The $3 billion business of servicing high-technology medical equipment is facing a shakeup after the Justice Department accused a major player of antitrust violations.
General Electric Co. wrongly blocked hospitals from competing with it for profitable service contracts, according to a civil suit filed by the Justice Department late last week in U.S. District Court in Billings, Mont.
Its GE Medical Systems subsidiary, based in Waukesha, Wis., is the largest maker of imaging equipment, such as computed tomography scanners. It also services its own and other manufacturers' equipment under contract.
Service, as opposed to products, is a growing chunk of equipment makers' sales and hospitals' expenditures. Many hospitals maintain their own equipment to save money. They also could serve neighboring hospitals' equipment, but few do so.
The license requirements for certain GE software kept hospitals from becoming competitors, the government said.
Diagnostic software is used to maintain most imaging equipment. All buyers of GE equipment are entitled to a basic software package. The company made a faster, more advanced package available only to hospitals that promised not to compete with it.
License agreements barred hospitals from servicing any kind of medical equipment at other hospitals, even if they didn't use GE software in those repairs. More than 500 hospitals license the advanced package.
GE narrowed its agreement in April, after being notified a suit was possible. Its new licenses still are unreasonable, the government said. Under them, a hospital licensing software for a new GE X-ray machine agrees not to service older GE X-ray equipment, which requires different software.
In its defense, GE said hospitals could terminate the agreements at any time and return the software if they wished to become competitors. A spokesman called the suit minor and meritless. GE contends its licenses foster competition by helping hospitals maintain their own equipment.
The suit identified St. Patrick Hospital, Missoula, Mont., and Deaconess Medical Center, Billings, as potential competitors to GE.
St. Patrick said it never complained about the licenses but responded to a government subpoena for documents in 1995. It has declined to maintain other hospitals' equipment, "knowing we didn't have the right to use the software," said Gene O'Hara, executive vice president and chief operating officer. The hospital, however, might have decided against entering the business anyway, O'Hara said.
Deaconess hadn't returned telephone calls at deadline.
Manufacturers' control of parts and software often draws complaints from competing service companies, said Ronald Katz, general counsel for the Independent Service Network International, an Atlanta-based trade group. Service is a "very lucrative monopoly," Katz said.
He predicted the lawsuit would trigger other complaints against GE.
The government's last antitrust suit against GE-a 1994 price-fixing case involving industrial diamonds-was thrown out of court for lack of evidence.