St. Luke's CEO Dr. David Pate shares why his system acquired Saltzer Medical Group and why he believes the deal should be allowed to stand.
When David Pate, MD, JD, president and CEO of Boise, Idaho-based St. Luke's Health System, first got word of the antitrust lawsuit filed against his system, he was surprised, to say the least. "I do have to tell you, I did not see it coming," he says.
Soon after St. Luke's announced it would acquire Saltzer Medical Group in Nampa, its neighbors — St. Alphonsus Health System and Treasure Valley Hospital in Boise — filed a suit before the acquisition became final. A judge allowed the acquisition to close late in December 2012 despite the pending suit. In March 2013, the Federal Trade Commission and Idaho Attorney General Lawrence Wasden filed a separate suit against St. Luke's after conducting an investigation into the planned acquisition that lasted for more than a year. The two lawsuits — that of St. Alphonsus and Treasure Valley and that of the FTC and Idaho AG — were later consolidated.
"I'm used to having differences of opinions with people, but you talk and work things out," says Dr. Pate. "[The lawsuit] was completely a surprise to me."
This acquisition is controversial because it effectively gives St. Luke's around 80 percent of the primary care market share in the Nampa area, allegedly creating a monopoly, the plaintiffs argue. Competition will decrease, St. Luke's can use its newfound leverage to extract higher reimbursements from payers, and subsequently, prices will rise for consumers, the plaintiffs say.
Dr. Pate denies these effects and says the acquisition was made and should be allowed to stand for two main reasons: the nuances of the geographic market in question and the deal's role in meeting the overall goal of providing accountable care and moving away from fee-for-service.
Market matters
One of the main arguments St. Luke's has against the plaintiffs pertains to the plaintiffs' definition of the geographic market: Nampa alone. "They're saying Nampa is the market. It's laughable," Dr. Pate says. "My family lives in Boise and they go to Nampa for dinner." According to Google Maps, Nampa and Boise are about 22 miles apart. Together, with Meridian and Caldwell, the four cities — which do not have well-defined boarders — make up Idaho's Treasure Valley. However, after Boise, Nampa is the state's second largest city.
Dr. Pate's train of thought is that if a person is willing to drive about 20 miles for dinner, they can do so to see a physician as well. In fact, patients were already doing so: In June 2012, St. Luke's opened an emergency room and health plaza in Nampa, because many Nampa residents were seeking emergency care at Meridian (Idaho) Medical Center. So, if prices did rise after the deal, patients would still have other options close by.
The market size in this case can also have larger implications on how accountable care can be implemented in other midsize and rural areas of the country. "You could apply…the antitrust law in the wooden, inflexible approach that the FTC and attorney general are taking if you are in a large market," Dr. Pate says. In cities like Houston and Chicago, for example, there will always be competition — there are multiple hospitals and physician groups.
But things are different outside of large metro areas, Dr. Pate argues. In smaller markets, there are often only one or two players. In the latter case, market share is likely not split fifty-fifty every time. So, if the antitrust law is applied in the same way in these small or rural markets, he says, "there are antitrust violations going on all over the country."
And if the law is applied in this way, it will make financially aligning and providing accountable care nearly impossible for providers in smaller markets, Dr. Pate says.
Accountable care issue
Dr. Pate says the hospital went through with the acquisition of the 44-physician multispecialty group because of both organizations' desire to provide more accountable care as part of healthcare reform — not because of a desire to raise prices and kill competition.
"Once healthcare reform passed, it became clear to all of us which direction healthcare was going," he says. He says Saltzer Medical Group evaluated how they could provide better care to patients in the future, and decided they would not be able to do it alone. So, they reached out to St. Luke's.
"They actually invited us, and asked us if we could enter into an affiliation with them," he says. The subsequent acquisition is a five-year agreement that does not involve employment; rather, the system acquired the assets and acts as an independent contractor. It contracts essentially for all of the physicians' time, according to Dr. Pate, in a professional service agreement relationship.
Though the Patient Protection and Affordable Care Act encourages hospitals to partner with physicians to reduce healthcare costs and improve quality, efficiency and coordination, the FTC continues to scrutinize transactions for potential antitrust violations. The Federal Trade Commissioner Julie Brill has noted accountable care can be achieved through looser alignment strategies rather than acquisition or employment.
Dr. Pate disagrees with the premise that accountable care is possible through loose physician affiliations. "This is a basic disagreement between myself and the FTC," he says. "The FTC says [we] can do all of this with independent physicians. I say, not the independent physicians I've seen."
Under accountable care, Dr. Pate says physicians have to spend time in the community doing work they are traditionally not reimbursed for in a fee-for-service system. "We can't get physicians to volunteer their time," he says. "It defies common laws of economics. It doesn't work." Instead, physicians need to be financially aligned, something an acquisition arrangement can provide.
One of the main arguments against monopolies and the consolidation of hospitals and physicians is the likelihood that prices will soon rise as a result. Indeed, in a recent survey by the American College of Physician Executives, 32 percent of members whose organization recently bought a medical group or practice said prices rose after the transaction.
Dr. Pate says St. Luke's and the plaintiffs are looking at the situation in very different ways. "[The plaintiffs are] looking through a set of lenses that are fee-for-service," he says. "But that is not the set of lenses we're looking through. We're talking about not staying in a fee-for-service world; we're trying to drive changes to where we would be paid for value."
In fact, St. Luke's has made great strides to provide more accountable care recently. The system formed an accountable care organization in the Medicare Shared Savings Program in 2013 and has several programs in place that promote preventive care and keeping patients out of the high-cost hospital setting.
"All of our competitors know we're changing healthcare here. They know we are developing capabilities to manage the health of a population and that we're on our way to taking financial risk for a population and taking accountability for outcomes and cost of that care," he says. "They don't like that, because they are not willing, or probably able, to change right now. Our efforts to lead the transformation of healthcare [are] meeting so much resistance."
The trial will wrap up early next week with final arguments set for Nov. 7. A final decision is expected in late November or early December. With St. Luke's two main arguments — geographic market size and the workings of accountable care — in mind, the result could have a large impact on how systems in midsize and rural areas approach accountable care. Whatever the result is, Dr. Pate says his system will not stop striving to provide more efficient, cost-effective care. "St. Luke's is not going to be deterred. Whatever happens in the lawsuit, we will accept, deal with it and move on, but we won't give up."