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Hospitals’ bid to absorb physician practices raises cost concerns

The Pacific Coast Business Times looks at the pros and cons as regulators grapple with the growing push by some hospitals to absorb local physician groups.

One such situation is with the proposed merger of Cottage Health, operator of the only hospitals in South Santa Barbara County and the Santa Ynez Valley, Calif., with Sansum Clinic, the largest physician practice in the area. As the paper notes, the proposal “raises questions about cost, quality and access to care.”

Anecdotal evidence suggests some greater efficiency with “vertical integration,” yet it’s hard to pin down how prices may be affected.

“While Cottage and Sansum officials have made the case that a combined entity will be leaner and more cost-effective, critics worry that the cost of care will increase and access to a wider range of insurers will be curbed,” the paper said.

And consider a merger in Idaho between the six-hospital St. Luke’s Health System and its physicians in Boise with the 44-physician Saltzer Medical Group, in Nampa, Idaho’s second-largest city.

The Federal Trade Commission filed a complaint that asserted that the combined entity  would have about a 60 percent market share of primary-care physicians in Nampa. U.S. District Judge Lynn Winmill ended up ordering St. Luke’s to divest Saltzer Medical Group.

St. Luke’s had argued that the acquisition would create a more integrated healthcare system.  But the judge said “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 combination of St. Luke’s and Saltzer would have given the merged hospital system the market power to demand higher rates for health care services, ultimately leading to higher costs for both employers and consumers,” the then FTC Chairwoman Edith Ramirez said in January 2014.

To read the article on vertical integration, please hit this link.

St. Luke’s in Boise to give back 2 hospitals


Boise, Idaho-based St. Luke’s Health System has agreed with the Idaho attorney general to transfer ownership of two hospitals back to the districts that gave the facilities to St. Luke’s several years ago, Becker’s Hospital Review reported.

“St. Luke’s acquired hospitals from special taxing districts in McCall and Elmore County in 2010 and 2013. St. Luke’s said it would maintain and improve McCall (Idaho) Medical Center and Elmore Medical Center in Mountain Home, Idaho, if the districts helped fund operations with annual property tax revenues. If the districts did not uphold their end of the agreements, they would lose the right to repurchase the hospitals back from St. Luke’s,” the news service reported.

But, “The Idaho Constitution prohibits a government entity like a hospital district from donating assets or transmitting tax revenues to help support the operation of a private entity,” said Mr. Wasden. “That’s exactly what St. Luke’s agreements with these hospital districts did.”

St. Luke’s will return ownership of the hospitals’ real and personal property back to the districts and then lease the facilities and pay operational costs.


Cold eye on provider acquisitions


Burgeoning hospital systems seeking to expand further in their regions may have a long row to hoe as courts and regulators raise  serious anti-trust issues.

A dramatic example of this came this week when the  Ninth Circuit today of Appeals upheld a  U.S. District Court ruling that found St. Luke’s Health System in Idaho broke antitrust laws when it bought the state’s largest independent physicians’ practice.

St. Luke’s foes  had argued that the 2012 merger of St. Luke’s and the Nampa-based Saltzer Medical Group,  with 40 physicians, violated the Clayton Act, which bars mergers that may substantially lessen competition or create a monopoly.

St. Luke’s had argued that the acquisition would improve patient outcomes and healthcare delivery in its area. But the Federal Trade Commission, the Idaho attorney general and the system’s competitors — St. Alphonsus Health System and Treasure Valley Hospital — asserted that that the deal  gave St. Luke’s an unfair advantage by letting it dominating primary medical care in Canyon County and, in so doing drive up the area’s healthcare prices./

The appeals court agreed.

The ”Clayton Act does not excuse mergers that lessen competition or create monopolies simply because the merged entity can improve its operations,” the ruling said.

David A. Ettinger, of Honigman Miller Schwartz and Cohn LLP, which represents St. Alphonsus, told FierceHealthcare that the ruling has broad implications for hospitals and physician groups across America as the former continue to gobble up the latter.

In essence, he said, “healthcare markets can be local. If one party has a high-market share, it can indicate serious antitrust problems when higher prices can be achieved. The mere claim that you are going to get the efficiencies as a result of a transaction doesn’t trump these concerns.”


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