Court dismisses Arkansas specialty hospital's lawsuit

The doctor-owned facility is alleging that a community hospital competitor and an insurer conspired to keep away its business.

By Amy Lynn Sorrel — Posted Oct. 13, 2008

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An Arkansas physician-owned specialty hospital was dealt a setback in a closely watched antitrust case that experts say may shed some legal light on the battle between specialty hospitals and their community hospital competitors.

A federal trial court dismissed Little Rock Cardiology Clinic PA's claims that the state's largest hospital system, Baptist Health, conspired with Arkansas' biggest health insurer to avoid competition by keeping the cardiologists and their specialty heart facility out of the network.

Arkansas BlueCross BlueShield excluded the physician owners, who were on staff at Baptist, from its FirstSource network after they opened Arkansas Heart Hospital in 1997, according to court records. Other doctors, meanwhile, were allowed to stay in the plan. Baptist -- which the physicians said controlled more than 80% of the privately insured cardiology market in central Arkansas -- also adopted a so-called economic credentialing policy in 2003, barring doctors with hospital privileges from having outside financial interests in competing facilities.

Before addressing the merits of the physicians' claims, the U.S. District Court for the Eastern District of Arkansas concluded that Baptist did not compete in cardiology services and therefore could not monopolize that market. The court said physicians directly provide cardiology services but that hospitals do not. Judge Leon Holmes also found that the doctors had failed to argue an appropriate geographic market because they addressed only where Baptist's patients "actually go for services, not where [they] could practically turn for services."

Little Rock Cardiology Clinic is appealing the decision to the 8th U.S. Circuit Court of Appeals. Attorneys for the doctors did not return calls for comment. Baptist denied any wrongdoing. Calls to Arkansas BlueCross BlueShield were not returned.

Legal experts say the ruling, though a narrow one, may offer more guidance on these types of lawsuits, which historically have been difficult to bring. A Kansas federal court in 2007 allowed a similar antitrust suit to proceed to trial -- a move believed to be the first decision of its kind. The cases are among several popping up across the country that could have broader legal and policy implications for specialty hospitals and community hospitals.

The Dept. of Justice continues to encourage competition to improve patient care, particularly in the face of ongoing consolidation in the hospital market, said Thomas L. Greaney, director of the Center for Health Law Studies at the Saint Louis University School of Law.

"The other side of the coin is that antitrust remedies for specialty hospitals that think they are victims of abuses are pretty limited," forcing the courts and policymakers to grapple with the issue, said Greaney, a former Justice Dept. attorney.

For example, hospitals legally can advocate against specialty hospitals through state certificate-of-need laws requiring new facilities to show a compelling need for a particular service in the area before receiving approval to open. A hospital also has leeway to contract unilaterally with an insurer to offer a particular service exclusively, Greaney said.

On the other hand, collective action among multiple hospitals and managed care entities "clearly crosses the line," he said, pointing to the 2007 Kansas decision. The U.S. District Court for the District of Kansas in that case found that the physician plaintiffs showed enough evidence to pursue their claims that three Kansas City-area acute-care hospitals colluded to exclude physician-owned or specialty surgery centers from insurers' networks. The case ultimately was settled.

Courts typically analyze such claims on a case-by-case basis, Greaney noted. The outcome in the Arkansas suit might be different, for example, if the community hospital had a prominent heart program.

"The hospital industry's ongoing campaign to eliminate physician-owned hospitals has nothing to do with patients and everything to do with eliminating competition," said American Medical Association Board Trustee William A. Hazel Jr., MD. The AMA was not involved in the Arkansas antitrust suit, but it is a plaintiff with the Arkansas Medical Society in a separate lawsuit the Little Rock Cardiology Clinic owners brought against Baptist's economic credentialing policy pending in Pulaski County Circuit Court. The state Supreme Court in 2004 reinstated the doctors' privileges at Baptist until the dispute is resolved.

Dr. Hazel said specialty hospitals have been shown to offer higher quality care at lower costs, while at the same time offering other community benefits that nonprofit community hospitals do not.

Baptist's attorney, John J. Miles, emphasized that the Arkansas decision was a procedural one consistent with past precedents. The ruling "boiled down to the fact that physicians and hospitals don't provide the same services. Hospitals provide the facility component and physicians provide the professional component."

While antitrust laws generally promote competition in health care as beneficial and discourage efforts to thwart that objective, the government also has cast a wary eye on the anticompetitive advantages doctors can gain from referring patients to their own facilities, said Miles, also a former Justice Dept. attorney. Such activities can lead to unnecessary medical tests and costs, something courts also are likely to take into consideration when weighing the potential effects of competition from specialty hospitals, he said.

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Case at a glance

Can a physician-owned specialty hospital sue a community hospital and an insurer for allegedly conspiring to block competition?

The court said no. The ruling conflicts with a 2007 decision in a separate but similar case.

Impact: Legal experts say the decisions may offer guidance on such claims, which are difficult to prove.

Little Rock Cardiology Clinic, PA v. Baptist Health; Arkansas BlueCross BlueShield, U.S. District Court for the Eastern District of Arkansas, August 2008; Heartland Surgical Specialty Hospital LLC v. Midwest Division Inc., U.S. District Court for the District of Kansas, October 2007

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