David Pate moved to Boise three years ago to captain the St. Luke’s Health System. The Texas doctor and lawyer has since led the system through growth that has made St. Luke’s the largest private employer in Idaho. He says the system’s growth isn’t itself a strategy. Instead, it’s a step in a strategy of integration to give patients better care at a lower cost.
But the pace of St. Luke’s buyouts has caught the attention of state and federal antitrust investigators and Saint Alphonsus Health System, which compares its four physician-practice acquisitions in the past two years with St. Luke’s more than 20 acquisitions in the past four. St. Luke’s has added about 170 doctors to its payroll in the past two years, while Saint Al’s added 24.
In February, Attorney General Lawrence Wasden asked St. Luke’s and Saltzer Medical Group to put off merger talks until his antitrust investigation is complete. St. Luke’s agreed to wait 90 days but said in August that it would move forward. St. Luke’s, which said it has been negotiating with Saltzer for more than two years, said it would give Wasden 30 days’ notice before closing on a deal.
Wasden wrote that St. Luke’s acquisitions might “substantially lessen” local competition in health care. He and the Federal Trade Commission are studying whether St. Luke’s has broken the Idaho Competition Act or federal laws aimed at blocking monopolies and preserving competition. The FTC says diminished competition can lead to higher prices. St. Luke’s officials say the health system hasn’t broken any laws and its acquisitions don’t significantly raise prices.
Wasden and the FTC have now issued subpoenas — or demands for information — to St. Luke’s.
“We’re fully cooperating with all of their requests for information,” spokesman Ken Dey said. The investigators are “asking for a broad list of information.”
Neither the St. Luke’s nor Saint Alphonsus health systems talk about each other as rivals. Until recently, they even co-owned a regional diabetes center.
But St. Luke’s has been snapping up hospitals and medical practices from Hailey to Baker, Ore., and opening new centers, often in step with or after Saint Al’s, which is growing, too. St. Luke’s plans to build a $30 million, two-story medical plaza in Fruitland by spring 2014. It sold $150 million in bonds this summer for a wish list of projects including a $90 million Nampa hospital.
For 100 years, St. Luke’s was just one hospital in Downtown Boise. It grew with the Treasure Valley, adding new capacity, a children’s hospital and cancer care.
In 2001, St. Luke’s opened a $50 million second hospital on Eagle Road off I-84 in Meridian to serve the western Treasure Valley’ fast-growing subdivisions. Since then, St. Luke’s has expanded to include six hospitals, 1,100 staff doctors — of which 380 to 400 are employed — and more than 10,000 workers.
In some cases, St. Luke’s is moving into the same communities as Saint Al’s:
Æ St. Luke’s just announced its plan for a health plaza in Fruitland, where Saint Al’s is about to open one.
Æ There are now two physician practices owned by St. Luke’s in eastern Oregon, where Saint Al’s has doctors and two hospitals.
Æ St. Luke’s is planning to expand in Nampa, where Saint Al’s has a hospital, after finding that 20 percent of the patients at St. Luke’s Meridian have been driving there from Nampa. The system just opened an emergency department in Nampa that it says serves an average of 40 patients a day.
Pate, St. Luke’s CEO, said the health system is responding to the new realities of health care, not building an empire. Under his leadership, he told the Idaho Statesman, the system is helping Idaho hang onto its doctors, keeping rural hospitals afloat and making sure low-income patients throughout southern Idaho can get health care.
When doctors worry about losing money on Medicaid, they may stop taking on new Medicaid patients, Pate said. But employment under a nonprofit health system can reverse that, because taking Medicaid patients or uninsured patients who cannot pay is part of the nonprofit hospital’s role, he said.
The system also keeps rural areas stocked with doctors who wouldn’t be there otherwise, Pate said. The health system owns three of the 27 Idaho hospitals that the federal government says are so critically needed in their communities that it will pay them at 101 percent of their costs for most of their patient care.
Doctors are “just not going to come to a town that’s so small that it may not be able to wholly support them,” Pate said. “There’s got to be physicians, or frankly, the studies show, people are going to die.”
The medical industry is awash in new rules, the threat of lower Medicare payments and new incentives that favor well-oiled health systems. For example, Medicare payments will be tied more and more to quality of patient care. That is critical for a hospital like St. Luke’s, which gets about 40 percent of its patient-care revenue from Medicare.
But the rules and incentives are overwhelming many physicians. Some independent doctors seek employment by a hospital to avoid hassles with new technologies, regulations and shaky reimbursements.
Pate says St. Luke’s recruits high-demand specialists from other states but doesn’t usually recruit doctors locally. It does respond to invitations to buy physician practices, he said. That helps keep doctors in Idaho who have similar beliefs in the way health care should be done, he said.
“There’s a physician shortage around this country,” Pate said. “these physicians can find jobs in other states where they will give them income protection and that kind of stuff with no problem at all. They can go anywhere they want, basically.”
But St. Luke’s is happy to keep working with independent practices, he said: “We have relationships with lots of independent physicians, and that’s perfectly fine.”
Pate said St. Luke’s doesn’t hire doctors by offering them top dollar. Most doctors want to stay in Idaho because they love it here, and most choose St. Luke’s for personal reasons, he said.
“A lot of physicians have looked at offers between us and Saint Al’s,” Pate said. “What I find is they’re more often making the decision around, ‘Is that the right fit for me?’” based on things like corporate culture and relationships with administrators.
It’s also not the first time St. Luke’s has employed doctors to make sure they stick around. About 20 years ago, there was a major shortage of internal-medicine physicians in the Valley. St. Luke’s created an internal-medicine division to hire doctors and ease the shortage.
COMPETITION FOR MARKET SHARE
Today, hospitals in the Treasure Valley employ some doctors on their payrolls and operate others’ practices by providing offices and staffs under service agreements. Both Saint Al’s and St. Luke’s also hire physician groups as independent contractors, such as radiologists or emergency-room doctors.
Saint Alphonsus, part of Michigan’s Trinity Health, says it has half as many doctors on payroll or under service agreements as Boise-based St. Luke’s does. Many of its medical staff leaders are independent doctors.
It also has about 20 percent fewer hospital beds than St. Luke’s and reported about 30 percent lower gross receipts than St. Luke’s for its Treasure Valley hospitals in its latest tax year.
Controlling too many doctors in a community can allow a health system to funnel business back to its own specialists and its own hospitals and give that system more leverage when it deals with patients, employers and health plans, Saint Al’s told the Idaho Statesman. The FTC has unwound physician acquisitions in other places to keep that from happening.
Saint Al’s says Saltzer, with 51 doctors the largest private practice in Idaho, should remain independent. A St. Luke’s acquisition “will seriously harm patient choice and give St. Luke’s even more control over health care,” Saint Al’s said in a statement to the newspaper.
However, Saint Al’s also made Saltzer an offer. The system told Saltzer its preference was for the doctors to stay independent but that it would offer a bid if Saltzer wanted to join a hospital system, Duncan said.
The St. Luke’s system has gone from 218 employed doctors in September 2010 to between 380 and 400 doctors now, Dey said. It also has acquired or announced plans to acquire three small rural hospitals in the past two years.
Saint Al’s, which acquired a hospital in Nampa and two in Oregon in 2010, has added doctors to its payroll more slowly. That system went from 153 doctors in September 2010 to a current tally of 177, according to spokeswoman Elizabeth Duncan. It has added more physician assistants and nurse practitioners — bringing its total number of employed providers to 261 from 216 in September 2010.
Saint Al’s says the sharp difference in the pace of acquisitions matters in part because doctors acquired by St. Luke’s cut their admissions or referrals to Saint Al’s by more than 90 percent.
If a hospital “controls too many physicians, the hospital may decide to direct referrals exclusively to its own specialists and direct admissions to its own hospital,” Saint Al’s said. “This can lead to one hospital system leveraging its market power in connection with dealings with patients, employers and health plans. That hospital is then in a position to demand higher prices, driving up the cost of health care.
“In addition, it faces less pressure to compete in the marketplace through better quality and lower cost. We believe that free competition among both doctors and hospitals is best for health care and best for patients.”
Pate and others at St. Luke’s say referrals are each doctor’s prerogative, not a St. Luke’s demand.
“If there was a physician at Saint Al’s who for some reason decided they wanted to leave and come and join St. Luke’s, then that probably has more to do [with] why those patients aren’t going there anymore than anything else,” Pate said.
St. Luke’s spokesman Dey added that, after being hired by St. Luke’s, doctors may find it too burdensome to be on call at two hospitals at once. Being on call is a responsibility that generally comes with having privileges at a hospital.
Saint Al’s says it lets its doctors admit patients wherever they want, but it doesn’t let its employed doctors work for competitors if they leave their jobs.
ONE WHO JOINED
Mark C. Johnson is a family medicine doctor who had worked in Boise for about 21 years when he sold his practice, Mountain View Medical Center, to St. Luke’s. That was about four years ago. Johnson now runs the 50- to 60-doctor family medicine division for St. Luke’s.
Johnson said the St. Luke’s buyouts have come in a wave over the past five years, starting with a cardiology group that split up so its members could join either health system. There are almost no independent cardiologists in Boise now, according to state licensing records.
“It’s just the uncertainty of where health care is going,” Johnson said.
He said the business model of the future may reward health system integration, and doctors want to get on board now rather than be left behind. This is especially true as the health systems launch alliances with health insurers, as they’ve announced in the past few months. If a large Treasure Valley employer decides to go with just one of those alliances to insure its employees, “you may lose a significant share of some of the patients you have taken care of for many years,” Johnson said.
He added that, while he does not have full privileges at Saint Al’s, he works with doctors there when his patients need to be admitted.
“Historically, our practice had a lot of patients who used Saint Al’s,” he said, “and they still do. We’ve not twisted anybody’s arm to no longer use a particular physician because they’re [under] Saint Al’s. ... Bottom line for me is the patient makes that call.”
St. Luke’s tries to keep its own network flush with specialists, Pate said, and it brings in doctors to fill gaps. Johnson said St. Luke’s is hiring a local family-medicine resident to staff a new clinic in Eagle and will bring in a physician from outside the area in the next few months.
“The overriding reason I think most doctors in the Valley have decided to team up with one hospital or another is because they know health care delivery is transforming, and we know that it’s to our benefit to be part of a health care delivery system [rather] than out on our own,” Johnson said.
Attorney General Wasden’s office declines to comment on its investigation.
Audrey Dutton: 377-6448,Twitter: @IDS_Audrey