Benefis Health Care is stretching its monopoly muscle in Great Falls, Mont., to try to keep competitors, including one of its former executives, from opening up surgical hospitals on its hard-fought exclusive turf.
Last week Benefis, created in July 1996 by the merger of Montana Deaconess Medical Center and Columbus Hospital, filed suit against the Montana health department and two companies that want to open competing surgical hospitals in Great Falls.
The suit, filed in Montana First Judicial District Court, charges that the companies must obtain state certificate-of-need approval for their revised building plans and that they deliberately altered their plans to sidestep state CON requirements.
Benefis also is challenging through a state administrative appeals process the CONs the companies previously obtained for their original building plans. A public hearing on those CONs is set for November.
"This is a frivolous, last-ditch effort to stop construction," said Daniel Boatman, who will become administrator of one of the two surgical hospitals. "Benefis is afraid of competition, afraid of providing choice to the community, and I find it incredulous they would go to these lengths to stop a small project like this."
Boatman was executive vice president and chief operating officer of Columbus Hospital before it merged with Montana Deaconess. He also briefly served as interim president and chief executive officer of Columbus but left after not being offered a job with Benefis.
Montana Deaconess and Columbus were direct competitors for years as the only acute-care facilities in Great Falls. They proposed merging in 1994, and after a prolonged battle with state and federal antitrust regulators, consummated their merger last year (June 24, 1996, p. 34). They were the first hospitals in the country to merge under a state healthcare antitrust exemption law.
In exchange for antitrust clearance, the hospitals made an agreement with the state that guards against anti-competitive behavior. They also agreed to a limit on profits and to pass back at least $86 million in cost savings to consumers.
But the agreement doesn't bar Benefis from pursuing appropriate regulatory channels to stop competitors from obtaining CONs. And the state agrees.
Citing Benefis' First Amendment right "to petition for redress of grievances," Montana Attorney General Joseph P. Mazurek earlier this month denied Great Falls Clinic's request to order Benefis to drop its CON opposition.
"This response should not be construed as an endorsement or approval of Benefis' actions in the CON proceedings," Mazurek wrote. "Under Montana law and the legal doctrines discussed . . . Benefis has the right to oppose CON applications."
Benefis spokeswoman Laura Goldhahn-Konen said, "We don't believe they have successfully met the need for the CON, particularly regarding the requirement that their projects don't have a negative impact on other providers."
Mazurek's office is reviewing Benefis' lawsuit to see if a CON is necessary, said Beth Baker, chief deputy attorney general.
The targets of Benefis' actions are Great Falls Clinic and Central Montana Surgery Center.
Initially, both wanted to build outpatient surgery centers in Great Falls. They both obtained CONs for their plans, but Benefits challenged them.
They subsequently altered their plans and want to build specialty surgical hospitals (See chart). New hospital construction has been exempt from CON approval since 1989.
The state health department subsequently approved the revised plans.
Construction of Great Falls Clinic's planned $3 million, three-suite surgical center has been held up by its management at least until the outcome of the November CON hearing.
"The clinic had begun the process (to build a hospital) in order to preserve it as a construction option," said Greg Hagfors, administrator of Great Falls Clinic, a 90-physician medical group that also operates an HMO. "It's our preference to have an ambulatory surgical center, but we wanted to keep all our options open."
But Benefis contends that regardless of whether the new sites are outpatient or inpatient surgery facilities, they will cut deeply into the system's 95% market share of outpatient surgeries. Those procedures generate more than $4 million in annual revenues for Benefis, the system said.
Goldhahn-Konen said competition from two new sites could shrink its market share to as little as 10%. That would greatly reduce revenues that the system uses to fund other projects that benefit the community, she said.
Hagfors and Boatman contend Benefis' stance is anti-competitive.
"In our American economic system, they might lose some of their business. And if they can't match price and quality, maybe they should lose the business," said Boatman, who heads the Central Montana Surgery Center project.
"We feel we can offer a more cost-effective alternative," Hagfors said.
The state's antitrust agreement with Benefis restricts the system from entering joint ventures where some of its existing services would be transferred to organizations not regulated by the agreement.
According to Hagfors, that restriction quickly scotched a joint venture Great Falls had proposed with Benefis earlier this year to build an outpatient surgical center.