Hospitals, Doctors Create Network Critics Worry New Alliance Could Limit Competition

All four of Spokane’s private hospitals are banding together in a plan critics say could gut competition and set the stage for a monopoly and price fixing.

Organizers say the network will save patients money while protecting hospitals and doctors against outsiders who want to lure away their customers.

Following a national trend, the hospitals and a group of doctors created their own health care provider network. It’s called Spokane Physician Hospital Community Organization, or a PHCO.

Under the network, doctors and hospitals together offer a package of medical services to insurers and other organizations responsible for paying for health care services.

They plan to compete with the provider networks of large insurers, such as Qual Med, Group Health Northwest and Medical Services Corp.

But the sheer size of the new network could allow it to take over the marketplace and control prices, critics say.

“I don’t think this is a good thing for the community,” said Jack Dutzar, a Group Health vice president. “It could artificially maintain high levels of cost.”

PHCOs don’t always hurt a community, but they can if not run properly, said Andy Dolan, counsel to the Spokane County Medical Society.

“When you get all the community’s providers under a common tent, they tend to lose the incentive to compete,” said Dolan, a Seattle attorney. “People cater to customers when they have to.”

The Spokane network asked the state for immunity from antitrust laws, which preserve competition and prohibit price fixing.

Their request was filed April 24, just days before a moratorium went into effect delaying such petitions for a year.

“They were hustling,” along with six other groups that beat the deadline for the moratorium, said Carol Smith, who works in the state attorney general’s office.

A hearing date hasn’t been set on their petition for antitrust immunity.

The Spokane organization’s leaders refused to talk about their project last week, as they have for many months.

Tom White, president of Deaconess Medical Center, said in April the hospitals need to join forces because some large insurers are routing local patients to hospitals outside the area.

The Spokane hospitals can cut costs by having a joint business office for the PHCO and avoiding duplication, he said.

The organization’s attorney said it won’t destroy competition. “This PHCO is going to avoid antitrust issues by following the law,” said attorney Douglas Ross.

All doctors in and around Spokane County are eligible to join the organization. Sacred Heart and Deaconess medical centers, Holy Family Hospital, and Valley Hospital and Medical Center also are members.

The physicians and the hospitals are each providing half the money it takes to get the PHCO off the ground, according to the petition filed with the state.

Sixteen of 31 board members aren’t even involved in the medical industry, Ross said.

They include such people as downtown developer Don Barbieri and Gary Livingston, superintendent of District 81 schools.

“We look at this really as a project of stewardship, which will be of benefit to the larger community,” said Jeff Collins, an internist who helped create the PHCO.

He also would not discuss details of the organization.

Sometimes, they’ll use capitation. That means the PHCO gets a fixed amount per month for each person covered, regardless of the amount of care provided.

The payment plan will include financial incentives to encourage doctors and hospitals to work efficiently.

Whether to contract with the PHCO is a tough call for insurers in the wildly changing world of health care, said Dave Anderson, executive director at Qual Med Inland Northwest.

Insurers can still contract with individual hospitals without going through the PHCO. PacifiCare, a large insurer new to Spokane, has a contract with Sacred Heart, for instance.

And PHCO doctors can also negotiate contracts with insurers that don’t work with the PHCO.

“We’re all going through a tremendous reaction that health care reform is not going to happen: Now what do we do?” Anderson said. “Everybody is searching for the magic combination.”

Anderson said Qual Med hasn’t decided whether to contract with the PHCO. “It could turn into something that actually increases costs because of the infrastructure it’d take to support it.”

Throughout the country, hospitals, doctors and insurers are grappling for stability and power. Complicating matters for hospitals is an increase in outpatient procedures, which means more empty hospital beds.

The PHCO is primarily a “protective mechanism” for hospitals and doctors to retain business, Dutzar said.

“It isn’t going to work in the long run,” he predicted, “because you (will) still have too many doctors and too many hospital beds.”

Unlike the hospitals, some doctors haven’t decided whether they’ll benefit by joining the PHCO.

In north Spokane, doctors have already formed their own physician-hospital organization. A year ago, the Northside Physician Network teamed up with Holy Family Hospital and hospitals in Deer Park, Chewelah and Colville.

So far, 170 physicians have joined the north side network, said Jason Sargent, an organizer and registered nurse.

The group provides health care for 850 members, a number now growing at a rate of 200 members each month, Sargent said.

“We’ve done something very phenomenal,” he said. North side doctors “are happy with the contracts they’re getting with their own physician-hospital organization and they’re wondering why they need to join another one.”

Other north side doctors, like LeRoy Byrd, decided to join the PHCO. Now, too many decisions are made for doctors instead of by doctors, he said.

“We’re not at the table,” Byrd said. “This gives us an opportunity to share in the involvement.”

Dolan, the attorney for the Spokane County Medical Society, said he doesn’t know many details about the Spokane PHCO.

But with any such organization, both doctors and patients should ask who’s making the big decisions, he said.

“Who is really in charge? The ‘C’ in PHCO is ‘community,’ but are they really represented?”

As for doctors, “Be sure they know who’s in charge of the health care dollars,” Dolan said.

“I tell physicians not to assume the hospitals are going to look after you. It’s not something I’d join if I were a physician.”

, DataTimes