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Published: Saturday, 2/12/2011

St. Luke's says ProMedica deal essential to 'stop the bleeding'

WEST PALM BEACH, Fla. -- ProMedica Health System and St. Luke's Hospital renegotiated a contract with Medical Mutual of Ohio that calls for the Maumee hospital's rates to be above costs but still lower than what the hospital chain's own insurance arm gets.

But if the government succeeds in getting a preliminary injunction against their partnership agreement, St. Luke's would be unable to get ProMedica's help with renegotiating other contracts to help improve its financial viability.

Plus, St. Luke's effectively would have to freeze its insurer contracts and the pair couldn't make changes, such as moving money-losing cardiac surgery services to another ProMedica hospital, a lawyer for ProMedica told U.S. District Court Judge David Katz Friday.

St. Luke's low-volume cardiac surgery services lost $3.4 million last year alone, according to ProMedica.

"What this preliminary injunction is saying is 'You can't stop the bleeding,' " said David Marx, Jr., of McDermott, Will & Emery of Chicago, which is representing ProMedica.

Yet if hospital rates do go up and last year's decision by St. Luke's to join ProMedica is found to be anti-competitive, then consumers would be harmed by the lack of a preliminary injunction during the Federal Trade Commission's investigation of the agreement, FTC attorney Matthew Reilly said.

"How do we make them whole?" Mr. Reilly asked. "What's our answer to them?"

He added: "There's nothing that can be done to the citizens of Lucas County who paid higher rates in those two years."

Attorneys for the FTC and Ohio Attorney General's Office and other attorneys for St. Luke's and ProMedica finished arguments Friday in U.S. District Court in West Palm Beach, Fla. The government's preliminary injunction request was filed in U.S. District Court in Toledo, but Judge Katz works part of the year in West Palm Beach.

ProMedica cannot raise hospital rates above competitive prices by adding St. Luke's to its system and the government cannot show it will, Mr. Marx said.

Meanwhile, competition is heating up in St. Luke's home turf of southwest Lucas County, and even the addition of employed doctors by another hospital system in the area could draw market share from the Maumee hospital, Mr. Marx said.

"St. Luke's is not going to be able to compete successfully for the long term," he said. Mr. Marx added: "St. Luke's doesn't have the financial wherewithal on its own to reposition itself as the market demographics change."

Judge Katz is expected with coming weeks to decide on the FTC's preliminary injunction request. The government wants St. Luke's and ProMedica to remain separate during administrative proceedings with up to 210 hours of testimony slated to begin May 31 in Washington. The matter would be decided by year's end.

Some of the court drama is being kept from public view.

Various filings remain under seal, including declarations and testimonies by experts from both sides. Judge Katz this week denied ProMedica's attempts to exclude sealed testimony of Errol Brick, a bond rating expert.

The FTC continues to question whether St. Luke's is financially unstable as an independent entity.

St. Luke's had $65 million in cash reserves and $11 million in debt before joining ProMedica. And while its pension fund was underfunded, it still had $900 million in cash and assets while paying out just $3 million a year, FTC attorney Jeffrey Perry said.

St. Luke's still could have borrowed more money if necessary since its bond rating, while lowered, remained investment grade, he said.

Another function of the preliminary injunction would be to keep St. Luke's employment as is, the FTC's Mr. Reilly said. ProMedica wants to trim St. Luke's employment down to that of Flower Hospital's, he said.

Flower Hospital has 1,402 employees, while St. Luke's has nearly 1,500.

After the hearing, however, ProMedica President and Chief Executive Randy Oostra said the partners are looking at staffing levels at St. Luke's, and the FTC apparently is referring to a document that compared employment at the two hospitals.

Staffing is kept at comparable levels throughout ProMedica, and no decisions have been made about St. Luke's, ProMedica officials said.

During the hearing, Judge Katz questioned Mr. Reilly about whether ProMedica and St. Luke's could make some changes under a preliminary injunction as long as the two sides agreed. He also sought confirmation that court guidance could be obtained if the two sides didn't agree to changes.

Some changes have been made under ProMedica's existing voluntary hold-separate agreement with the FTC. Rehabilitation beds were moved to Flower Hospital, for example, to free up bed space at St. Luke's for other patients.

Judge Katz Friday continued to question whether an independent St. Luke's would be hurt financially if ProMedica or Mercy were to open a hospital in that area as both have planned.

The FTC's Mr. Perry maintained an independent St. Luke's could continue to compete against ProMedica.

"It isn't fun, I'm sure, but they've demonstrated they're able to do it," Mr. Perry said.

Contact Julie M. McKinnon at: jmckinnon@theblade.com or 419-724-6087.



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