In the latest of at least three antitrust probes into alleged anticompetitive behavior by hospitals operating in Long Island, New York Attorney General Eliot Spitzer is investigating price-fixing allegations against Melville, N.Y.-based Long Island Health Network and its 11 hospital members.
Modern Healthcare first disclosed the investigation in the Dec. 16 edition of its daily electronic newsletter, the Daily Dose.
The state is investigating whether the network and its member hospitals illegally conspired to share price information to demand large contracts with payers, in violation of Section 1 of the Sherman Antitrust Act and two New York antitrust laws, according to sources familiar with the investigation.
Last week antitrust officials with Spitzer's office would neither confirm nor deny that they plan to file a complaint in U.S. District Court in New York. But Long Island Health Network attorney Robert Leibenluft of the Washington office of Hogan & Hartson confirmed that the network is in discussions with the attorney general. He denied the allegations but declined further comment.
Washington antitrust attorney Arthur Lerner of the firm Crowell & Moring, who is familiar with the Long Island market and the players, said the network "has engaged in explicit price-fixing."
While Lerner said the network and hospitals purport to be clinically integrated and post clinical protocols for disease conditions on the network's Web site, he said: "They would face a very high burden to establish any clinical integration or other justification for that kind of behavior."
There are two large health systems made up of a total of 21 hospitals serving Long Island, and both have faced antitrust scrutiny from the U.S. Justice Department. In June 1997, the Justice Department's antitrust division filed a complaint challenging the merger of nine-hospital North Shore Health Systems and three-hospital Long Island Jewish Medical Center. The complaint alleged the merger violated Section 7 of the Clayton Act, which bars acquisitions that decrease competition, and said it would likely lead to higher prices and inhibit the development of competing hospital networks. But in October 1997, a federal judge dismissed the lawsuit and the systems merged into North Shore-Long Island Jewish Health System, Long Island's largest system. In 1995, North Shore and seven other hospitals that were part of the Classic Care Network settled antitrust allegations that they illegally conspired with other area hospitals to fix prices they charged to insurers. Those hospitals signed a consent decree prohibiting the price-fixing behavior that required them to seek Justice Department permission before participating in any joint contracting ventures.
Several years ago, the Justice Department investigated payer allegations that the Long Island Health Network was fixing prices but ultimately did not bring any charges. However, the state of New York also investigated the allegations and has remained interested, continuing settlement discussions with the network even as it prepares to file an antitrust complaint.
It wouldn't be the first time Spitzer has challenged alleged hospital price-fixing. In 1998, his office sued the only two acute-care hospitals in Poughkeepsie, N.Y., in federal court, alleging the hospitals fixed the prices they charged to payers. In April 2000, a federal judge agreed and ordered the hospitals' merged 8-year-old joint operating company, Mid-Hudson Health, to be dissolved.
Four of the LIHN hospitals-Brookhaven Memorial Hospital Medical Center, Good Samaritan Hospital Medical Center, John T. Mather Memorial Hospital and South Nassau Communities Hospital-were also defendants in the Classic Care case and signed a consent decree.
For years, payers have complained that the network has fixed prices to obtain large contracts with insurers. In 2002, LIHN stopped accepting patients from Empire Blue Cross and Blue Shield in a very public pay dispute that was resolved after months of patient complaints.
Leslie Moran, senior vice president of the New York Health Plan Association, a trade and lobbying organization representing 31 managed-care plans serving 6 million New Yorkers, said LIHN has done the same thing with other Long Island health plans. "They've tried picking them off one at a time," Moran said. "LIHN says you have to contract with all of us at our rates or we'll terminate contracts. We've heard a lot of complaints from our plans. Not everyone has as much market power as Empire to hold out."
She said the association welcomes Spitzer's investigation.
Sources said the attorney general will look into LIHN's claims that its hospital members are clinically integrated, a defense against certain price-fixing charges that allows clinically or financially integrated providers to contract jointly. On its Web site the network describes itself as a "joint venture affiliation between 11 hospitals with a goal of developing collaborative efforts which can improve, expand and strengthen the delivery of healthcare services to the people of Long Island."
The LIHN Web site lists best-practices clinical guidelines for treating dozens of disease conditions, information it disseminates among the network's participating hospitals.
Hospital industry consultant and former hospital chief executive Quint Studer of the Studer Group, whom the network hired several months ago for leadership training, said clinical integration was all anybody talked about during his two-day presentation. Studer said LIHN officials did not inform him of the attorney general's investigation.
"All the discussion focused on clinical integration by both the hospitals and the doctors," recalled Studer, who was named to Modern Healthcare's 100 Most Powerful People in Healthcare in 2002.
"I think it's more than just lip service," he said.
Moran conceded that LIHN and its members may claim to be clinically integrated but said the health plans lack a system to verify that. "We don't know whether there are improved outcomes and a demonstrable increase in quality," she said. "We can't accept that just because hospitals say so. We need more backup."