Battle in the Big Easy


New Orleans antitrust case could impact how community hospitals deal with competing surgery centers.

Community hospitals seeking the legal ammunition to fight surgery centers may have found it in New Orleans, where a federal appeals court ruled that a public hospital did not violate antitrust laws when it demanded managed care contracts that excluded the competing surgery center across the street.

"The decision affirms that hospitals are allowed to lawfully compete with any privately-owned, for-profit facility that attempts to siphon off desirable services from the full-service, community-oriented hospital," says Michele Kidd Sutton, community resources officer at North Oaks Medical Center, a 215-bed public hospital in Hammond, La.

?A competitive response'
St. Luke's SurgiCenter, located a quarter mile from the hospital that many of its 17 physician-investors, nurses and patients used to call home, opened in 1996 and filed suit against North Oaks in 1997, alleging that the hospital tried to monopolize outpatient surgery services and engaged in unfair trade practices. In a case that slogged through the legal system for five years, a three-judge panel affirmed a January 2001 ruling that North Oaks did not violate antitrust laws when it pressured managed care companies to use it exclusively for both inpatient and outpatient care.

The "exclusive" contracts entitled HMOs or Preferred Provider organizations to up to a 25% discount of billed charges if the provider designated North Oaks as the sole provider of certain medical services, including outpatient surgery, within a designated geographic area, according to court documents. The court concluded that the managed care contracts at issue were "reasonable and pro-competitive." The judge's opinion states, "It would be reasonable for North Oaks to seek exclusive managed care contracts as a competitive response to the fact that the physician-owners of St. Luke's have a financial incentive to refer patients to St. Luke's."

The trial judge ruled that North Oaks' 42% to 44% share of the outpatient surgery market was not dominant and did not pose barriers to new competitors because St. Luke's earned a 25% market share in its first year in business.

This Squabble Runs Deep

St. Luke's SurgiCenter also contended in its antitrust lawsuit that North Oaks Medical Center:

? Refused to sign a patient transfer agreement proposed by St. Luke's. Not true, says North Oaks, which claims it attempted to amend the proposed agreement to protect itself against assuming financial responsibility for St. Luke's patients that could be transferred when St. Luke's had already received all available reimbursement. North Oaks says it has accepted all patient transfers from St. Luke's since its opening.

? Refused to sign a blood type and cross match agreement. True, says North Oaks, because a blood agreement proposed by St. Luke's attempted to have North Oaks compromise safeguards in place to protect patients against receiving the wrong blood type.

? Refused to lend medical equipment to St. Luke's. Not really, says North Oaks. St. Luke's used examples of situations in which North Oaks was unable to accommodate a St. Luke's request to borrow an instrument or supply as the basis for accusing North Oaks of unlawful conduct.

? Engaged in various unfair employment practices. Not true, says North Oaks. Several former North Oaks employees working at St. Luke's testified about not being eligible to return to work at North Oaks if they desired. North Oaks says no former employee would be barred from returning to work at North Oaks based on that employee's association with St. Luke's.

What's good for the goose
The decision that monopolistic leveraging tactics are permissible and not predatory could ball the fists of community hospitals in their fight with competing surgical facilities. "At the beginning, we were losing money," says Claire Manuel, BS, RN, administrator of St. Luke's, which has benefited from the national managed care contracts of Universal Surgery Centers, its managing partner since September 2001. "But we're digging out and the impact is not as significant. The number of contracts that are exclusive with the hospital has decreased dramatically."

It's easy to argue in favor of community hospitals like North Oaks, which have few profitable services that let it offset the losses sustained in providing the charity and inadequately reimbursed care that is the hallmark of a community hospital. To continue its public service mission, the thinking goes, community hospitals must compete for services like outpatient surgery that for-profit entities seek to cherry pick from the hospital. "Physicians or others certainly have the right to open an ambulatory surgery center like St. Luke's, and community hospitals like North Oaks must and will compete," says North Oaks legal counsel John Derenbecker.