One of Dallas' largest hospitals is taking on one of the nation's strongest oncology practices, contending that the company is monopolizing cancer services in the market.
Methodist Medical Center has filed suit against Physician Reliance Network, which could signal a move by hospitals to fight back against well-capitalized physician companies that threaten to erode hospitals' outpatient business.
Although it has been a public company for less than two years, Physician Reliance has a stellar record on Wall Street with a market capitalization of nearly $1 billion. This month, it filed a prospectus with the Securities and Exchange Commission to sell another $104 million in stock.
Methodist contends in a suit filed in state District Court in Dallas that Physician Reliance's oncologists are opening outpatient cancer centers and funneling all their patients through the facilities. Because cancer treatment is a significant source of revenues for hospitals and much of that treatment is shifting to outpatient settings, the growth of Physician Reliance represents a significant financial risk to Methodist.
However, that risk is accentuated by Physician Reliance's control of oncology services, the 362-bed hospital said. It contends that Physician Reliance's medical group, Texas Oncology P.A., represents most, and in some cases nearly all, the oncologists on staff at Dallas' major hospitals.
"Cancer patients are extremely ill people who are completely dependent on their doctors for advice, including the location for their outpatient cancer treatment," the suit said. By directing paying patients to their own clinics, the physicians are leaving tax-exempt hospitals like Methodist with the indigent patients, the suit said.
Methodist also contends that Physician Reliance is signing exclusive contracts with managed-care payers, and that the physician group interfered with Methodist's ability to recruit a cancer director.
In its reply to the suit, Physician Reliance denies the allegations. It also contends that if it is found to have "market power" it was either "innocently attained and/or maintained through innovation." It also suggests that such market power may have been "thrust upon (the) defendant."
Physician Reliance has requested that the case be moved to federal court, the company said in its stock prospectus.
The prospectus also reports that another Dallas hospital is selling a $12 million stake in the company. Baylor University Medical Center, a Methodist competitor, has owned a 7% portion. After the sale of those shares, Baylor's stake will be reduced to 5%, worth about $48 million.
Physician Reliance's largest cancer center, a 105,000-square-foot facility, is leased from Baylor and located on its campus.