Red ink might have pushed two HMOs serving upstate New York into fingering a mergerlike partnership by the only two hospitals in Poughkeepsie, N.Y., now accused by the state attorney general of price fixing.
The HMOs are Schenectady-based Mohawk Valley Physicians Health Plan and Kingston-based WellCare.
Mohawk Valley executives declined to comment, and executives of WellCare didn't return repeated phone calls. But several sources confirmed that both plans were pushing the state to investigate the hospitals.
It did, and the state filed a precedent-setting antitrust lawsuit against the hospitals last month in federal district court in New York.
The defendants are 317-bed Saint Francis Hospital, 257-bed Vassar Brothers Hospital and the hospitals' 6-year-old joint operating company, Mid-Hudson Health.
The state says the hospitals' joint operating agreement is nothing more than an elaborate price-fixing and market allocation scam between competitors. The hospitals say they are effectively merged through the JOA and, therefore, are no longer competitors.
Mid-Hudson has until April 13 to file a response to the lawsuit.
"You will find behind lots of government investigations a good snitch," said Thomas Campbell, an antitrust attorney with Gardner, Carton & Douglas in Chicago. "Payers are just a part of the picture there. When they think they're getting squeezed, one of the weapons in their arsenal is to go to the government."
Mohawk Valley, also known as MVP, is mentioned in the lawsuit as having complained to the state Department of Health about the way Mid-Hudson was negotiating contracts, allegedly using its market power to force higher payments from HMOs.
"The defendants are demanding that they be reimbursed at a much higher rate than would pertain in a competitive environment," the lawsuit said. "They have insisted to some managed-care companies that they be paid full charges or at least inpatient rates with a small discount."
N.Y. State Attorney General Dennis Vacco asserts in the lawsuit that Mid-Hudson never informed the state that it intended to jointly negotiate contracts and rates with payers.
MVP, founded in 1983, is a not-for-profit plan with 315,000 enrollees. Its holding company, MVP Service Corp., is run by a 21-member board of directors that includes providers and community representatives. MVP has contracts with both hospitals through Mid-Hudson.
WellCare is a subsidiary of WellCare Management Group, a publicly traded company based in Kingston.
A source who requested anonymity confirmed that WellCare also approached the state to complain about Mid-Hudson's prices and contracting practices.
Both HMOs have been losing increasingly more money over the past four years, according to data from the New York insurance department.
WellCare has seen its revenues rise from 1994 to 1996, but its net income has plunged. In 1994 the plan earned $9.4 million on $122.1 million in revenues. Two years later, it lost $7.1 million on $157.1 million in revenues, according to the state.
MVP earned $8.9 million on $296.1 million in revenues in 1994. But in 1996 the plan lost $6.9 million on $350.4 million in revenues.
The latest state figures for the two plans show they still are losing money. As of September, the most recent period for which figures are available, WellCare had lost $13.2 million for the second and third quarters of 1997. MVP, for the second and third quarters of last year, recorded a loss of $15.3 million.
The hospitals, in contrast, have grown financially healthy since forming their joint operating company.
In 1996, the last year for which figures are available, Saint Francis earned $5.5 million on revenues of $109 million. A year earlier, the hospital lost $119,000 on revenues of $97 million, according to the New York Department of Health.
Vassar Brothers, meanwhile, earned $821,134 on revenues of $95.5 million last year, compared with profits of $550,000 on revenues of $83.3 million in 1995.
HMOs' sore bottom lines might be a factor if they complain to state or federal officials, but it often isn't the only one, antitrust lawyers said. "Lots of payers complain as a last resort," said Jeff Miles, an antitrust attorney with Ober Kaler Grimes & Shriver in Washington. "Any payer subject to price fixing by hospitals will be (financially) injured, but it doesn't strike me that payers would complain simply because they're suffering and the hospitals are doing well."
Complaints are the greatest source of antitrust investigations, and payers are among the most credible complainers.
"They're the ones most directly affected (by price fixing)," Miles said. "But the government always looks at the motives."
Some recent antitrust cases show that when payers are hit in the pocketbook, they can blame alleged anti-competitive behavior -- with some success.
In one case, Marshfield (Wis.) Clinic agreed to pay $4 million to settle antitrust charges arising from a case filed by Blue Cross and Blue Shield of Wisconsin (Nov. 10, 1997, p. 72).
But the payers don't win all the time. The Federal Trade Commission recently settled a case in Grand Junction, Colo., in which health plans groused that an independent practice association, Mesa County Physicians IPA, was negotiating exclusively with one HMO. The settlement favored the IPA, which includes 85% of the physicians in the area (Feb. 23, p. 8).