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St. Luke’s Response to Media Coverage of the Federal Court’s Findings of Fact

The St. Luke's logo on a frosted glass divider in the St. Luke's Nampa Emergency Department. St. Luke's opened its St. Luke's Nampa location in the summer of 2012. With its integration with Saltzer Medical Group, St. Luke's hoped to further improve care in Nampa while bringing down costs, but on Jan. 24, a U.S. District Judge ruled that the integration violated anti-trust laws.
February 22, 2014

BOISE, Idaho -- On Tuesday, Jan. 28, U.S. District Court Judge B. Lynn Winmill released the findings of fact to support his Jan. 24 decision ordering St. Luke’s Health System to unwind its affiliation with Saltzer Medical Group. Media coverage following that release focused on many points in the findings that were taken out of context. We believe that this led to misleading or inaccurate information in the media. Below you will find a response to some of the more prominent media claims following the Court’s release of its findings:

 

Claim: St. Luke’s would provide Saltzer physicians with a 30 percent raise.

The only compensation that the Saltzer physicians were guaranteed under the agreement with St. Luke’s – and then only for the first two years – is income equal to the average compensation they received during the three years preceding the transaction. In other words, the only guarantee was that Saltzer physicians would continue to earn what they had in the past. 

The 30 percent increase in compensation referenced by the Court was not guaranteed. Achieving that level of compensation was dependent on a number of factors, including productivity. The proposed compensation package offered to Saltzer physicians was consistent with compensation paid by St. Luke’s to other physicians in the same type of practice. Two sets of third party experts analyzed the compensation that Saltzer physicians could earn under the St. Luke’s agreement (including the potential 30 percent increase). Those experts came to the same conclusion: The compensation offered to Saltzer physicians was within fair market value for their services for patients. 

 

Claim: St. Luke’s receives the highest reimbursement rates from Blue Cross of Idaho (BCI), and the Saltzer affiliation would allow St. Luke’s to pressure BCI to pay even higher rates.

St. Luke’s believes that the allegations of BCI that St. Luke’s has the highest reimbursement rates in the state are grossly misleading. BCI based its allegations on so-called “conversion factor reports” that BCI had generated. Despite objections from St. Luke’s, BCI produced the conversion factor reports in a heavily redacted form and refused to provide all of the underlying data (such as data for the hospitals statewide against which St. Luke’s was being compared). Without that information, it is impossible to fully examine the reports and evaluate their methodology.

Moreover, even the limited information that BCI chose to release concerning the conversion factor reports is, at best, ambiguous concerning St. Luke’s reimbursement from BCI relative to other hospitals. These reports contain two columns of data, one a “simple average” and the other a “weighted average.” The Court’s findings are based on the “simple average” of hospitals’ reimbursement, which suggests reimbursement to St. Luke’s in Boise and Meridian increased relative to other hospitals from 2010 to 2012. 

However, when the conversion factor reports are sorted by the weighted averages (which account for the different sizes of the hospitals being compared) reimbursement for St. Luke’s Boise and Meridian facilities relative to other Idaho hospitals remains nearly unchanged from 2010 to 2012. In short, we believe that a fair evaluation of the data suggests that the St. Luke’s reimbursement rates from BCI are on par with the rates received by other providers.

Turning to the claim that the Saltzer affiliation would allow St. Luke’s to pressure BCI to pay even higher rates, this claim is simply inconsistent with the actual facts. BCI and St. Luke’s entered into a two-year contract at the end of 2012, after the Saltzer affiliation had already been announced; not even BCI contended that the payments to St. Luke’s under that contract are unfair or inappropriate.

 

Claim: St. Luke’s could demand increased revenue as a result of “hospital-based billing.”

The Court failed to put into context the role of hospital-based billing as it relates to market power. Under federal regulations, the Medicare program provides higher reimbursement for certain health care services when performed in certain hospital-owned facilities rather than separate physician offices or clinics. This approach is referred to as hospital-based, or “provider-based”, billing.

A “provider-based” facility is required to, among other things, comply with very high standards for accreditation, satisfy federal requirements for handicapped accessibility, provide translation services for non-English speakers, and be subject to the same policies (including charity and financial assistance) that apply throughout the hospital.  The higher Medicare payment to such a facility reflects a recognition of these costs and obligations, which are not required of a physician-owned office.

Provider-based billing for treatment of Medicare beneficiaries has no relationship to any level of market power. The federal government sets the rates to be paid for services billed to Medicare, including the rates paid for services provided in hospital-based settings. When a health system acquires a facility, the ability to bill services as “provider-based” depends solely on whether the provider complies with the federal “provider-based” facility regulations. 

 

Claim: St. Luke’s own analysis of the Saltzer transaction considered the possibility that it could increase commercial reimbursements by insisting that health plans pay higher “hospital-based” rates for routine ancillary services, such as X-rays and laboratory tests.

As would be expected with any large transaction, St. Luke’s modeled the financial impact of integrating Saltzer into the St. Luke’s Health System. With respect to the services of physicians, St. Luke’s modeled the increased revenue to which St. Luke’s would be entitled under the Medicare program if St. Luke’s invested the resources to meet the requirements for provider-based facilities. As noted above, the potential for increased revenue from the Medicare program has nothing to do with market power.  Significantly, St. Luke’s financial modeling did not anticipate any increase in payments from commercial health plans for Saltzer physicians’ services.  

The only changes in payment for Saltzer’s services by commercial health plans included in St. Luke’s modeling related to so-called ancillary services, such as laboratory testing and diagnostic imaging (e.g., X-rays, MRIs, CTs). These services are called “ancillary” to distinguish them from “professional services” provided directly by physicians. 

With respect to Saltzer’s ancillary services, St. Luke’s estimated the upper limit of potential reimbursement changes by applying St. Luke’s existing rates to Saltzer’s historical volumes of ancillary services. However, the documents and testimony indicated any such change would be the subject of negotiations with health plans and subject to contractual limitations on additional reimbursement. Thus, there was no assumption that the modeled changes in commercial reimbursement would materialize. 

It is important to emphasize that St. Luke’s did not anticipate or model any change in commercial reimbursements for adult primary care physicians’ services – the only product of concern in the government plaintiffs’ case. Moreover, none of this modeling played any role in how much Saltzer physicians would be paid or in how much St. Luke’s would pay for Saltzer’s assets.

 

Claim: Blue Cross of Idaho pays more than the average U.S. insurer.

The Court’s findings with respect to hospital payment rates appear to suggest that, on average, commercial insurers across the country pay roughly 120 percent of Medicare rates for hospital services, while BCI pays 150 to 200 percent more than Medicare for inpatient services and 300 percent more than Medicare for outpatient services. There are two significant errors in this comparison. 

First, comparison of prices as a function of Medicare rates is misleading because the Medicare rates themselves differ across regions. Idaho’s Medicare rates are low compared to other regions of the country.  

Second, no witness testified about the average that insurers pay for hospital services relative to Medicare. St. Luke’s is not aware of any evidence from the trial that would support a comparison of BCI’s hospital rates to national averages.

 

Claim:  Costs went up in the Magic Valley after acquisitions by St. Luke’s

The Court found that health care costs in the Magic Valley went up after certain acquisitions by St. Luke’s – and that these increases suggest St. Luke’s will raise prices in the Treasure Valley. 

There is absolutely nothing to indicate prices in the Magic Valley rose above market levels following any acquisition by St. Luke’s. The fact is that St. Luke’s built a new state of the art hospital and recruited dozens of physicians into Twin Falls – which has attracted businesses to the Magic Valley and improved the availability and quality of care for patients. Any increase in price was designed to enable St. Luke’s to provide the community with better health care locally.

The finding to the effect that St. Luke’s was able to resist insurers’ efforts to control physician fees in the Magic Valley is also misleading. At the end of the day, the evidence was clear that insurers pay the same for physician services in the Magic Valley as they pay in the rest of the State. 

 

Claim:  Unwinding St. Luke’s affiliation with Saltzer is required by the antitrust laws

Unwinding St. Luke’s affiliation with Saltzer is not required by the antitrust laws. The Court found that, if left intact, the Saltzer affiliation would “improve patient outcomes”.  Given this finding, it is difficult to understand why the Court would choose a remedy that would prevent this improvement, especially when there was no finding that an unwinding would introduce greater competition to the market. 

Having concluded that the Saltzer affiliation could result in higher prices to insurers (a conclusion with which we strongly disagree), the Court could have ordered a variety of remedies. For example, it could have required Saltzer and St. Luke’s to negotiate fee-for-service contracts independently of one another. It could have ordered St. Luke’s not to charge provider-based prices to commercial insurers. It could have imposed other limits on the ability of St. Luke’s to raise prices. But it chose the one remedy that will undercut the improvement in patient outcomes even the Court saw as both the intent and the effect of the transaction. Sadly, the result is a loss for the people of the Treasure Valley.