Surgery center wins right to pursue antitrust claim

But another court dismissed a similar claim by a physician-owned hospital.

By Amy Lynn Sorrel — Posted Feb. 1, 2010

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Physician-owned facilities won one round and lost another in separate court battles over allegations of antitrust violations by their larger hospital competitors. Despite the mixed rulings, however, experts said such cases have helped expose such anticompetitive behavior and could cause hospitals to think twice.

A Peoria, Ill., ambulatory surgery center will get its chance to try to prove allegations that the dominant area hospital improperly manipulated an exclusive contract with an employer health plan to edge the surgicenter out of the market. Without addressing the case's merits, the U.S. District Court for the Central District of Illinois on Dec. 30, 2009, allowed Peoria Day Surgery Center's antitrust lawsuit to proceed to trial. The court said it heard enough evidence that OSF Saint Francis Medical Center's actions could harm local competition and, ultimately, health care access. The trial is expected to begin March 8.

Meanwhile, the 8th U.S. Circuit Court of Appeals on Dec. 29, 2009, dismissed claims that Arkansas' largest hospital system, Baptist Health, conspired with the state's biggest health insurer to exclude a physician-owned heart hospital from the network. Without delving into the case's merits, judges found that Little Rock Cardiology Clinic PA did not establish a relevant market for purposes of pursuing an antitrust claim.

The cases are among several that have landed in the courts over alleged attempts by traditional hospitals to stifle competition at the expense of patient care, said Molly Sandvig, executive director of Physician Hospitals of America, a trade group for physician-owned hospitals.

"There is this sudden knowledge out there that this type of [anticompetitive] action is not going to go unnoticed," she said, pointing to successful settlements in similar antitrust cases by physician specialty hospitals in Kansas and Texas. "What we'd like to see is more collaboration" from traditional hospitals.

Rulings like the one in Illinois could have just that effect, said Lorin E. Patterson, a partner at law firm Reed Smith in Falls Church, Va. The decision is significant not only because antitrust actions are difficult to prove, but also because it could pressure traditional hospitals to settle and work more cooperatively.

"But it cuts both ways," said Patterson, who represents physician-owned facilities. "What we don't see very often is physician-owned facilities that have the staying power or resources to get an antitrust claim to this point. These are claims of last resort ... but they are capturing the attention of the opposing party saying, 'You have to deal with this.' "

In some cases, hospitals have responded, he said. For example, such legal actions, coupled with increasing pressures on payers and a drive toward quality improvement, have prompted more joint ventures between physicians and hospitals.

Patient care at stake

But hospitals counter that exclusive payer arrangements are not only legal but also beneficial in lowering patients' health care costs.

In the Illinois case, "the employer decided that it would be best for its employees to go to one provider because it would have lower prices," said Alan I. Greene, Saint Francis' attorney. "But the contract does not limit anybody's access to care. People can still go wherever they want if they are willing to pay a higher [out-of-network] fee."

The hospital opened its own ambulatory surgery center in 2001, and in 2004 it informed Caterpillar Inc. that it could cover the urological services that Peoria Day Surgery Center had been contracted to provide since 1992, according to court records. The hospital offered Caterpillar's employee health plan bundled discounts for a full range of services, which it argued would not have been possible without the exclusive contract.

But the court said that assertion was questionable, citing expert testimony that Saint Francis' prices generally exceeded PDSC's, and that without competition, the hospital had little incentive to reduce prices or increase innovation.

"What you have is the largest hospital in the area reaching an agreement with the largest employer in the area to prevent members from free choice in medical care, and doing so on a basis unrelated to quality," said Richard T. Greenberg, an attorney for PDSC.

In the Arkansas case, Baptist and Arkansas BlueCross BlueShield jointly formed an HMO network for Baptist patients. Little Rock Cardiology's physician owners were dropped from the network and the hospital staff list after opening the heart hospital in 1997, court records show.

Little Rock Cardiology alleged that the moves were aimed at monopolizing the cardiology market. But the 8th Circuit found that Baptist and the specialty hospital did not directly compete on cardiology services or privately insured patients.

Neither the physicians' attorneys nor Baptist returned calls for comment. The Arkansas Blues plan also did not respond.

The ruling follows a February 2009 win for the cardiologists in state court. A trial judge found Baptist's economic credentialing policy -- which excluded from the medical staff any physicians who had a competing interest -- interfered with the physician-patient relationship and violated public policy.

The case is on appeal to the Arkansas Supreme Court. The American Medical Association and Arkansas Medical Society joined the state case as plaintiffs, with financial support from the Litigation Center of the American Medical Association and State Medical Societies. The organizations were not involved in the federal antitrust suit.

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Cases at a glance

Can physician-owned facilities sue their hospital competitors for alleged antitrust violations?

A federal trial court in Illinois allowed an ambulatory surgery center's case to proceed to trial, while a federal appeals court dismissed a similar claim by an Arkansas specialty hospital.

Impact: Experts say the rulings highlight the difficulty of pursuing such cases. But legal pressure could force traditional hospitals to collaborate with physician-owned facilities, rather than engage in anticompetitive actions.

Peoria Day Surgery Center v. OSF Healthcare System, U.S. District Court for the Central District of Illinois; Little Rock Cardiology Clinic PA v. Baptist Health, 8th U.S. Circuit Court of Appeals

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