A four-year-old physician-hospital organization in Montana is the subject of a federal price-fixing investigation, MODERN HEALTHCARE has learned.
The probe is the first-ever publicly confirmed antitrust investigation of a PHO, and it indicates that providers that have rushed recklessly into the healthcare industry's PHO craze may be vulnerable to antitrust attacks.
PHOs are entities formed by hospitals and physicians for the purpose of jointly pursuing managed-care contracts. The number of PHOs has exploded in recent years as hospitals and their key physicians attempt to align financial incentives and lock up or expand their patient-referral base.
For example, a study released in January by Ernst & Young found that nearly 75% of the 189 PHOs surveyed were less than 25 months old.
The PHO targeted in the federal trust probe is the Billings (Mont.) Physician Hospital Alliance. Saint Vincent Hospital and Health Center in Billings and 126 staff physicians at the 269-bed hospital formed the PHO in 1991.
Many of the PHO physicians also are members of a corporation formed in 1987 called Montana Associated Physicians Inc., but more commonly known as MAPI, according to the Montana secretary of state's office.
Larry McGovern, MAPI's executive director, said most of the group's 115 physicians are members of the PHO. He declined to comment on the antitrust investigation and referred questions to James Paquette, president and chief executive officer of Saint Vincent.
However, through a spokesman, Paquette referred questions to the PHO's attorney, James Sneed of the Washington office of McDermott, Will & Emery.
In an interview with MODERN HEALTHCARE, Sneed confirmed that the Billings Physician Hospital Alliance has been the subject of an antitrust investigation by the Federal Trade Commission since March 1992.
Sneed said the investigation is ongoing but nearing a resolution. He declined to speculate on the outcome.
Sneed said the PHO, hospital and physicians have cooperated fully with the investigation, supplying requested documents and meeting informally with agency investigators.
"The principal issue in the investigation is the mechanics of the PHO's fee-setting activities," he said. "The focus is not on the hospital but on the PHO that includes competing physicians."
Under federal antitrust law, competitors can't jointly set their fees unless they form a single economic unit in which they share significant financial risk. Such financial integration converts them from competitors to one organization incapable of conspiring with itself.
Sneed said the PHO has been a pro-competitive force in Billings that has attracted managed-care plans to the market and has offered competition to the other healthcare force in town, the Deaconess-Billings Clinic Health System.
The system is the result of the 1993 merger of 248-bed Deaconess Medical Center, the only other acute-care facility in Billings, and 100-physician Billings Clinic.
The Billings Physician Hospital Alliance has served as a vehicle for independent physicians to compete with Deaconess and the Billings Clinic, Sneed said. Since 1991, the PHO has entered into five managed-care contracts, he said.
A spokeswoman for Deaconess said the hospital is aware of the FTC investigation, but she said the hospital hasn't participated in any way in the probe. A spokeswoman for Blue Cross and Blue Shield of Montana said the plan was unaware of the investigation.
It's unclear whether a new state healthcare antitrust exemption law would help the PHO's case (See related story, this page).
Meanwhile, sources familiar with the Billings probe said the Justice Department also is probing a second PHO, which has not been publicly identified.