Southland hospitals form alliance to increase clout.

Member hospitals do not share facilities or staffs

A new kind of hybrid hospital network is beginning to sprout up in Southern California, germinating out of the growing pressure for health care providers to team up and increase their clout with insurers.

The TriCounty Health Network of Southern California, which was officially created in March, is different from conventional hospital networks because all five member hospitals remain independent and do not share medical facilities or staffs. The main purpose of the alliance is simply to create a powerful bloc of health care providers that will make each individual member more attractive to health maintenance organizations and employers.

The idea isn't new, even though it has only recently arrived in Los Angeles. Similar partnerships have sprung up all over the country, creating greater efficiencies for hospital managers - and bigger headaches for antitrust attorneys with the U.S. Justice Department.

Any time two competitors in a market team up, antitrust concerns are raised. Hospital partnerships such as TriCounty Health Network have to tread a thin line between legal group-bargaining and illegal restraint on competition.

Single-entity networks

For true networks such as the Prime Health Network, which includes 10 major hospitals and an equal number of medical groups and independent practice associations in three Southern California counties, there in little danger of violating the law because all the member organizations are together treated as a single entity by the Federal Trade Commission. In the Prime Health Network and other organizations like it, hospitals share facilities and staff to create more-efficient operations, thus presumably lowering costs to consumers. They also negotiate contracts with insurers as a bloc, empowering them to get better rates from insurers than they could as single entities.

Each of the hospitals in TriCounty, however, is treated as a separate entity, meaning that if the network members negotiated together with insurers they could be accused of illegal price fixing. As a result, each hospital in TriCounty which consists of West Hills Regional Medical Center in the west San Fernando Valley, Los Robles Regional Medical Center in Thousand Oaks, St. John's Regional Medical Center in Oxnard, Pleasant Valley Hospital in Camarillo and Cottage Hospital in Santa Barbara has to negotiate prices separately with HMOs.

Nonetheless, the affiliated hospitals can still negotiate as a group on non-price issues, or even use the same attorney to settle their contracts, as long as the attorney doesn't share price information among the alliance members.

"If we can standardize the language and all the other terms besides price, we can make the whole negotiation process much easier," said Dan Brothman, CEO of West Hills Regional and president of TriCounty.

Selective contracting

Because setting prices as a group would violate antitrust laws, there will probably be situations in which HMOs will contract with some hospitals in the TriCounty alliance and not with others, Brothman said. In the end, though, negotiating other issues as a group increases efficiencies.

"I think that there's strength in numbers, like in anything else," Brothman said. "And it makes sense to team up with hospitals that are far enough apart that there's not inherent competition between them."

Brothman said it's impossible to assess the success of the alliance so far, because it's still at the planning stage and hasn't become active yet.

Although TriCounty is the first independent partnership agreement to hit L.A. County, health care experts said they expect to see more in the near future. Unaffiliated hospitals are finding it hard to survive in the era of managed care, and there are many forces working against traditional hospital mergers.

"I think the No. 1 factor preventing hospitals from merging is psychology," said Sherwin Memel, chairman of the Health Law Department at the Los Angeles firm of Manatt, Phelps & Phillips. "Who's going to be the boss of the new venture? Who are going to be the surviving executives? Who's going to be on the surviving board of directors? That's what sinks most of these deals."

In addition, many hospitals are carrying substantial debt loads, which potential purchasers don't want to assume, Memel said. And often, the doctors associated with one hospital are opposed to merging with others because they might lose control over their patients.

But while mergers or integrated networks such as Prime Health are unattractive options for many, the increasing power of large medical groups and HMOs is leading to creative affiliation agreements such as TriCounty.

"The freestanding hospital doesn't have any leverage," Memel said. "The feeling is, you have to be part of a large network to survive."