Friday, February 07, 2014

Who Knew? ... Judge Finds that Hospital Takeover of Medical Practices Raised Prices

A story that caused only a few ripples in the media in late January, 2014, corroborates concerns about the increasing concentration of power in health care, and suggests new skepticism about the continuing transition of physicians from independent professionals to corporate employees.

The Judge Quashes a Hospital System's Acquisition of Physicians' Practices

The original story was carried, albeit briefly, in some national business news sources, e.g., the Wall Street Journal and Bloomberg news.   In summary, according to the WSJ,

A federal judge ruled Friday that an Idaho hospital system must unwind its acquisition of the state's largest independent doctor group, a decision that could have significant implications as health-care providers nationwide increasingly seek to join forces.

In particular,

 At issue was St. Luke's Health System's 2012 deal for the 40-doctor Saltzer Medical Group. The FTC argued the merger would reduce competition among primary-care physicians and give St. Luke's extra muscle to extract higher payments from health plans, which, in turn, could raise insurance prices for consumers.

The Judge seemed to agree,

U.S. District Judge B. Lynn Winmill ruled the deal anticompetitive, but offered comments that reflected current tensions in the debate over industry consolidation.

Judge Winmill said he was 'convinced' the deal would have improved the delivery of health care in the region. But he ruled that 'there are other ways to achieve the same effect that do not run afoul of the antitrust laws and do not run such a risk of increased costs.'

The judge said he would order St. Luke's to fully divest Saltzer's physicians and assets. The court made only a summary of the ruling public, sealing the full decision temporarily so confidential business information can be redacted. 

Furthermore, the Bloomberg coverage raised a related issue,

David Balto, an antitrust lawyer in Washington who has represented consumer groups, said the ruling could be read as conflicting with the Obama administration’s health care overhaul, which advocates reducing fragmentation of medical care to improve quality.
This is going to raise really difficult questions about the kind of integration that’s envisioned by the Affordable Care Act,' he said.

Winmill didn’t specify alternate means of improving patient outcomes and released only a summary of his ruling pending redaction of proprietary information in the full opinion.

Note several aspects to this coverage.  It implied that the deal was done solely for high-minded purposes, improving "health care delivery," and in response to the need for "integration" arising from the health care reform produced by the Affordable Care Act; that health care reform might be in jeopardy from this ruling in the absence of the judge's new prescription for "improving patient outcomes"; and that details of the ruling and the justification for it were kept secret as "confidential business information." 

So this initial coverage was difficult to interpret, raising more questions than it answered.  If the practice acquisition was made with such lofty goals, why couldn't it be legally saved?  How could health care reform possibly continue without Judge Winmill saying what should be done?  That last question was sarcastic, maybe the real question is why did anyone think it was the judge's job to explain how to improve health outcomes?  Finally, why was so much of the ruling and the details underlying it kept secret.

In a few days, local journalists came up with a better idea of what was really going on.

It Was All About the Money

The same day that the Wall Street Journal and Bloomberg covered the case, the Idaho Statesman reported more details about the judge's ruling that seem to suggest different interpretations,

Winmill said in his ruling that while it may not have been the goal of the acquisition, it 'appears highly likely that health care costs will rise as the combined entity obtains a dominant market position that will enable it to (1) negotiate higher reimbursement rates from health insurance plans that will be passed on to the consumer, and (2) raise rates for ancillary services (like x-rays) to the higher hospital-billing rates.'

Then only a week later, the Statesman covered the unveiling of some previously hidden portions of the ruling, first giving the background,

As St. Luke’s Health System aggressively added hospitals and doctors over the past several years, it commanded more money from Idaho’s largest insurer, and it planned to raise prices in order to give a newly acquired group of doctors a 30 percent raise, according to newly released court documents.

Unsealed Tuesday, the documents explain why U.S. District Judge B. Lynn Winmill last week ordered St. Luke’s to nullify its year-old merger with Nampa’s Saltzer Medical Group.

Lawyers for St. Luke’s and Blue Cross of Idaho asked the judge not to reveal some facts in the documents, arguing that they contained trade secrets. But Winmill denied the requests.

'The facts and figures sought to be redacted are crucial to the court’s analysis, and their removal would render the decision indecipherable,' Winmill said.

Then it got to the nitty gritty,

 Winmill said in his decision Tuesday to make his ruling public that when the trial started, he thought there were compelling reasons to keep parts of it veiled. But as it went on, those reasons seemed less compelling, he said.

Read more here:
Winmill immediately opened his entire decision.
St. Luke’s told Winmill that he should keep statements such as the following out of his public ruling:
  • 'By 2012, St. Luke’s had three of the top five highest-paid hospitals, and its top hospital was receiving reimbursements 21 percent higher than the average Idaho hospital'
  • 'After the acquisition, if St. Luke’s were to bill for (routine services such as lab tests or X-rays) at the higher ‘hospital-based’ rates, (Blue Cross of Idaho) estimates that costs ... would increase by 30 to 35 percent.'
  • 'St. Luke’s own analysis projected that it could gain an extra $750,000 through hospital-based billing from Saltzer from commercial payers for lab work and $900,000 extra for diagnostic imaging.'
  • 'Consultant Peter LaFleur prepared an analysis at the direction of St. Luke’s showing how office/outpatient visits could be billed for higher amounts if the visit was hospital-based rather than Saltzer-based. The hospital-based billings were more than 60 percent higher.'

Read more here:

Read more here:

Read more here:
 Although it certainly makes sense that the hospital system would want to know what the financial implications of buying the physicians' practices might be, the implication certainly seems to be that making a lot more money faster, in addition to any hopes for better patient outcomes, might be a goal of the merger.

Trying to Keep Facts that Might Embarrass the Leaders out of Public View

It is hard to understand why the hospital leadership was so fixated on keeping such information private if it were not to forestall any impression that this was all about the money.  As the Statesman reported,

Much of the four-week trial happened behind closed doors, and many documents were sealed or heavily redacted. Lawyers for the hospitals — and for insurance companies and local employers — marked those parts of the trial private because they said they needed to protect trade secrets.

St. Luke’s spokesman Ken Dey said some underlying data from Blue Cross of Idaho on which Winmill based his decision was sealed, and St. Luke’s lawyers could not access it. St. Luke’s is concerned that data might have led to some 'misleading conclusions,' he said.

The Statesman and several other Idaho news outlets filed a lawsuit to pry open the court proceedings, and that lawsuit is now before the U.S. Ninth Circuit Court of Appeals.

It is obviously a matter of opinion whether revealing more information might have lead to misleading, or to accurate conclusions.  Note that local journalists were driven to file their own lawsuits just to gain access to records from a trial held in a government run court, and that many of those records are still secret.  

It will be interesting to see the results of these further proceedings, but it seems much more likely that the hospital system leaders tried so hard to keep everything secret to protect their own images as only caring about "patient outcomes," not money.  If these were trade secrets, given that the hospital system seems to have become dominant in the market, from what competitors were they hiding? 

Read more here:

Summary - Even More Reasons to be Concerned about Corporations Hiring Physicians to Take Care of Patients

This case suggests some interesting conclusions which we hope are not misleading.

Nationally or globally important health care issues are often still not well covered by national news media, much less the medical and health care literature.  Local journalists may doe a much better job, but local journalism is increasingly threatened.

One reason important cases may be anechoic is that people involved with them fear public discussion of what may prove to be embarrassing, uncomfortable or worse to them.  When those people are rich and locally influential, the likelihood of the anechoic effect swallowing discussion increases.

More specifically, we should be extremely skeptical of attempts at health care reform that add more bureaucracy to try to counter the effects of existing bureaucracy.  The main way current health care reform legislation seemed to address  the high costs and poor quality that we on Health Care Renewal contend may be due to concentration and abuse of power in health care is to further concentrate power without providing safeguards to prevent abuse.

Finally, while this case was about whether hospitals (and other large organizations) hiring physicians to provide medical care may command higher prices, the real concern is whether physicians who now have to answer to corporate executives and organizational bureaucrats, that is who have become corporate physicians,  may have to put their organizations' and their leaders' needs and wants ahead of their patients' and the public's health.

True health care reform would be informed by the core value that physicians are supposed to endorse: the individual patient comes first.  Health care should not be mainly about increasing corporate revenues, or pleasing corporate executives or government bureaucrats.  However, big organizations and the in-group who personally profit from their operations want to keep such concerns anechoic.

Instead, we all should start by appreciating the words of Judge Winmill and the information he has provided us.

Roy M. Poses MD on Health Care Renewal


Keith said...

The real question that should be asked is why insurers continue to pay inflated prices to supposed hospital based services vs those not directly owned by a hospital.

The fact they do so (as well as Medicare) has aided in driving physician practice acquisition given that once a hopspital buys up a physicians practice, it gets to charge more for all the diagnostic tests ordered and to bill more for the physicians services; even when the same practice location is maintained and nothing else conceivably changes!

In addition, if they are a non- profit hospital buying a private practice, suddenly all tax liabilities go away as well. No sales tax on supplies or equipment and no property tax

Any wonder that this consolidation keeps occurring? The insurance industry has built in a heavy incentive financially for just this behavior!

Anonymous said...

"Much of the four-week trial happened behind closed doors, and many documents were sealed or heavily redacted. Lawyers for the hospitals — and for insurance companies and local employers — marked those parts of the trial private because they said they needed to protect trade secrets."

Needed to protect trade secrets?

While I realize this is primarily for billing and financial still makes me cringe that it is done on the backs of the ill patient and may also spill over to patient care decision making. Then again.....maybe it has. Lord help us all.

Steve Lucas said...

This is what is happening in my community as formerly stand along doctor’s offices have become ‘retail outlets” for their new owners. Additionally these offices are now charged with maximizing patient encounters with the result that patients will be dropped if they do not agree to all proposed testing and office visits.

The result of this is over utilization, and while this generates revenue for the hospital, it also cost the patient in larger co-pays and time.

Steve Lucas

Judy B said...

Unbelievable yet SO believable! I despair for the medical profession (industry)....