1. What factors changed the state’s healthcare market according to the case?
2. How did St. Luke justify its market dominance?
3. What complaints did the doctors have about both hospitals St. Luke and St. Alphonsus Health Care System?
4. What complaints did St. Alphonsus Healthcare System have against St. Luke?
5. Why would cost or changes increase if services are performed within a hospital setting versus an independent physician’s office?
6. What are the advantages of directing physician referrals within one system of care? Disadvantages?
7. As you know, one problem with our US Healthcare System is the coordination of care among providers. Therefore, the Affordable Care Act encouraged vertical integration (look this up in your book) and consolidation to improve the coordination of care. However, as you see in this case, too much consolidation can give one organization too much market power. What can be done to balance the need to coordinate care and maintain some level of competition?
By Julie Creswell and Reed Abelson
Nov. 30, 2012
For decades, doctors in picturesque Boise, Idaho, were part of a tight-knit community, freely referring patients to the specialists or
hospitals of their choice and exchanging information about the latest medical treatments.
But that began to change a few years ago, when the city’s largest hospital, St. Luke’s Health System, began rapidly buying physician
practices all over town, from general practitioners to cardiologists to orthopedic surgeons.
Today, Boise is a medical battleground.
A little over half of the 1,400 doctors in southwestern Idaho are employed by St. Luke’s or its smaller competitor, St. Alphonsus Regional
Many of the independent doctors complain that both hospitals, but especially St. Luke’s, have too much power over every aspect of the
medical pipeline, dictating which tests and procedures to perform, how much to charge and which patients to admit.
In interviews, they said their referrals from doctors now employed by St. Luke’s had dropped sharply, while patients, in many cases, were
paying more there for the same level of treatment.
Boise’s experience reflects a growing national trend toward consolidation. Across the country, doctors who sold their practices and signed
on as employees have similar criticisms. In lawsuits and interviews, they describe growing pressure to meet the financial goals of their
new employers — often by performing unnecessary tests and procedures or by admitting patients who do not need a hospital stay.
In Boise, just a few weeks ago, even the hospitals were at war. St. Alphonsus went to court seeking an injunction to stop St. Luke’s from
buying another physician practice group, arguing that the hospital’s dominance in the market was enabling it to drive up prices and to
demand exclusive or preferential agreements with insurers. The price of a colonoscopy has quadrupled in some instances, and in other
cases St. Luke’s charges nearly three times as much for laboratory work as nearby facilities, according to the St. Alphonsus complaint.
Federal and state officials have also joined the fray. In one of a handful of similar cases, the Federal Trade Commission and the Idaho
attorney general are investigating whether St. Luke’s has become too powerful in Boise, using its newfound leverage to stifle competition.
Dr. David C. Pate, chief executive of St. Luke’s, denied the assertions by St. Alphonsus that the hospital’s acquisitions had limited patient
choice or always resulted in higher prices. In some cases, Dr. Pate said, services that had been underpriced were raised to reflect market
value. St. Luke’s, he argued, is simply embracing the new model of health care, which he predicted would lead over the long term to lower
overall costs as fewer unnecessary tests and procedures were performed.
Regulators expressed some skepticism about the results, for patients, of rapid consolidation, although the trend is still too new to know for
sure. “We’re seeing a lot more consolidation than we did 10 years ago,” said Jeffrey Perry, an assistant director in the F.T.C.’s Bureau of
Competition. “Historically, what we’ve seen with the consolidation in the health care industry is that prices go up, but quality does not
A Drive to Consolidate
An array of new economic realities, from reduced Medicare reimbursements to higher technology costs, is driving consolidation in health
care and transforming the practice of medicine in Boise and other communities large and small. In one manifestation of the trend,
hospitals, private equity firms and even health insurance companies are acquiring physician practices at a rapid rate.
Today, about 39 percent of doctors nationwide are independent, down from 57 percent in 2000, according to estimates by Accenture, a
A Hospital War Reflects a Bind for Doctors in the U.S.
Many policy experts praise the shift away from independent practices as a way of making health care less fragmented and expensive.
Systems that employ doctors, modeled after well-known organizations like Kaiser Permanente, are better able to coordinate patient care
and to find ways to deliver improved services at lower costs, these advocates say. Indeed, consolidation is encouraged by some aspects of
the Obama administration’s health care law.
“If you’re going to be paid for value, for performance, you’ve got to perform together,” said Dr. Ricardo Martinez, chief medical officer for
North Highland, an Atlanta-based consultant that works with hospitals.
The recent trend is reminiscent of the consolidation that swept the industry in the 1990s in response to the creation of health maintenance
organizations, or H.M.O.’s — but there is one major difference. Then, hospitals had difficulty managing the practices, contending that
doctors did not work as hard when they were employees as they had as private operators. Now, hospitals are writing contracts more in
their own favor.
“Hospitals are constructing compensation in ways that are based on productivity and performance,” said Steve Messinger, president of
ECG Management Consultants, which advises on physician acquisitions.
St. Luke’s Health System dominates the market in Boise, Idaho, and critics say patients
are paying more. Joshua Roper for The New York Times
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But the consolidation of health care may be coming at a hefty price. By one estimate, under its current reimbursement system, Medicare is
paying in excess of a billion dollars a year more for the same services because hospitals, citing higher overall costs, can charge more when
the doctors work for them. Laser eye surgery, for example, can cost $738 when performed by a hospital-employed doctor, compared with
$389 when done by an unaffiliated doctor, according to national estimates by the independent Congressional panel that oversees Medicare.
An echocardiogram can cost about twice as much in a hospital: $319, versus $143 in a doctor’s office.
Conflicts over the changes are numerous. One Florida primary care physician said he could earn a $5,000 bonus for keeping patients in the
hospital for less than three days, according to a lawsuit he filed this year. Hospitals, which are typically reimbursed a fixed amount of
money for treating a specific illness, can make more money if patients stay for shorter periods of time.
Last month, the Justice Department reached a $9.3 million settlement with Freeman Health System, a hospital group in Joplin, Mo., which
was rewarding doctors it employed partly based on how many tests they ordered. Freeman says that it alerted regulators to the potential
violations and that patient care was not affected.
Recently, the Office of Inspector General at the Health and Human Services Department sent a letter to emergency physicians across the
country asking for information about inappropriate admissions. Federal regulators are also examining the higher numbers of physician
contracts being created, searching for violations of laws that prevent hospitals from rewarding doctors for admitting patients or for
ordering lucrative tests and procedures.
Health Management Associates, a for-profit hospital chain; EmCare, a Dallas-based emergency room staffing company for hospitals; and
other hospitals have disclosed that they are the subjects of federal investigations. Regulators are looking into whether the hospitals
improperly pressured physicians to admit patients.
Pumping Up Admissions
According to two emergency room doctors who worked at Carlisle Regional Medical Center in Pennsylvania, the message could not have
been clearer: more patients needed to be admitted.
The doctors were employed by EmCare, whose parent company was later acquired by the private equity firm Clayton, Dubilier & Rice in
2011 as part of a $3.2 billion deal. EmCare, in turn, was under contract to provide emergency room doctors for the hospital, which is owned
by Health Management Associates. In interviews, doctors said that hospital administrators created targets for how many patients they
should admit. More admissions translated into more dollars for the hospital.
Dr. Jean-Paul Romes, one of the physicians, recalled getting phone calls in the middle of the night questioning why he had not admitted an
older patient whose hospitalization he could easily have justified. “The pressure to admit was so high,” he said. Dr. Romes left the hospital
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After another physician, Dr. Cloyd B. Gatrell, raised concerns that the hospital had too few nurses to keep patients safe, an EmCare
executive warned him to “back off,” according to a lawsuit Dr. Gatrell filed last year. EmCare later fired him at Carlisle’s request, according
to the suit. Dr. Gatrell’s wife, Kathryn, a nurse at Carlisle, had been fired earlier and also filed a lawsuit. Both Gatrells maintained they
were fired for bringing up patient safety concerns, according to Dr. Gatrell’s lawsuit.
48 minutes ago
Health Management, which operates 70 hospitals, said United States attorneys’ offices in seven states were investigating physician
referrals, including financial arrangements and the “medical necessity of emergency room tests and patient admissions.”
EmCare said in an e-mailed statement that it could not comment on continuing legal matters involving it or its clients, but that its “first
concern is the well-being of the patient.”
Health Management is also the target of a suit filed last year in Florida state court by a former executive who says there were improper
admissions. The executive, Paul Meyer, an officer in the company’s compliance office, was a longtime employee of the Federal Bureau of
Investigation. He said in his lawsuit that he was fired from H.M.A. in 2011 in retaliation for raising questions about what he felt were
improper admissions at four of the chain’s hospitals. H.M.A. said its overall admission rate from the emergency department had remained
constant in recent years and that its practices were in line with those of other hospitals. It also said there was no indication that Carlisle
admitted any patients unnecessarily. Admissions are “based solely on what is best for patient care,” it said in an e-mailed statement.
The company said that it had addressed all of Mr. Meyer’s concerns, and that he was fired for what the company said was a failure to
cooperate in an internal investigation. Health Management fired the Gatrells, it said, “for performance issues,” an accusation Dr. Gatrell
Doctors at other hospitals also say they have faced pressure to meet financial targets. Dr. Manuel Abreu said his contract with All Care
Medical Consultants, a practice in Clearwater, Fla., allowed him to earn a bonus as high as $5,000 if he kept patients’ hospital stays to an
average of no more than three days, according to a copy of the contract included with a lawsuit he filed in Florida state court this year. The
parties reached a settlement and the case was voluntarily dismissed, court records show. Calls to Dr. Abreu’s lawyer and a lawyer for All
Care were not returned.
Other physicians say they are pushed to ignore what is best for patients by referring them to doctors working for the same hospital. Dr.
Victoria Rentel, a family practice doctor near Columbus, Ohio, recalled feeling pressured when she was employed by a local hospital to
send her patients to doctors there for tests and procedures.
“I routinely got reports about the money I kept in the system,” Dr. Rentel said, detailing how much revenue she was generating for the
hospital through in-house referrals. “I tended to refer to specialists I knew who would deliver better care.” The hospital eventually closed
the clinic where she worked.
Some physicians also complain about quotas. Dr. Patricia F. White, an emergency room physician who worked at Baptist Health in
Jacksonville, Fla., said that starting in 2010, her compensation was partly calculated based on the number of patients she saw an hour,
according to a lawsuit she filed in August against the hospital and Emergency Resources Group, which provided emergency room staffing
The staffing group said it had no choice but to agree to the hospital’s demands. “If we don’t comply with their wishes as good partners,
there is a termination notice in our contract,” wrote Paul Davidson, administrator for the group, in a series of e-mails that were included
with Dr. White’s lawsuit.
In an e-mailed statement, Baptist Health said that patients expected timely access to quality care and that an emergency room physician’s
“productivity and efficiency are vital components to delivering good patient care as well as ensuring patient safety and satisfaction.” A
lawyer for Emergency Resources Group echoed those sentiments in an e-mailed statement, adding that efficiency was only one
Dr. Julie A. Foote, an endocrinologist in Boise, questions whether patients are getting
cost-effective care as a result of consolidation in the medical field. Chad Case for The New
component of physician compensation.
Doctors at numerous hospitals said it was often difficult to criticize the policies instituted by hospitals or investor-owned physician groups
because, as employees, they could easily be fired.
“We all have families, and we have mortgages,” said an emergency room physician. “If you get fired, it looks bad and it’s hard to get
Rising Medical Costs
It was about three years ago that Dr. Julie A. Foote, who has been an endocrinologist in Boise for 18 years, began noticing the ads in the
Each week, another advertisement appeared, heralding the hire of a physician or a practice group by either St. Luke’s or St. Alphonsus,
which is part of Michigan’s Trinity Health, one of the nation’s largest hospital systems. “The playing field wound up being divvied up
pretty aggressively,” Dr. Foote said.
In the last four years, St. Luke’s acquired 22 physician practices in the area.
Dr. Mark Johnson, a family practice physician who has worked in Boise for about 25 years, was part of a five-person practice that sold
itself to St. Luke’s. Among the factors behind the decision were the high cost of adopting an electronic health records system, and a
concern that the group members would not be able to find younger doctors willing to buy them out of the practice.
“But probably the driving reason was the changing landscape of health care delivery and the uncertainty around that,” Dr. Johnson said.
“The thought was that we were going to be in a safer position if we were aligned and affiliated with a network.”
But as St. Luke’s moved forward with its plans to acquire most of the Saltzer Medical Group — a practice of about 50 doctors in Nampa,
Idaho, about 20 miles west of Boise — St. Alphonsus filed an injunction to block the purchase.
St. Alphonsus argues that St. Luke’s dominance is hurting its business because it has experienced steep declines in hospital admissions
and referrals from physicians acquired by St. Luke’s.
St. Luke’s says it is positioning itself to compete better by improving its ability to coordinate patient care. It recently filed an application
with Medicare officials to become a so-called accountable care organization. Hospitals designated as A.C.O.’s can usually keep a portion of
any savings they generate. They cut health care costs by avoiding unneeded procedures and tests or by keeping patients out of the
hospital, while still meeting quality targets.
Dr. David C. Pate, chief executive of St. Luke’s, says that where costs have risen, the
services were underpriced before. Joshua Roper for The New York Times
But St. Luke’s remains under investigation by state and federal authorities for possible antitrust violations. While most physician group
purchases are too small to draw regulators’ attention, concerns have been raised about whether consolidation is resulting in higher prices
and fewer choices for patients.
In 2009, the F.T.C. forced the sale of two outpatient clinics that had been acquired by Carilion Clinic, based in Roanoke, Va., saying
Carilion’s fee structure would have increased patients’ out-of-pocket expenses for a brain imaging test, for example, to $350 from $40.
In another case, the F.T.C. and the Nevada attorney general ordered Renown Health in Reno to release 10 cardiologists from their
noncompetition agreements after the hospital system bought the two largest cardiology groups in the area, giving it 88 percent of the
In Boise, doctors are pressured to refer only within their own system, according to St. Alphonsus in its complaint. It reported a 90 percent
drop in admissions to its hospitals by physicians employed by St. Luke’s. In one community, independent doctors often send patients 40
miles away for CT scans because prices at St. Luke’s are 60 percent higher, the complaint said.
Dr. Pate, the St. Luke’s chief executive, disputed the notion that physicians employed by St. Luke’s were prohibited from referring patients
to outside doctors.
“My own wife was referred by a St. Luke’s physician to a St. Al’s physician for her particular condition because he felt the St. Al’s physician
was the best for this problem,” he said. “If the wife of the C.E.O. is being referred to a physician at another hospital, that should prove that
our physicians send many referrals over there.”
Dr. Pate acknowledged that prices for some services had risen, but he said this was only because they had been severely underpriced. In
the long run, he argued, overall costs will decline as St. Luke’s is better able to coordinate care, avoiding expensive emergency room visits
and redundant tests.
But some people remain skeptical that patients will be better served.
“I’m not certain what all this means is that patients are getting cost-effective care, which is how the nation is painting this evolution,” Dr.
Foote said. “If this is better quality for less price, I want to see the less price.”
A version of this article appears in print on , Section A, Page 1 of the New York edition with the headline: A Hospital War Reflects A Bind for U.S. Doctors