An antitrust lawsuit that pitted an East Texas hospital against its physicians was settled this month when the two parties agreed to end the legal battle that was financially draining both sides.
In addition, the board of Memorial Hospital in Palestine, Texas, put on administrative leave Chief Executive Officer Robert Charron, who had once been honored nationally for turning around the hospital's financial fortunes.
Although the legal battle that began in November 1994 had caused turmoil in the community of 20,000, most observers agreed that a trial would have been even more destructive. The suit, filed in U.S. District Court in Tyler, Texas, was set for trial on March 13.
"Memorial and its physicians could not afford to be embroiled in a legal battle," said John Self, a Tyler-based medical staff recruiter. "It could have sunk that hospital."
Harold Smitson, M.D., one of the physicians involved in the litigation, agreed, adding, "It would have been a contest to see who would have painted the other the blackest."
The legal battle began in 1994, when the 93-bed hospital sued eight physicians. It accused them of a wide variety of misdeeds aimed at interfering with the hospital's business plans. The charges included fixing prices, boycotting the hospital and offering a $500,000 bribe to Charron to conspire with the doctors to gain control of the hospital.
The physicians countersued Charron and the hospital's board, saying they had used intimidation, anti-competitive activity and slander, and had interfered with their practices. They said the hospital canceled their malpractice insurance without notifying them.
Smitson said the suit had cost physicians $250,000, and that they will receive no reimbursement in the settlement.
Because of the hospital's precarious financial situation, physicians won't get reimbursed for their legal costs, Smitson said.
Steve Evans, who had been the hospital's general counsel and is now acting CEO, said he didn't know how much the legal action had cost but acknowledged that it strained the hospital's resources. For example, an entire office at the small-town hospital is filled with 17,000 pages of documents produced as part of the suit. A portion of the legal expenses are covered by insurance, he said.
Although Charron's dismissal was not part of the settlement, Evans said the board knew it needed to "pursue a new direction." A search is under way for Charron's replacement.
Ironically, the hospital was honored in 1993 by a healthcare industry magazine for a financial turnaround directed by Charron.
The antitrust suit brought that turnaround to an end. The hospital posted a loss in 1995; Evans declined to specify the amount. In 1994, the hospital had net income of $818,087 on revenues of $22.5 million, according to HCIA, a Baltimore-based healthcare information company.
Relationships with physicians became so strained that last November the hospital closed a 28-bed wing and laid off about 10% of its 400 employees.
All this has been a boon to the other hospital in town, Trinity Valley Medical Center. The for-profit hospital is owned by OrNda HealthCorp, Nash-ville, Tenn. In 1994, Trinity reported net income of $188,728 on revenues of $29 million. Figures for 1995 were not available, but the hospital's census rose as Memorial's fell.
However, Evans hopes to win back doctor loyalties. "It's going to take time in building mutual trust," Evans said. "Some (physicians) may never trust us again."
The Federal Trade Commission came into town last year to investigate the hospital's antitrust allegations. Late last month, the FTC gave officials notice that it was dropping the investigation, Smitson said.
However, Evans said the FTC action didn't prompt the hospital to pursue a settlement.