In a warning shot to other healthcare networks, the U.S. Justice Department has agreed to settle charges against eight Long Island, N.Y., hospitals that allegedly conspired to prevent managed-care plans from obtaining hospital discounts.
It's the first time the Justice Department has investigated a case in which a company was allegedly created by a group of hospitals for exclusive bargaining purposes, said Caroline Adelman, a department spokeswoman.
The proposed settlement with ClassicCare Network, a joint venture initiated by the eight hospitals in 1991, will be resolved without financial penalties if approved by U.S. District Court in Brooklyn, N.Y. ClassicCare served as the provider network for several insurers and operated its own PPO for hospital employees.
While the hospitals deny any wrongdoing, they agreed to settle the case to avoid the costs and hassles of litigation, according to their attorney, Robert Andrew Wild, a partner in the Great Neck, N.Y., law firm of Garfunkel, Wild & Travis.
Sources said ClassicCare tried to develop an HMO, but some members didn't agree with the strategy. The disagreement and the Justice Department's probe led to the organization's demise several months ago.
Interestingly, physicians affiliated with the hospitals have gone out on their own, recently raising more than $780,000 toward the initial costs of establishing a provider-owned HMO to be named MDLI. Through MDLI, physicians will be "creating a more competitive environment on Long Island," said Jay Kossman, a consultant to the group.
In its complaint, the Justice Department alleged that the hospitals created ClassicCare to serve as an "exclusive bargaining agent" in negotiations with HMOs and to ensure that no member would enter an HMO or other managed-care contract without the "collective approval" of network members.
Network members agreed that they would allow no discounts on inpatient rates and discounts of no more than 10% on outpatient rates, federal officials charged.
The proposed consent decree bars the hospitals from engaging in further efforts to prevent hospital discounting. ClassicCare is being dissolved, Mr. Wild said.
Anne K. Bingaman, assistant attorney general for the antitrust division, said the settlement is important because it promotes competition among hospitals on Long Island and protects consumers from efforts by hospitals to prevent discounting.
The eight network members are North Shore University Hospital, Manhasset, N.Y.; North Shore University Hospital at Glen Cove (N.Y.); Brookhaven Memorial Hospital Medical Center, Patchogue, N.Y.; Central Suffolk Hospital, Riverhead, N.Y.; Good Samaritan Hospital, Suffern, N.Y.; Huntington (N.Y.) Hospital; John T. Mather Memorial Hospital of Port Jefferson (N.Y.); and South Nassau Communities Hospital, Oceanside, N.Y.