Two St. Louis hospitals may test the elasticity of federal antitrust laws by continuing to jointly pursue managed-care contracts, despite the fact that one of them is pulling out of their 5-year-old system.
Federal antitrust laws bar competitors from jointly setting prices for their services, and two upstate New York hospitals learned that the hard way last year when a federal judge said their joint operating company was nothing more than a price-fixing scam (July 3, 2000, p. 2).
The hospitals that want to compete and collaborate at the same time are 495-bed St. Luke's Hospital in Chesterfield, Mo., a suburb of St. Louis, and 898-bed St. John's Mercy Medical Center in St. Louis. The two hospitals are founding hospital members of the Unity Health system, which at its peak operated six hospitals.
However, Unity began to unravel last July when two of the system's hospitals pulled out because of their frustration with Unity's corporate decisionmaking structure. Those two hospitals were 685-bed St. Anthony's Medical Center and 203-bed St. Alexius Hospital, both in St. Louis Four months later, St. Luke's followed suit, announcing its plans to pull out of Unity by March 31 of this year. In reaction, the remaining three hospitals, led by St. John's, said they were disbanding Unity and renaming themselves St. John's Mercy Health Care, also effective March 31.
In a written statement released Nov. 20, 2000, Unity's then-Chief Executive Officer Jim Hobbs said St. Luke's and St. John's Mercy planned to transition into a "loose affiliation" and would continue joint managed-care contracting. Last November, Hobbs became executive vice president and chief operating officer of 20-hospital Sisters of Mercy Health System-St. Louis, sponsor of St. John's Mercy. "It's way too early in the discussion stages to speculate what the managed-care arrangement might be, but obviously any arrangement would not violate antitrust laws," said Michael Morgan, who became president and CEO of the new St. John's Mercy system in November 2000.
The intention of St. Luke's and St. John's to remain cozy on contracting has raised the concerns of healthcare antitrust experts.
"It would just strike me as quite odd that one could have some sort of dissolution and at the same time purport to be able to go to managed-care companies and contract together," said Mark Horoschak, a healthcare antitrust lawyer with Womble, Carlyle, Sandridge & Rice in Charlotte, N.C., and the former head of the Federal Trade Commission's healthcare antitrust division.
In an interview with Modern Healthcare, Hobbs reiterated what he said in the statement, and that is that the hospitals will continue sharing a managed-care contracting function.
"We fully plan, in the future, that St. Luke's, through the affiliation, will be part of our managed-care contracting," Hobbs said.
Neither Unity nor St. Luke's officials would provide more details of their future managed-care contracting relationship.
Critical to whether the arrangement would pass muster with antitrust authorities is the degree of integration between the two organizations. If they are not integrated, they are assumed to be separate and expected to operate as competitors.
"If there is very little of such integration, the hospitals are at risk for being challenged for price-fixing," said antitrust lawyer Horoschak. "The more systematic the integration, the easier it is to justify across-the-board joint negotiations."
As a member of Unity Health, St. Luke's was significantly integrated into the system. It obtained most of its administrative functions-human resources, patient accounting, physician billing, marketing and information services-through the Unity corporate structure, according to Hobbs. Dissolving the system would involve having St. Luke's develop these functions internally.
Healthcare purchasers in St. Louis welcomed the news of Unity's dissolution because it might create a more competitive environment.
"We are encouraged that the market has become less concentrated," said Jim Stutz, executive director of the St. Louis Area Business Health Coalition.