News Briefs

Antitrust laws may assist claim by defunct ambulatory surgical center against community hospital
By David R. Dearden, Esquire

A recent case from New York State shows that when certain market conditions exist and consumers are deprived of surgical options, the federal antitrust laws may provide relief. The case is entitled Rome Ambulatory Surgical Center v. Rome Memorial Hospital, et al. and can be located at www.nysd.uscourts.gov/courtweb/pdf/do2nync/04-08591.

Setting
The controversy centers on the right of an ambulatory surgical center (“ASC”) to compete with an established hospital and the right of a community hospital to protect itself from competition. Rome Memorial Hospital is the only full service hospital in the City of Rome (population 35,000) in central New York. In the late 1990s, a group of Rome physicians created a local ASC. The hospital took measures to protect itself from the siphoning off of profitable procedures to the ASC.

Facts
There were two competing groups of physicians. One group was affiliated with the hospital (Group A) and the other group was not affiliated with the hospital (Group B). The evidence submitted to the trial court revealed that Group A refused to work on-call with Group B physicians. The hospital amended its By-Laws to deny privileges to physicians who referred patients elsewhere. The hospital also opposed a certificate of need (“CON”) for the surgery center (even though the major payors in the area supported the ASC), and sent letters to physicians encouraging them to also oppose the CON. In 2000, Group A referred a total of 1,731 ambulatory procedures to the hospital and only two to the ASC. The ASC eventually went out of business and it filed suit claiming that the hospital and certain local physicians caused the business to fail in violation of sections 1 and 2 of the Sherman Antitrust Act. Antitrust claims In the recent ruling, the District Court for the Southern District of New York allowed the case to proceed to trial on three distinct claims.

Illegal exclusive contract
One of the defensive tactics employed by the hospital was to negotiate an exclusive contract for ambulatory surgical services with a key payor which had a substantial market share. The evidence that was submitted indicates that fifty percent (50%) of the revenue of the hospital comes from commercial payors and that Blue Cross/ Blue Shield supplied forty percent (40%) of this revenue stream. The exclusive contract in question was between the hospital and BC/BS.

The court found that the ASC’s evidence that: 1) patients lost choices because of the closure of the surgery center and may have suffered by a reduced quality of care; and 2) payors now had to pay the hospital more for ambulatory surgical services, satisfied the “rule of reason” actual adverse impact test. The court also found that because the hospital was a large enough player in the small market for ambulatory surgical services it acted unreasonably. The court ruled that the hospital had the right to prove at trial that there were pro-competitive justifications for its conduct.

Attempt to monopolize
The court is also allowing an attempt to monopolize the outpatient market claim to proceed to trial. The court found that the ASC showed that the conduct of the hospital could satisfy the “predatory” conduct test. The evidence that was submitted suggested that the hospital may have seventy percent (70%) of the relevant market power.

Conspiracy to monopolize
Finally, the court decided that the conspiracy claim to monopolize would also proceed to trial. The court found that there was evidence that the hospital and Group A conspired to monopolize the outpatient market for ambulatory surgical services. Some of the local physicians provided evidence that they knew that they would be retaliated against if they referred ambulatory surgical patients to the ASC and they felt compelled to send such work to the hospital. From this and the overall circumstances the court found that there was an inference that a conspiracy existed to restrict referrals to the ASC which was a significant factor in causing the ASC to go out of business.

Conclusion
At trial, Rome Memorial Hospital will be relying on the argument that it depends upon profitable procedures to subsidize the wide range of services that it provides to the community. It will argue that it had every right to protect itself from physicians who “cherry pick” the profitable procedures and send them to an ASC for their own enrichment, at the expense of the community hospital. The success of the ASC’s antitrust claims will depend upon its ability to prove that the hospital and the Group A physicians went too far in their attempts to protect the hospital and engaged in predatory conduct that not only forced the ASC out of business but deprived patients of choice, better prices and quality of care.

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Copyright © 2004 Kalogredis, Sansweet, Dearden and Burke, Ltd.