Hospitals say they're fostering growth; feds call it antitrust
■ The investigation revolves around one facility persuading another not to build a competing cardiac program.
By Katherine Vogt — Posted March 6, 2006
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A private agreement between two hospitals to restrict the development of a cardiac surgery program raised concerns with the U.S. Dept. of Justice, prompting the federal agency to file an antitrust lawsuit and the organizations to reconsider how they conduct business concerning highly competitive service lines.
The lawsuit, filed Feb. 6 in U.S. District Court in Charleston, W.Va., accused Charleston Area Medical Center, an 893-bed teaching medical center, of engaging in anticompetitive behavior when it persuaded HCA Inc., to sign a memorandum stipulating that it would not develop a competing cardiac surgery program at its Raleigh General Hospital.
According to the lawsuit, CAMC wanted to make sure that any new cardiac surgery program in the region was located in the more distant Mercer County rather than Raleigh County, where Raleigh General is located, because it would mean less of a loss of revenue for CAMC.
CAMC's cardiac program was its most profitable program, contributing $20 million in profit per year, the lawsuit said. The medical center estimated that new cardiac surgery services at Raleigh General would lower its profits $7 million to $12 million more than if those services were developed elsewhere.
HCA agreed to sign the memorandum because it wanted CAMC's support and help in developing cardiac services at two hospitals in other markets, according to the complaint.
Prosecutors said the memorandum "unreasonably restrained competition to the detriment of consumers by effectively ensuring that one of the most significant potential competitors in southern West Virginia would not compete with CAMC to provide cardiac-surgery services."
A proposed settlement filed at the same time as the lawsuit would annul the part of the memorandum that was deemed anticompetitive and restrict CAMC from entering into any other arrangements that allocate cardiac surgery services, markets, territories or customers.
CAMC would not admit any wrongdoing under the settlement, which is pending court approval.
Meanwhile, CAMC leaders say the whole thing is a misunderstanding. Dale Witte, spokesman for CAMC, said the Justice Dept. was misinterpreting the goal of the memorandum to be restricting competition rather than fostering growth of services in other markets.
"The intent was to work together to bring heart care to rural parts of the state," said Witte. "There was no noncompete clause in there. That's where we differ with the DOJ. We think they are misinterpreting the letter regarding competition."
To complicate matters, he said the memorandum was signed in April 2002, soon after the state had relaxed regulations concerning cardiac services. At the same time, he said state regulators were encouraging hospitals to work together to bring services to rural parts of West Virginia.
When federal prosecutors contacted CAMC in the summer of 2004 and questioned the memorandum, Witte said the medical center felt that it was caught by conflicting advice about what it should be doing.
But he said the matter should have been moot anyway. "Within a couple of months, that agreement was broken, no action was taken and nothing ever became of it," Witte said. "The DOJ became involved a couple years later well after the fact."
HCA ultimately discontinued its pursuit of providing cardiac surgery services in the market, Witte said, and last year it reached an agreement to sell Raleigh General and four other hospitals in Virginia and West Virginia to LifePoint Hospitals Inc. The transaction is expected to be completed by the end of March.
HCA officials declined to comment on the lawsuit. But in a letter to employees, physicians and board members, Raleigh General Chief Executive Officer Karen Bowling said the hospital cooperated with authorities and was not the subject of litigation.