Seven years ago, a federal judge in White Plains, N.Y., ruled that an agreement two Poughkeepsie hospitals proposed as an effort to avoid duplicating capital-intensive services was in fact a mechanism for illegally fixing prices and divvying up their market.
St. Francis Hospital and Health Centers and Vassar Bros. Medical Center in the early 1990s sought and received a certificate of need to jointly operate some clinical services and formed a company called Mid-Hudson Health, with each hospitals assets and revenue remaining separate.
Mid-Hudson eventually began negotiating with third-party payers on behalf of the hospitals, prompting complaints from HMOs that led to an antitrust complaint pursued by the state attorney general. The agreement also included a formula that protected each hospitals market share.
Robert Savage, president and chief executive officer at 319-bed St. Francis, was hired a year after the famous legal drubbing, but hes well-versed in the story.
I think one of the primary issues is that we were early in the go, Savage said. The cooperation, he noted, came about largely because each hospital would apply to offer a service, but the Department of Health would not allow both to offer it. But Savage added, I think we all agree intuitively that when you can create a larger organization, youre able to stop some of the duplication and medical arms race issues and also improve quality and reduce costs.
Since then St. Francis and Vassar Bros. have unraveled Mid-Hudson, abiding by a consent order, though not without additional years of legal wrangling over payments for cardiac services, which were placed at Vassar under the joint operating agreement.
In 1999, Vassar Bros. formed Health Quest, another arrangement short of a full asset merger, this time with two other hospitals in Dutchess County.
St. Francis has added cancer and bariatric programs and became a designated Level 2 trauma center. This fall, the hospital will open its own cardiac catheterization laboratory. The laboratory will refer to 355-bed Vassar Bros. Medical Centers cardiac services, a relationship that required permission from the state attorney general.
The consent order has made it tricky for the hospitals, which are just two miles apart, to work together on public health efforts such as education and screenings.
Its hard for me to sit here today and say were better off or worse off, Savage said. Were working and surviving under the circumstances weve been given.