Fax This to Washington: Hospital Consolidation Threatens Our Healthcare System

As hospital consolidations sweep the nation, the monopolies being created are having a profound impact on life in small town America.  Lee County, in Southern Georgia, is a little place with big dreams; they are resolutely determined to build a 60-bed community hospital and provide local residents with real choices. For years, two competing hospitals served the population of 200,000 spread over six counties: Phoebe-Putney and Palmyra Park. Phoebe-Putney Memorial Hospital put an end to that by securing a 939-bed hospital monopoly and an ample market share.

Their efforts began in 2003, when Phoebe-Putney Memorial Hospital in Albany, Georgia successfully opposed a bid for a Certificate of Need (CON) to open an outpatient surgery center. Frustrated from a free-market perspective, accountant Charles Rehberg and a local surgeon, John Bagnato, began sending anonymous faxes to local business and political leaders, criticizing the financial activities of the local hospital.  These faxes quickly gained notoriety, becoming known as “Phoebe Factoids.” Concerned about negative publicity, Phoebe Putney executives hired former FBI agents to intimidate these men.

Undeterred, these two renegades discovered Phoebe-Putney Hospital was charging uninsured patients far more for services than insured patients.   This brought widespread attention to the plight facing millions of uninsured Americans. Many began to question what obligation a nonprofit hospital has to provide charity care for those in need. Phoebe-Putney was caught using aggressive collection tactics, such as wage garnishment and the placing of liens on homes of patients unable to keep up with payments. Their experience inspired a documentary called “Do No Harm.”

In-depth research uncovered millions hidden in offshore bank accounts disguised under the auspices of a non-profit— not only at Phoebe, but also at other non-profit hospitals across the country. As whistleblowers, Rehberg and Bagnato were subsequently targeted by Phoebe and indicted on fraudulent charges of telephone harassment, aggravated assault and burglary; charges without merit which were dismissed in 2006.

After successfully blocking the surgery center CON, Phoebe-Putney set its sights elsewhere looking to acquire the only other hospital facility in the surrounding six-county area: Palmyra Park. In 2011, the Federal Trade Commission (FTC) attempted to block this proposal on the grounds that the combined entity would control in excess of 85% of the market share. Phoebes’ CEO insisted hospital consolidation was necessary to deliver cost-effective, high-quality medical care, calling the merger “the right thing for citizens.’’   The FTC argued the deal was anti-competitive (which it was) and health costs would increase significantly (which they did.) The FTC secured a preliminary injunction but Phoebe prevailed, arguing Georgia CON laws prohibited the sale of Palmyra Park to an independent entity.

Ultimately, the FTC was obligated to settle with Phoebe, making the dream of a hospital monopoly a reality. However, the settlement had three stipulations: 1) Public acknowledgement the acquisition would substantially lessen competition within the six-county market; 2) Phoebe was required to provide the FTC with prior notice of transactions acquiring any part of a general acute-care hospital, or controlling interest in other facilities; and 3) Phoebe was precluded from opposing CON applications from other entities for five years.

Barring Phoebe from challenging CON applications was an innovative solution to a monopolized region; however, Phoebe already handily dominated the market. The Certificate of Need process is expensive and time-consuming; therefore, legal experts anticipated this limitation alone would be ineffective in enticing new competitors to enter the region. Yet, predictions can sometimes be incorrect.

Enter the little county that could, a.k.a Lee County, Georgia, with its population of 29,000 and land mass of 362 square miles. The community and their steely resolve have yielded unexpectedly positive results. Lee County officials filed a Certificate of Need application for a 60-bed hospital earlier this year. The Lee County Development Authority will own the hospital structure and a separate entity will lease the facility. Services offered will include acute and emergency care, including an ICU, medical/surgical unit, inpatient and outpatient beds, and full radiology capabilities, such as CT and MRI. The hospital will create more than 350 “good-paying jobs” and provide access to health care for all, regardless of their ability to pay.

While Phoebe Putney agreed not to challenge a CON application until 2020, the settlement does not preclude engaging in “sneaky” public relations tactics. Phoebe commissioned a study to calculate the effect the Lee County Medical Center would have on the financial outlook for Phoebe-Putney. DHG Healthcare projected Phoebe will lose more than $250 million in revenue over five years.  The firm found by the third year of operation, annual losses will be $30.1 million for inpatient care, $23.7 million in outpatient care, and $6.4 million for emergency care at Phoebe.

Lee County is on their way to achieving something extraordinary; challenging the dominance of a hospital monopoly. On July 21, 2017, the CON application for Lee County was deemed complete by the Georgia Department of Community Health. A decision is anticipated by Nov. 15. If granted, the county plans to break ground on the new structure in early 2018. The CEO of Lee County Medical Center, Mr. G. Edward Alexander, stated “Our goal is to ensure that decisions for the hospital are made locally by people who live and work in Lee County.”

Lee County, I salute you. Medically underserved communities everywhere are supporting your efforts to transform the healthcare landscape for the better. May your success inspire a revolution, proving that healthcare can be repaired by patients, physicians, and communities – working together.


Categories: Uncategorized

7 replies »

  1. Niran, why not limit what doctors can charge too especially for care that must be delivered under emergency conditions and for doctors patients generally nave no role in choosing, namely radiologists, anesthesiologists, pathologists, and emergency medicine doctors?

    A neighbor recently needed emergency surgery following a serious bicycle accident. The surgeon billed $114,000 and insurance paid around $8,000. I wish doctors and hospitals would reflect on how they would feel if they were on the receiving end of these bills before they send them out especially when there was never any meeting of the minds on price.

  2. CON laws should be eliminated. We do need limits on how much HOSPITALS can charge uninsured and OON patients. We find common ground again.

  3. Dr. Nelson, you are correct. The CON legislation has had unintended negative consequences. It is a shame.

  4. The hospital consolidation has occurred as a result of Parkinson’s Law masked as “managing market share.” And, “if we continue to do what we have always done, we well get what we’ve…!” The lasting adverse effects of CON legislation continues to pursue its expression of the uncertainty principle. Ultimately, the need to “at least” do something continues to plague our need to fix the cost and quality problems of our national healthcare industry.
    Saint Augustine said it well @1700 years ago: “In the absence of justice, what is sovereignty but organized robbery?”

  5. 1) CONs should go. Mostly just politics and allows bad facilities to hold on to business.

    2) The push to move to surgicenters is largely financial with a, IMHO, a paucity of research looking at quality. The surgicenters really want these bigger cases as they make a ton of money off of them (and so do the physician investors), but safety and quality are not being looked at. It is just assumed that it is safe at surgicenters. I think a lot of this comes from the fact that not all surgicenters are equal. A surgicenter with 9 ORs and lots of staff and equipment adjacent to a major hospital is very different from a surgicenter with 2 ORs in a parking lot somewhere, but the administrators at these tiny places want the big cases too. What research we have on safety is going to come from academic centers and they are more likely to staff larger surgicenters.

    3) Set rates for uninsured at a rate 20% below the average rate for commercial carriers, but it needs to be income linked. If one of the young invincible can afford insurance but decided to go without because they thought they would never get sick, they can pay everything.


  6. 939 beds to serve 200,000 people works out to 4.7 beds per 1,000 of population compared to a national average of 2.9. So, it sounds like the area already has too many inpatient beds before the new 60 bed facility is built.

    Second, perhaps CON laws should be eliminated altogether. There is an ongoing secular trend toward more and more surgical procedures gravitating toward ASC’s which lowers costs for payers, hopefully, without sacrificing quality and safety. As less invasive surgical techniques make it possible to do more procedures on an outpatient basis and better drugs help to keep more patients out of the hospital in the first place, the need for inpatient beds should decline further over time relative to the size of the population. As that happens, more hospitals may need to downsize or even close.

    Finally, let’s have some legislated limits on how much doctors and hospitals can charge uninsured and out-of-network patients, especially for care that must be delivered under emergency conditions. I think 125% of Medicare is reasonable and adequate.

  7. Will be interesting to see if they can staff it, although if you look at median household income for that county, it is above average. We are finding it is not so easy to staff smaller hospitals in rural areas, but then we are talking about counties below the national average. (Given the county population I am assuming this is a rural area.)

    Phoebe is pretty short sighted. They would have been much better off partnering with this effort. The new small hospital will (almost certainly) have a level 2 ICU and will need someplace to send its big surgical cases and its really sick patients. Wonder if they plan to do OB?