Hospital's exclusive contract passes test

A column analyzing the impact of recent court decisions on physicians

By Amy Lynn Sorrelcovered legal, antitrust, fraud and liability issues from 2005 to 2010, and has also written the "In the Courts" column. Posted March 7, 2011.

Print  |   Email  |   Respond  |   Reprints  |   Like Facebook  |   Share Twitter  |   Tweet Linkedin

A group of Texas cardiologists alleges that they are unfairly paying the price for a hospital's decision to contract exclusively with other doctors. A federal appeals court in January found that Citizens Medical Center in Victoria, Texas, had a rational basis for implementing a resolution that effectively excluded noncontracted cardiologists from exercising clinical privileges at the hospital.

A panel of the 5th U.S. Circuit Court of Appeals denied three cardiologists' request to block CMC from enacting the resolution, which closed the cardiology department to physicians who did not participate contractually in the hospital's on-call emergency coverage program. Because the cardiologists were not under contract with CMC, the resolution had the effect of preventing them from exercising their clinical privileges and treating patients at the facility.

In February 2010, CMC informed cardiologists Ajay Gaalla, MD, Harish Chandna, MD, and Dakshesh Parikh, MD, of the hospital board's decision to close the cardiology department to resolve what it said were "operational problems" that had been "disruptive" to the operations of the heart program, and that the problems "materially threaten[ed] the continued viability of the heart program," according to court records.

The decision followed what was described in court documents as "interpersonal friction" between the cardiologists and cardiovascular surgeon Yusuke Yahagi, MD.

The cardiologists said they declined to refer their patients to Dr. Yahagi over their concerns he had a high mortality rate and that he was performing inappropriate surgeries, according to court documents. They also testified that they were pressured by CMC to refer their patients to Dr. Yahagi. The cardiologists had privileges at a nearby private hospital.

Dr. Yahagi complained to CMC's chief of staff that he was being unjustly harassed and said he would leave the hospital if the alleged problems were not resolved, legal records show. In response, CMC negotiated a contract with Dr. Yahagi in which he became the exclusive provider of cardiovascular surgery at the hospital. The board prepared a resolution closing the cardiology department to only contracted physicians.

After a consultant agreed that the move was a reasonable solution to the alleged disputes among the doctors, CMC's board approved the resolution at a Feb. 17, 2010, meeting. It took immediate effect, and the hospital gave the cardiologists until Feb. 24, 2010, to cease their practice at the hospital, according to the doctors' complaint.

The cardiologists immediately sued CMC to block the resolution. Among other claims, the physicians alleged that the hospital had violated their due process rights under the 14th Amendment by arbitrarily depriving them of their privileges for not steering patients to Dr. Yahagi.

On March 12, 2010, the U.S. District Court for the Southern District of Texas granted the doctors' request for a preliminary injunction, finding that the doctors had a protected interest in their privileges. The court ruled that the board action was "based upon economic considerations rather than 'grounds that are reasonably related to the purpose of providing adequate medical care.' "

CMC appealed, and the 5th Circuit reversed. The court noted that the resolution would not run afoul of the doctors' substantive due process rights "if there were a conceivable reason for it that was 'reasonably related' " to the provision of medical care.

Evidence that Dr. Yahagi might leave CMC if the alleged disruptions continued, and that his departure could harm the hospital's ability to provide cardiac surgery, provided a conceivable rational basis for closing the cardiology department, the court said.

Despite concerns about Dr. Yahagi's mortality rates, CMC "did not act irrationally by attempting to keep a criticized cardiac surgeon when faced with the alternative of no cardiac surgeon at all," the opinion states. The cardiologists plan to appeal the decision to the U.S. Supreme Court, according to their attorney, Monte F. James of Jackson Walker LLP.

"Hospitals can and do enter into exclusive contracts every day for valid reasons, and when it's done for valid reasons, the [contracts] are beneficial for hospital and patient care, and they can be beneficial for physicians," James said.

Patients' best interest?

In their complaint, the cardiologists rebutted the "operational problems" the hospital stated as a reason for the resolution, calling it a "pretense." The doctors say they were acting in their patients' best interest in refusing to refer them to Dr. Yahagi.

James added that the cardiologists filed their case on an emergency basis and were limited in the amount of evidence they could collect in the early stages of the proceedings. Since then, the doctors have filed additional claims alleging that, on top of being financially motivated, CMC's actions were discriminatory, and that they violated the doctors' procedural due process rights under the hospital bylaws. Those actions remain pending at the trial court level.

An attorney for CMC declined to comment, citing the ongoing litigation. Meanwhile, the hospital has allowed the doctors to continue practicing there, James said. The Texas Medical Assn. is monitoring the case, but has not weighed in on either side.

Courts generally have accepted as valid reasons for implementing exclusive contract considerations related to patient care enhancement and reduced disruptions in hospital operations, said Richard S. Cooper, manager of McDonald Hopkins LLC's national health care practice group. Other reasons frequently cited in support of such contracts include consistency in staffing or coverage, more efficient operation of a department, cost reductions and improved care.

Courts are reluctant to second-guess hospital decisions without a compelling reason, Cooper said. "Assuming that it's not a sham, and there's a tangible argument that in point of fact the exclusive contract will support or create those benefits, courts generally are not going to interfere" with a hospital's judgment.

But if doctors find themselves battling over an exclusive agreement, "the best thing to do is to be proactive in terms of their relationship with the hospital and the medical staff," Cooper said. He suggested that they pay attention to the justifications for the exclusive contract, looking for reasons that would not support it. Doctors also should be mindful of whether in granting an exclusive contract, the hospital followed its bylaws, rules and regulations, which may specifically allow for such arrangements.

Amy Lynn Sorrel covered legal, antitrust, fraud and liability issues from 2005 to 2010, and has also written the "In the Courts" column.

Back to top



Read story

Confronting bias against obese patients

Medical educators are starting to raise awareness about how weight-related stigma can impair patient-physician communication and the treatment of obesity. Read story

Read story


American Medical News is ceasing publication after 55 years of serving physicians by keeping them informed of their rapidly changing profession. Read story

Read story

Policing medical practice employees after work

Doctors can try to regulate staff actions outside the office, but they must watch what they try to stamp out and how they do it. Read story

Read story

Diabetes prevention: Set on a course for lifestyle change

The YMCA's evidence-based program is helping prediabetic patients eat right, get active and lose weight. Read story

Read story

Medicaid's muddled preventive care picture

The health system reform law promises no-cost coverage of a lengthy list of screenings and other prevention services, but some beneficiaries still might miss out. Read story

Read story

How to get tax breaks for your medical practice

Federal, state and local governments offer doctors incentives because practices are recognized as economic engines. But physicians must know how and where to find them. Read story

Read story

Advance pay ACOs: A down payment on Medicare's future

Accountable care organizations that pay doctors up-front bring practice improvements, but it's unclear yet if program actuaries will see a return on investment. Read story

Read story

Physician liability: Your team, your legal risk

When health care team members drop the ball, it's often doctors who end up in court. How can physicians improve such care and avoid risks? Read story

  • Stay informed
  • Twitter
  • Facebook
  • RSS
  • LinkedIn