Heartland Spine Back in Business

Crain Communications Inc

Article published March 24, 2008

Heartland Spine & Specialty Hospital showed that a small, physician-owned hospital can beat the big guys in court

By: Andis Robeznieks

The Heartland Spine & Specialty Hospital's settlement of a lawsuit accusing hospitals and insurers of conspiring to shut the tiny physician-owned hospital out of the market may serve as a "guidepost" for physician-owners of hospitals to protect themselves against unfair business practices by competitors.

The last of the settlements was completed this month and made public last week, ending a year old dispute over 19-bed Heartland's attempts to sign managed-care contracts with insurers in the Kansas City, Mo., area.

The list of providers and insurers signing settlements with Heartland includes: Aetna, Coventry Health Care of Kansas, Carondelet Health, HCA Midwest and St. Luke's Health System. With the legal dispute behind it, executives at Heartland have moved ahead to establish managed care contracts.

Heartland Attorney Patrick Stueve with Stueve Siegel Hanson said that the Overland Park, Kan., hospital has since landed network contracts with Blue Cross and Blue Shield of Kansas City, Mo., UnitedHealthcare and First Health (which is owned by Coventry). "This case has been followed closely by the healthcare industry," he said. "And, the fact that the hospital was willing to pursue it and received a very fair and favorable summary judgment, will be making other (hospitals and organizations) look long and hard about engaging in such behavior." While it's too early to say if a precedent has been established-especially in light of how no verdicts were issued-Stueve said that the case could serve as "a guidepost" for other physician owned hospitals who find themselves in similar circumstances.

Attorneys for the Heartland Spine & Specialty Hospital, Overland Park, Kan., acknowledge that "well into six figures" was spent legally and electronically pursuing some 3 million pages of emails- many of which had been deleted and were recovered-which they say were instrumental in demonstrating how five hospitals and six health systems conspired to keep the physician-owned facility from being included in managed-care networks.

Five defendants in the case settled early last year, and the remaining six settled after U.S. District Judge Monti Belot in Wichita, Kan., entered his decision last October that there was sufficient evidence for the case to go to a jury. An April 1 trial date had been set, and it is clear that the judge recognized the stakes were high and that interest in the case extended far beyond the Kansas City market, which straddles the Kansas-Missouri border. "Characterizing the pursuit of this litigation as contentious is, at best, an understatement," Belot wrote in his summary judgment last fall. "This case ultimately involves the proper place of physician-owned healthcare ventures in the broad landscape of United States healthcare." The judge was also able to see beyond the physicians' stated desire to deliver higher quality care at a lower cost and hospitals' fear that these facilities would drive up the cost of healthcare and are unable to respond to emergency situations. "Neither side can make a colorable argument that the parties' profits is not a central factor in their dispute," he wrote.

After incorporating in October 2001, Heartland opened the doors of its $22 million facility on Sept 18, 2003, with just about everything its more than 20 physician-owners could want or need except inclusion in the local managed-care organization's networks. "When we opened, we though we'd have the contracts," said David Anderson, an anesthesiologist and one of Heartland's physician-owners. "We had no reason to believe ... that we would be denied any of the contracts." Stueve said the six largest managed-care organizations in the area-Aetna, Blue Cross and Blue Shield of Kansas City, Cigna Corp., Coventry Health Care of Kansas, Humana and UnitedHealthcare-controlled 90% of the market, and none would contract with Heartland.

Ultimately, Heartland filed suit on April 26, 2005, against the managed-care organizations and five hospitals and systems that controlled 74% of patient revenues in the Kansas City area: HCA Midwest, St. Luke's Health System, Carondelet Health, Shawnee Mission (Kan.) Medical Center and North Kansas City (Mo.) Hospital.

The charges were: conspiracy to boycott, tortious interference with prospective business relationships, and civil conspiracy. Where many providers complain that health plans have too much power over their operations, Stueve said the situation was somewhat reversed in the Kansas City market. "Certainly, HCA and St. Luke's were the two most aggressive in pressuring the managed-care organizations not to contract with us," he said.

Between January and March of last year, Heartland settled with UnitedHealthcare (Feb. 23, 2007), Cigna (March 20, 2007), Humana (March 21, 2007), Blue Cross and Blue Shield of Kansas City (March 21, 2007), and North Kansas City Hospital (April 3, 2007). The judge signed the summary judgment ruling last Oct. 1, and it was entered Oct. 17. Although he ruled there was sufficient evidence to proceed, Belot also warned Heartland that it "should not assume that the court believes it has a strong case against any or all of the defendants." (He also included this exasperated sounding note: "The parties must recognize that this is not the court's only case and that there is a limit to the amount of time and attention the court can devote to it.")

What may have had the most impact, however, was Belot's Dec. 19, 2007 order allowing Heartland to present the jury with its calculation that the alleged boycott had caused it almost $47.5 million in damages. Although punitive damages are not allowed, antitrust laws allow actual damages to be tripled, which would have stuck the defendants with a tab nearing $142.5 million. Two defendants, Aetna and HCA Midwest, settled prior to the order. They were followed by Carondelet Health (Jan. 2), Shawnee Mission (Jan. 30), Coventry (Feb. 12), and St. Luke's (Feb. 12). The case was ordered closed on Feb. 12, but Stueve said that final paperwork was only completed this month.

All six of the defendants who settled after the judge's summary order were contacted for a response. Only two responses beyond "no comment" were received. An Aetna representative said it reached a settlement last Oct. 31 on "mutually satisfactory and confidential terms" and had no additional comment.

HCA Senior Vice President Victor Campbell has railed against physician-owned hospitals in the past, but was unavailable for comment for this article. An e-mail from HCA Midwest stated that "we acted appropriately and in the best interests of our patients. We agreed to this settlement to avoid protracted and costly litigation." Also, a representative from HCA's national office provided materials from the American Hospital Association that cast doubt on the quality of care specialty hospitals provide as well as an e-mailed statement.

"We don't want attention to this lawsuit to distract from what we believe is a critical concern in this country, and that is the issue of physician self-referral and the unfettered proliferation of physician-owned hospitals that threatens the viability of the healthcare system in America and poses a potential threat to the uninformed patient, "he statement read:

The AHA could not be reached for comment. but Federation of American Hospitals Senior Vice President and General Counsel Jeff importance of the case. "I don't think this settlement or any settlement changes the underlying influence of conflict of interest of physician-owners who self-refer," Micklos said.

Anderson, however, said the issue is one of patient choice and that self-referral also takes place among hospital-employed physicians. "In actuality, there is self-referral all over the market," he said. "Any hospital who employs primary-care docs and internists, they are self-referring" to physicians within their institutions. While the litigation ran several years and its cost crept into the seven-figure range, Stueve and Heartland Chief Executive Officer Mary Nan Holley said the lawsuit has had a positive financial impact. For pediatric orthopedic surgeon Ganesh Gupta, one of the original owners of Heartland, not having to deal with hospital bureaucracy carries its own rewards and is one reason why he invested so much time and money into Heartland. In a hospital, he said, if he had a process - change to recommend it takes three years, 16 meetings and five committees. "Here, I can take it directly to the CEO," Gupta said. "It takes me one-and-a-half weeks to change a process." Anderson noted that the lawsuit and the business arrangements that prompted it had always darkened the hospital's business outlook to a degree, but the owners were confident that the risks they were taking were worth it."

There has been a slight cloud ever since we started, which eventually led us to the lawsuit," he said. "But our business did start picking up and that led us to believe we would be successful."


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