Physician-owned hospital can pursue antitrust lawsuit

The decision sends community hospitals a message that actions to restrict competition are subject to the law, the specialty facility's attorney says.

By Amy Lynn Sorrel — Posted Nov. 12, 2007

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A specialty hospital received a rare legal victory in a case that highlights the tensions between physician-owned specialty hospitals and their traditional-hospital competitors.

The U.S. District Court for the District of Kansas allowed Heartland Spine & Specialty Hospital, in Overland Park, Kan., to pursue its antitrust lawsuit accusing two major insurers and three Kansas City-area acute-care hospitals of conspiring to keep the doctor-owned facility out of the health plan networks and out of business.

District Judge Monti L. Belot denied requests by HCA Midwest Division Inc., St. Luke's Health System, Shawnee Mission Medical Center, Aetna and Coventry Health Care to toss out the case. The Heartland doctors showed enough evidence to pursue their claims, he said.

Legal experts say the ruling is significant because these types of cases are difficult to prove. They believe Heartland's antitrust suit is the first of its kind to make it to trial, which is scheduled for April 1.

The lawsuit is one of several similar legal battles going on across the country, sparked by doctors who charge that dominant hospitals are trying to protect themselves from competition at the expense of patient care. General hospitals, on the other hand, argue that the specialty facilities provide insufficient services while "cherry-picking" more profitable treatment lines and leaving the community facilities with the cost of emergency and uninsured care.

The decision "sends a message to traditional hospital systems that there are legitimate ways to address policy concerns and unlawful ways to address competitive concerns, and those are going to be subject to antitrust laws," said Patrick J. Stueve, Heartland's attorney.

HCA Midwest did not return calls for comment. Shawnee Mission and St. Luke's declined to respond to the ruling, citing the pending litigation. Aetna and Coventry also declined to comment on the court case.

But Aetna spokeswoman Cynthia B. Michener said the insurer "makes hospital contracting decisions based on network need in any given area." To assess that, Aetna uses uniform criteria that include the adequacy of services already provided by in-network hospitals; patient needs; and the quality, type and cost of medical services offered by a facility.

Heartland also sued North Kansas City Hospital, BlueCross BlueShield of Kansas City, UnitedHealthcare, Humana and Cigna, all of which settled earlier this year under confidential agreements. Blues spokeswoman Susan Johnson denied the allegations and said the company settled "to reach a mutually satisfactory resolution of the case." The others declined to comment.

The court found insufficient evidence that another defendant, Carondelet Health, participated in the alleged hospital boycott.

American Medical Association President Ron Davis, MD, said specialty hospitals can provide superior services at lower costs that come with certain efficiencies. The AMA is not involved in the lawsuit.

"Full-service hospitals should respond to the new competition through innovation and fair business practices, rather than conspiring to restrict patient choice, impede the continuity of care and undermine quality care," Dr. Davis said.

Meanwhile, Heartland doctors say they opened their facility in 2003 to focus on delivering high-quality care.

"Physicians have direct input in all aspects of the operation, and what they've attempted to do is take feedback from patients over the years and build a hospital that meets their needs," Stueve said. Heartland also plans to expand its services, to include emergency services, for example, he said.

The hospital defendants combined, including the settling parties, control 74% of the local market, court records show. All of the health plan defendants originally named in the case account for approximately 90% of managed care enrollees in the Kansas City area. Aetna and Coventry are the third- and fourth-largest managed care plans in the area, with a 19% combined share of enrollees.

The doctors allege that the hospitals colluded to negotiate with the insurers to exclude independent physician-owned or ambulatory surgery facilities like Heartland as a condition of their contracts. The doctors claim that the plans agreed to the non-competition clauses in exchange for lower reimbursement rates for the hospitals, legal records show.

In court papers, the hospitals denied the conspiracy charges and argued that limiting competition is in the best interest of patient care.

But that "does not explain why [the hospitals] were willing to work with their competitors to allow [them] into the [insurance] networks, while keeping the physician-owned facilities out," the court said.

"If it is in a hospital's best interest to keep new facilities out of network, then it would appear to be in that hospital's best interest to keep out both majority-owned and physician-owned facilities," Judge Belot wrote.

Thomas L. Greaney, co-director of the Center for Health Law Studies at the Saint Louis University School of Law in Missouri, said the decision could help shed light on the broader legal and policy concerns associated with doctor-owned specialty centers. The school, in conjunction with the American Bar Assn., hosted an antitrust conference addressing the topic on Oct. 25.

The issue has drawn antitrust scrutiny from the Dept. of Justice, particularly in areas where community hospitals may use state certificate-of-need laws to block competition from the facilities, Greaney said. These laws typically require new hospitals to show patient need in the area before they can launch. Cases like Heartland's are popping up in states where those laws are lax or nonexistent, such as Kansas, Texas and Colorado, and where the specialty hospitals tend to flourish, Greaney added.

"Antitrust law is pretty protective about allowing [hospitals] to ... voice their views that there is potentially 'cream-skimming' that works to their ultimate disadvantage," said Greaney, a former Justice Dept. antitrust lawyer. That's what makes these cases difficult to bring. "But when you try to exercise your market powers with others, vis-à-vis another hospital or pressuring payers, then [hospitals] may run into trouble," he added.

The physician-owned facilities also have prompted federal attention. Lawmakers' worries about the quality of care at these hospitals and the potential for physician self-referral resulted in an 18-month moratorium on referrals to new doctor-owned specialty hospitals. It expired in 2005.

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Case at a glance

Can a doctor-owned specialty hospital sue hospitals and insurers for allegedly conspiring to block competition?

The court said yes.

Impact: Legal experts say the ruling -- possibly the first of its kind -- is significant because such antitrust claims are difficult to prove.

Heartland Surgical Specialty Hospital LLC v. Midwest Division Inc. dba HCA Midwest Division Inc. et al., U.S. District Court for the District of Kansas

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