. Therefore, if your treatment requires hospitalization, we can manage your care more efficiently and effectively if you have received your emergency care at St. Luke’s.”
The notice was stamped with the trademarked St. Luke’s logo. Then it left patients with a second thought that, for a large segment of Southwest Idaho’s population, contradicted the first:
“Please note: If your situation is life threatening, call 911 or go to the nearest [italics in original] hospital emergency room.”
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The notice was meant to keep patients from being unpleasantly surprised when learning in an emergency-room visit that their primary doctor couldn’t see them there. It was among thousands of pages of records filed in a lawsuit. They illuminate the extent to which St. Luke’s and Saint Alphonsus health systems care about where patients go, and why, and how those decisions affect their bottom lines.
In some cases, the health systems sought to keep patients to themselves unless there was a compelling reason not to. They made it harder for doctors to send patients elsewhere.
The documents, which were part of the antitrust lawsuit that St. Luke’s lost last year, show that St. Luke’s tracks its doctors’ referrals and has used technology to make it more of a hassle for doctors to refer outside of St. Luke’s. They also show that Saint Alphonsus tracks its doctors’ referrals and in 2010 began requiring its employed doctors to refer patients to other Saint Alphonsus providers, with exceptions for insurance coverage, patient preference or quality concerns.
The federal and state governments, Saint Alphonsus and Treasure Valley Hospital sued St. Luke’s for buying Nampa’s Saltzer Medical Group — then Idaho’s largest physicians group. St. Luke’s purchased the group in 2012 despite being warned not to by the Idaho Attorney General’s Office. U.S. District Judge B. Lynn Winmill agreed with the plaintiffs that the acquisition gave St. Luke’s near-monopoly power over the Nampa primary care market.
Winmill commented on the referrals at length in his January 2014 ruling.
“There is nothing in the [contract to buy Saltzer and employ its doctors] that expressly ties compensation for the Saltzer physicians to where they make referrals or to the volume or revenue generated by Saltzer physicians for ancillary services, such as laboratory or imaging services,” he wrote. He quoted David Pate, CEO of St. Luke’s, as saying: “[As] a physician, I would find it completely objectionable for us to direct where our physicians are supposed to refer business.”
Nonetheless, patients trust the opinions of their primary doctors on where to go for a CT scan or a knee surgery, Winmill said. And doctors who work for hospitals can be influenced to increase their referrals and hospital admissions, thus raising costs, he said.
“It is true that Saltzer physicians have complete discretion under the terms of the [contract] in referring patients,” he said. “While this complete discretion has been the rule for years, in practice that discretion has been exercised to favor the hospital where the physician was employed.
“After St. Luke’s purchased five specialty practices, ‘their business at Saint Alphonsus Boise dropped dramatically [and] the amount of business that they did at St. Luke’s facilities increased dramatically,’” Winmill wrote, quoting an expert witness for Saint Alphonsus.
Winmill cited examples laid out by St. Luke’s opponents:
• Idaho Cardiothoracic and Vascular Associates was purchased by St. Luke’s, and their 34 percent of inpatient referrals to Saint Alphonsus in Boise fell to zero. All their referrals were to St. Luke’s.
• Boise Orthopedic Clinic inpatient admissions to Saint Alphonsus dropped from 57 percent to 6 percent after St. Luke’s bought that clinic.
• After a group of seven primary-care doctors previously with the Mercy Medical Group went to work for St. Luke’s, the share of imaging services they did at Saint Alphonsus fell from 81 percent to 19 percent.
Lawyers for St. Luke’s had argued to Winmill that the numbers were skewed by soured relationships between doctors after a buyout, and by technical record-keeping issues. St. Luke’s really was sending patients to Saint Alphonsus and wanted to continue doing so, they said.
Winmill wasn’t swayed.
“After the acquisition, it is virtually certain that this trend will continue and Saltzer referrals to St. Luke’s will increase,” the Boise judge concluded. “Services that used to be performed outside the hospital setting will increasingly be referred to St Luke’s and billed out with the higher hospital-based billing rates, increasing the cost to the patient.”
That notice to St. Luke’s Internal Medicine patients about where to go in a medical emergency was released to the public late last year, after the Idaho Statesman and other media groups sued for access to the records. The documents show that both health-care organizations have tried for years to find ways to keep patients in their own camps.
A St. Luke’s executive told the Idaho Statesman that efficiency, not just patient retention, is St. Luke’s goal.
“It’s not our intent that our patients get all of their care within our system,” said Chris Roth, chief operating officer of St. Luke’s Health System. “Our intent is that patients receive care in the most seamless and efficient way possible. A system implies there is some level of coordination and communication.”
He said keeping a patient within a single record-keeping system can cut down on duplication of expensive tests. One example: “Knowing someone has already had an MRI and doesn’t need another one.”
Saint Alphonsus executives have said they, like St. Luke’s, do not pressure doctors to refer within their system.
Three and a half years ago, a Saint Alphonsus team — which included Rodney Reider, now CEO of the system, and Karl Keeler, CEO of the system’s Nampa hospital — was working on ways to bring more patients into the system and keep them coming back. Among the team’s ideas:
• Give Saint Alphonsus Regional Medical Center oncologists a list of primary-care providers and specialists in the area, highlighting the ones who have referred in the past year. “Target those physicians who we would expect to be referring to us and are not for meet and greets.”
• When it came to independent doctors — those not employed by Saint Alphonsus — the group wanted to work “to improve quantification of information showing where our referrals come from and do not come from (using new tracking system called PROS – Physician Referral Outreach System).”
• When it came to doctors who worked directly for Saint Alphonsus, the group said its “goal is to maximize alignment (prevent leakage) with employed physicians.”
And the system was making headway on that goal, increasing the number of referrals within the system to 2,862 in a single month — an 83 percent increase since two years earlier, Saint Alphonsus documents said.
But it could do better when it came to services for women and children, the group said, putting on its to-do list to pinpoint “leakage” and review “spreadsheets to identify and action plan around specific providers.”
David Ettinger, lead attorney for Saint Alphonsus in the trial, told the Statesman that his client, “like other hospitals, tries to attract physicians who, of course, have a say in where patients go. ... You focus on those doctors and try to make your case to them.”
St. Luke’s Health System almost three years ago employed or had exclusive contracts with 630 doctors across Idaho, mostly in the Treasure Valley.
Its main competitor, Saint Alphonsus Health System, looked with dread at a buyout it knew St. Luke’s was contemplating.
Even though it also employed or had exclusive deals with doctors, too, Saint Alphonsus said it would suffer economic harm if St. Luke’s was allowed to buy Saltzer Medical Group, a practice made up of dozens of physicians.
That’s how Idaho’s two largest health systems ended up in court in 2013, fighting for weeks over referrals worth millions of dollars.
The fear, Saint Alphonsus said, was that St. Luke’s would steer patients away from other hospitals and specialists. It would keep a large share of the medical marketplace to itself. And, Saint Alphonsus said, there was historic precedent: after doctors joined St. Luke’s massive network, their referrals to Saint Alphonsus and smaller Treasure Valley Hospital would drop off a cliff.
In court, St. Luke’s officials told the judge that wasn’t really true. They didn’t care where St. Luke’s doctors sent their patients, as long as the patients were getting quality health care. If it just so happened that doctors employed by St. Luke’s ended up referring to colleagues, it was a preference issue. Not, as its opponents in the case argued, because of things like in-house referrals being the default in St. Luke’s software.
Roth said St. Luke’s electronic health records system now allows physicians to search for, and refer to, anyone in the area, including competitors.
Besides, the lawyers for St. Luke’s told the judge, Saint Alphonsus wasn’t sending all its patients to the cross-town competition. When St. Luke’s hired a group of Boise surgeons in January 2012, those surgeons had been performing half of their procedures at Saint Alphonsus, with two surgeons practicing exclusively at Saint Alphonsus. After the deal was announced, a document from the trial says, the surgeons felt a “caustic environment” swirling around them at Saint Alphonsus. They moved their surgeries to St. Luke’s hospital in Meridian.
Lawyers for St. Luke’s offered the freezing-out of doctors as one explanation for the sudden drop in referrals after St. Luke’s buys a practice.
An expert witness for St. Luke’s showed data that he said was evidence that Saint Alphonsus doctors steered patients away.
“It shows that prior to the acquisition we’re tracking 2,300-and-something referrals, and afterwards it falls to 1,700,” economist David Argue testified. “That’s an overall decline of 27 percent. That’s a very — in my view, a very substantial shift in the Saint Al’s [primary care providers’] referral practices or patterns.”
Ettinger, the Saint Alphonsus attorney, told the Statesman those claims were false. “There was zero evidence,” he said.
Ettinger said he confirmed two weeks ago that Saint Alphonsus doctors in Caldwell admit their patients to West Valley Medical Center, a for-profit competitor in Caldwell, instead of sending patients to the Saint Alphonsus hospital in Nampa.
“There are no incentives or disincentives applied with regard to referrals,” Saint Alphonsus spokesman Joshua Schlaich said in an email to the Statesman. “Saint Alphonsus does utilize a form that includes information on referrals, though the information has never been used to generate any reports, to track referrals, or to provide feedback or other reactions to physicians. Nor has it been used to evaluate physicians.”
He said the hospital uses the forms to find areas where it falls short or leaves gaps in the health-care services it offers.
Their intents weren’t solely financial: If you’re a health-care system, it is hard to take the blame for a patient’s staph infection or take credit for his under-control diabetes if that patient is getting only one-third of his care within your walls.
But it was partly financial. An email from 2011, written by Thomas Reinhardt, a Saint Alphonsus Health System cardiology vice president, explains why:
“Their job is to educate [Saint Alphonsus Medical Group] providers and nurses about who is in our referral network and to troubleshoot problems with keeping patients in the system. The message is that every referral matters. It may seem harmless to give a patient the choice of St. Luke’s for a mammogram. But if you follow the money, mammograms generate income. If there is a tumor, the biopsy, surgery, chemo, radiation, and all follow-up care that results will also go to St. Luke’s. When that happens, it cannot support our mission to provide care, cannot support our staffing and equipment needs, etc. We take great care of patients in all our clinics and in the hospital, so we’d like to see our patients directed our way.”
Documents from the trial suggest similar efforts within Saltzer to keep referrals inside the group.
“I really appreciate your stating the importance of keeping referrals in-house in your financial reports lately,” said one 2009 email from a Saltzer doctor to its then-chief financial officer. “I have seen a definite increase in referrals from most of the primary care physicians at Saltzer over the past several months, and I believe it’s one of the primary reasons my numbers are up from last year. There are still a couple of primary care docs who need to do a better job of keeping referrals in house but most seem to be getting it.
“I think it's important to tell all the physicians in one of your upcoming financial reports that their efforts are really appreciated by the surgeons and specialists,” he continued. “I’ve talked with physicians at both St. Al’s and St. Luke’s who state their patient numbers are down from last year; I’m fairly certain that Saltzer is doing well because of the effort by primary care physicians to keep referrals within Saltzer; please let them know that what they’re doing is helping our group not only survive, but even flourish, in this economy and to please keep it up.”
And a St. Luke’s internal report created sometime after March 2011 explained the “situation” in Nampa as including “active diversion of patients from St. Al’s facilities in Nampa and Ontario through ED/referral protocols.”
LOYALTY = HIGHER SALARIES
In the run-up to the multimillion-dollar buyout deal, St. Luke’s laid out its compensation offer to Saltzer Medical Group’s physicians: a total $4.1 million increase. That was tantamount to a 30 percent raise. St. Luke’s planned to pay for that by making more money than Saltzer did on the same services.
“Funding for [the] compensation increase is provided through higher hospital-based reimbursement (approximately $4,500,000+) and other downstream revenue sources,” said a 2011 progress report on the Saltzer buyout negotiations.
When a hospital operates an outpatient clinic, under current Medicare rules it can bill patient services at a higher “hospital-based” rate and make money off the “downstream” services like lab tests and X-rays that accompany that clinic.
Blue Cross of Idaho ran some numbers and found that, based on what usually happened after St. Luke’s bought a practice, the same services would cost 43 percent more after the buyout for Medicare Advantage policyholders and 34 percent more for other policyholders.
At the same time, St. Luke’s and Saltzer leaders both said in internal documents that they expected Saltzer doctors to send more patients to St. Luke’s — to the extent that one St. Luke’s executive warned it would “place more stress on the schedule” for surgeries at St. Luke’s Meridian hospital.
The health system decided to build a new surgical center in Meridian to help ease that stress. It cost about $8 million to build, according to witness testimony in the trial.
St. Luke’s closed on its acquisition of Saltzer in December 2012. It is still in court, as Winmill enforces his 2014 order for St. Luke’s to unwind the deal and release Saltzer into a competitive marketplace.
DOCTOR: ‘IT GOES BOTH WAYS’
Things have changed for doctors involved in the trial. Referrals are different in their post-lawsuit world.
Treasure Valley Hospital was one of the four entities that sued over the Saltzer deal. Jeffrey Hessing, a shoulder-specialist orthopedic surgeon in Boise and one of the hospital’s shareholders, said his referrals from Nampa fell after the trial — but not for the reasons he expected.
A rift emerged at Saltzer in the run-up to the buyout between doctors who wanted to remain independent — including those who, like Hessing, owned part of a surgical center that competed with St. Luke’s — and those who wanted to sell the practice. Several surgeons and other doctors severed ties with Saltzer during the negotiations. They went to Saint Alphonsus instead. Their former colleagues joined St. Luke’s.
When that happened, referrals that Hessing says he used to get from Nampa doctors dried up, even from his hospital’s coplaintiff in the case.
“I used to get many referrals ... two or three a week from the workers’ comp out of Saint Al’s in Nampa,” Hessing said.
After the Saltzer surgeons joined Saint Alphonsus, Hessing said “most of my referrals” that used to come from Saint Alphonsus in Nampa went to those former Saltzer doctors, to make up for the loss of referrals from their former colleagues.
“Those of us who were truly still independent, we suffered,” he said. “Our group probably dropped 30 percent of our volume. ... We still haven’t recovered from that.”
There’s also a logistical reason for lost referrals whenever a doctor joins a system, he said. When doctors join a big system like St. Luke’s or Saint Alphonsus, they start using electronic medical records technologies that make intrasystem referrals “very streamlined for the physicians. It’s easy. It’s quick.”
Those technologies don’t always interact well with others, so doctors prefer the ease of referring within their own systems, Hessing said.
His own doctor joined St. Luke’s. Since then, his doctor’s office has referred him for tests to St. Luke’s facilities, Hessing said.
“I said, ‘Well, I’d prefer to go to my own place,’” he said.
The office worker replied, “‘Well, no, we can’t do that. It’s got to go through the [St. Luke’s] electronic medical records,’” he said.
Hessing and other independent physicians are now looking for ways to make it easier to refer to each other. The Independent Doctors of Idaho group, whose 225 members include Hessing, is putting together an association that would make it possible for insurance companies to offer plans designed just for people who want to see independent doctors, he said.
He is also looking to a statewide health-data and health-records system to make referrals easier. The Idaho Health Data Exchange is about to launch a new portal that will make it easier for doctors to communicate with each other about patients.
THE ROLE OF THE REFERRAL
Schlaich, the Saint Alphonsus spokesman, echoed St. Luke’s Chris Roth in noting that there is a practical advantage to doctors keeping business within the walls of their employer.
“I think it’s important to recognize that there are benefits to making sure that there’s a medical home — that things are seamless for the patient, and that we are providing a seamless experience for the patient,” Schlaich said. “But, again, we never contended in the lawsuit that referring patients within a hospital system is bad. [We contended that] control of too many referrals by one system does harm competition.”
Roth said every hospital and clinic — and hospices, pharmacies and others, nationwide — keeps track of where its doctors are sending patients or admitting them for hospital care.
“The referral is really the lifeblood of how care is provided within the health care system,” he said. “It’s a determination of how we best serve people.”