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Steward lures 150 doctors tied to Beth Israel

Boston hospital questions deal

By Robert Weisman
Globe Staff / November 10, 2011

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As health care competition heats up in Massachusetts, upstart Boston hospital chain Steward Health Care System has lured away 150 doctors affiliated with the Beth Israel Deaconess Medical Center’s physician group by making them an offer so generous that Beth Israel’s lawyers question whether its terms amount to illegal kickbacks.

Steward’s offer to the doctors in the Whittier Independent Practice Association, based in Newburyport, could potentially bring them as much as $3 million more next year under one key insurance contract, according to Whittier’s estimate.

But a law firm hired by Beth Israel suggested that some incentives Steward offered Whittier violate federal and state “anti-kickback’’ statutes. Those laws prohibit paying for business that can be billed to government health insurers. A spokesman for Steward, a fast-growing, for-profit health care company, said its contract with Whittier is legal.

The battle between Beth Israel and Steward over Whittier reflects an increasingly aggressive struggle by hospital physicians groups to win over doctors - and the business they can generate - in a radically shifting health care sector.

“We have a market full of very competitive leaders, and this [Whittier] switch is a precursor of things to come,’’ said Thomas Glynn, public policy lecturer at Harvard’s Kennedy School.

Steward officials said they believe executives and doctors at Beth Israel, a Harvard-affiliated Boston teaching hospital, are rankled not only by the impending defection of their doctors, but by the Steward business model. That model seeks to keep health care local by leveraging the power of the 10 community hospitals Steward bought in Eastern Massachusetts over the past year.

“There’s a large amount of care that could be appropriately done in the community that is leaking to high-cost hospitals in Boston,’’ said Dr. Mark Girard, president of Steward Health Care Network, the physicians organization in Steward’s hospital system.

Whittier wants to join Steward on Jan. 1 so it can take part in a potentially lucrative insurance contract with Blue Cross Blue Shield of Massachusetts. But that date is just 50 days away, and the doctors’ group is required to give 180 days’ notice before it can end its affiliation with the Beth Israel Deaconess Physicians Organization, known as BIDPO. That means that Beth Israel would have to sign a waiver to let the doctors go - something it has not yet agreed to do.

“This is a disappointment,’’ said Dr. Stuart A. Rosenberg, president of the hospital’s physician group and a member of the Beth Israel board of trustees. “It would be foolish to say otherwise. We’d prefer to gain members than to lose members.’’ Beth Israel physicians signed their own affiliation deal with Whittier less than three years ago.

While some doctors are employed by hospitals, many choose to remain independent. But they usually affiliate with hospitals so they can refer patients. Community hospital groups, for their part, often seek to join larger physicians organizations allied with Boston’s academic medical centers so they can coordinate patient care and jointly negotiate insurance contracts.

Whittier’s switch to Steward blindsided Beth Israel’s new chief executive, Dr. Kevin Tabb, as he arrived in Boston last month to run the hospital. And it has unnerved leaders of struggling independent community hospitals, who question whether they can operate alongside a well-funded Steward system, owned by New York private equity firm Cerberus Capital Management.

“It’s very concerning that longstanding community hospitals can’t compete with private equity money,’’ said Lawrence General Hospital president Dianne J. Anderson, whose hospital is affiliated with Beth Israel Deaconess. “It’s fundamentally changing the landscape of health care in Eastern Massachusetts.’’ Steward, led by hard-driving chief executive Dr. Ralph de la Torre, started by buying Catholic hospital group Caritas Christi Health Care last year. Its goal is to build a state chain of low-cost community hospitals that would eventually expand nationally.

Leaders at 123-bed Anna Jaques Hospital in Newburyport, another Beth Israel affiliate, have worried that the Whittier defection will result in more medical care being referred to two nearby Steward hospitals, Merrimack Valley Hospital in Haverhill and Holy Family Hospital in Methuen.

“It presents many apparent hazards for the survival of Anna Jaques in its current independent, not-for-profit form,’’ hospital president Delia O’Connor wrote in an e-mail to hospital colleagues last month.

In an interview, O’Connor said she has since been assured Whittier doctors will continue sending patients to Anna Jaques. Whittier doctors say they also will keep referring patients needing complex heart or cancer treatment to Beth Israel.

O’Connor is hoping those promises prove true. “Reassurances are reassurances,’’ she said. “Time will tell.’’

The move by Steward to add more doctors is part of a trend toward larger health care organizations. Last year’s federal health care overhaul encourages providers and insurers to form broader networks, said Glynn at the Harvard Kennedy School. New payment models emerging in Massachusetts also reward hospital and doctor groups that can share risks. And a new breed of health care industry leaders, typified by de la Torre, are thinking bigger.

But it’s unclear whether the Steward-Whittier alliance will help make health care more affordable for patients. While the Steward business model calls for containing costs, critics believe the affiliation with Whittier could drive up expenses by letting more doctors sign on to a contract that draws higher reimbursements than they now receive through Beth Israel.

A recent slide presentation made by Whittier officials to their doctors said an affiliation with Steward would offer “added value to docs.’’ That would include an estimated $1.8 million to $3 million in additional earnings for Whittier doctors if they could join Steward soon enough to be covered in 2012 by Steward’s “alternative quality contract’’ with Blue Cross Blue Shield of Massachusetts, according to the presentation.

That contract is a so-called global payment pact in which doctors provide care for patients under a budget instead of billing insurers for each visit and procedure. If doctors provide quality care and come in under budget, they can receive bonuses.

Beth Israel Deaconess doctors have a similar contract that began this year with Blue Cross, the state’s largest health insurer. But because Steward’s predecessor, Caritas Christi, was one of the contract’s first adopters in 2009, its reimbursements have been more generous.

Said Blue Cross spokeswoman Tara Murray: “The contracts are comparable over several years.’’

In the Whittier slide presentation, however, the group’s leaders argued the Beth Israel physicians’ contract has less “surplus potential.’’ They also said Steward agreed to pick up the cost if Whittier doctors exceed their Blue Cross budgets.

Dr. Kevin Lanphear, the Whittier president, and Girard, the Steward doctors group president, declined to discuss the terms of the Steward offer outlined in the slide presentation. The main attraction of Steward, said Lanphear, is “a philosophy that’s more in line with what Whittier is trying to do, keeping health care close to home.’’

He said Whittier doctors voted “overwhelmingly’’ to support the Steward contract.

The legal opinion prepared for the Beth Israel doctors group said several financial inducements offered to Whittier by the Steward Health Care Network - including promises to waive administrative fees, not withhold money to create reserves against budget overruns, and assume all downside risk if Whittier doctors run over budget - could violate state and federal laws that prohibit organizations from paying for business that can be reimbursed by Medicare and Medicaid.

Rosenberg, of the Beth Israel physicians group, declined to discuss the confidential legal memorandum, which was obtained by the Globe. Its author, attorney Donald R. Auten of the Philadelphia law firm Duane Morris LLP, also wouldn’t comment.

Steward spokesman Chris Murphy defended the arrangements with Whittier. “We comply with all applicable state and federal laws,’’ he said.

Robert Weisman can be reached at weisman@globe.com.