Ten not-for-profit hospitals spread throughout North Carolina are developing a statewide physician-hospital organization to pursue service contracts with large employers and insurers.
The hospitals cleared one of the many legal and operational hurdles facing them recently when the North Carolina attorney general's office said it was OK for four public hospitals to participate in the statewide PHO.
But lying ahead of the hospitals may be state insurance department questions as well as state and federal antitrust issues. The hospitals combined would control more than 20% of the staffed acute-care beds in the state.
At this point, the hospitals individually are deciding whether the planned statewide PHO should be a separately incorporated organization, said David Coulter, vice president of network services at 394-bed Rex Hospital in Raleigh, N.C., one of the 10 hospitals.
"The concept has been under discussion for more than a year and a half," Coulter said. "Now we're looking for authorization from each of the hospitals to move forward."
Coulter said he and the other architects of the statewide PHO hope to have the organization fully incorporated by this fall, although he doubts the PHO would be ready to pursue service contracts in time for the January open-enrollment period of many employers and insurers.
Coulter said it's too early to tell how many physicians would participate in the PHO. "More than likely the statewide PHO will emphasize primary-care physicians, but each individual hospital PHO will be different," he said.
Coulter said the hospitals have retained the Washington-based law firm of Epstein, Becker and Green to handle some of the legal issues facing the statewide PHO, including resolving any antitrust problems. Under federal antitrust laws, competitors can't jointly set prices for their services unless they form a single economic organization in which they share sufficient economic risk.
Four PHOs across the country are under federal antitrust investigation for allegations of price-fixing, attempted monopolization and illegal group boycotts (July 17, p. 8).
One legal obstacle fell late last month, when the North Carolina attorney general's office ruled that the participation of four public hospitals in the statewide PHO won't represent an illegal use of public money.
The legality of the hospitals' participation was in doubt for two reasons, according to Noah Huffstetler, an attorney with Petree Stockton in Raleigh who represented the public hospitals.
First, the state constitution requires tax-generated revenues to be used for a public purpose. Also, a 1986 state attorney general's opinion barred a public hospital from entering into a joint venture with physicians to operate an outpatient surgery center.
But the attorney general ruled on June 19 that neither reason barred the public hospitals from participating in the statewide PHO. "The public will benefit from the formation of the PHOs because municipal hospitals costs will be contained, quality will be maintained, and municipal hospitals will be able to compete in the growing managed-care market with private hospitals," the opinion said.
The public hospitals in the venture are: 384-bed Cape Fear Valley Medical Center in Fayetteville; 289-bed Durham Regional Hospital; 493-bed New Hanover Regional Medical Center in Wilmington; and 609-bed Pitt County Memorial Hospital in Greenville.
In addition to Rex, the other private not-for-profit hospitals involved are: 790-bed Forsyth Memorial Hospital in Winston-Salem; 329-bed High Point (N.C.) Regional Hospital; 102-bed Medical Park Hospital in Winston-Salem; 625-bed Moses H. Cone Memorial Hospital in Greensboro; and 579-bed Presbyterian Hospital in Charlotte.