A model governance arrangement that allowed not-for-profit and for-profit systems to jointly operate a hospital is headed for federal court.
Orlando Regional Healthcare System filed an antitrust and breach-of-contract lawsuit last week against its business partner, Healthtrust, over the systems' co-ownership of a hospital in Seminole County, Fla.
The lawsuit is the latest example of how sweeping market changes and intense competition in the hospital industry are making friends of former enemies and enemies of former friends.
The aggrieved partner in this case, Orlando Regional, filed its suit Feb. 21 in U.S. District Court in Orlando.
The not-for-profit system's dispute with Healthtrust, the Nashville, Tenn.-based for-profit chain, stems from a joint venture that the duo formed in December 1992 to co-own 206-bed South Seminole Hospital in Longwood, Fla.
The systems formed a new for-profit company to own and operate South Seminole. Subsidiaries of both systems held equal representation on the new company's board. Healthtrust donated the hospital and its assets to the venture, while Orlando Regional contributed $24 million.
After the Internal Revenue Service ruled that the venture wouldn't jeopardize the tax-exempt status of Orlando Regional, healthcare executives and attorneys hailed the deal as a trend-setting example of two systems putting aside their ownership differences for the goal of improving community health (June 14, 1993, p. 28).
But the subsequent ownership dispute and lawsuit suggest that the joint venture wasn't about improving community health but was about maintaining detente between two systems in a strategic business market.
South Seminole is one of only three hospitals in Seminole County, which is adjacent to Orange County in central Florida. Orlando, the home of Orlando Regional's flagship hospital, 827-bed Orlando Regional Medical Center, is located in Orange County.
Seminole County's other hospitals are 226-bed Central Florida Regional Hospital in Sanford, Fla., owned by Columbia/HCA Healthcare Corp., and 258-bed Florida Hospital-Altamonte (Fla.), owned by Adventist Health System/Sunbelt.
The delicate balance among ownership interests in the market was thrown off by the pending acquisition of Healthtrust by Columbia. After the sale is approved by shareholders, which is expected this week, Columbia would own or co-own more than 60% of the acute-care market there.
Hence, Orlando Regional wants to buy out Healthtrust's 50% interest in South Seminole and convert it into a not-for-profit institution. But Healthtrust's apparent reluctance to sell led Orlando Regional to file suit.
According to the complaint, ownership of South Seminole can't be transferred to another party unless it's first offered to either one of the joint venture partners. The complaint says Orlando Regional has made an undisclosed offer to Healthtrust, but Healthtrust is refusing to deal, in violation of the original terms of the joint venture agreement.
The complaint also says any transfer of ownership to Columbia would violate federal antitrust laws by giving the Nashville-based chain control of two of the market's three hospitals.
And, the complaint says Orlando Regional would be injured by a transfer of ownership of South Seminole to Columbia because the chain, as a business partner, would then have access to the not-for-profit system's confidential financial, clinical and strategic data. Columbia is an aggressive competitor of Orlando Regional in other areas of Florida.
John Bozard, Orlando Regional's vice president for strategic development, said the system has made HealthTrust aware of what it's willing to pay for the chain's share of South Seminole, but under the contract, the first formal offer has to come from the seller.
Orlando Regional wants a court order forcing Healthtrust to sell its interest in South Seminole to the not-for-profit system and an order barring any transfer of ownership to Columbia.
At deadline, executives of Columbia hadn't seen the suit and declined comment on specific allegations. However, a spokeswoman described the lawsuit as a legal maneuver to "gain the upper hand" in contract negotiations.
"This is a contract dispute disguised as antitrust litigation," she said.
John Cusack, an attorney with Gardner, Carton & Douglas in Chicago, who represents Orlando Regional, said the case is more than a contract dispute.
"This is another example of (Columbia) trying to dominate a small Florida market," Cusack said.