Under an unusual legal settlement, Benefis Health Care not only will maintain its acute-care monopoly in Great Falls, Mont., but will co-own one new competitor for surgical services.
The Montana attorney general's office approved an out-of-court settlement between Benefis and two other healthcare companies last month. The settlement was not subject to public comment. But approval by the state was required under terms of an antitrust settlement dating to Benefis' 1996 creation out of the only two hospitals in town.
Lloyd Smith, Benefis' chief executive officer, said the latest settlement increases services and choices for Great Falls' residents.
But Benefis' actions send a clear message that anyone wanting to enter the Great Falls market is in for a fight.
The settlement is the latest example of recently merged hospitals exercising their market clout to raise prices or keep competition at bay.
Last month, for example, a decision by two recently merged hospital systems in North Carolina to raise prices prompted a lawsuit against them by the state's largest insurer (Dec. 22-29, 1997, p. 8).
In approving the agreement, Montana Attorney General Joseph Mazurek said in a letter to Benefis that the settlement would allow competitors to start operations in Great Falls more quickly than if litigation proceeded.
The Great Falls dispute centered on plans to build two new inpatient surgical hospitals.
Benefis, created through the merger of Montana Deaconess Medical Center and Columbus Hospital, has an acute-care monopoly in Great Falls.
The Federal Trade Commission conducted a lengthy investigation of the merger, but it dropped its probe after they entered an antitrust settlement with the state of Montana. Under the settlement, the hospitals agreed to a number of restrictions on their business activities in exchange for the go-ahead to merge.
The restrictions are designed to prevent Benefis from using its monopoly to engage in anti-competitive behavior. For example, the two hospitals agreed to a limit on their profits and to pass back at least $86 million in cost savings to consumers over the first 10 years of the consolidation.
But about nine months after Benefis was created, two companies filed for state certificate-of-need approval to build competing outpatient surgery centers in Great Falls.
The state approved both plans in July, and Benefis appealed the approvals to the state health department.
While Benefis' appeal was pending, the two companies revised their plans and proposed building two inpatient surgical hospitals in town. New hospital construction has been exempt from CON requirements since 1989, and the state health department granted the licenses for the revised building projects.
One, funded by private investors, is the Central Montana Surgery Center. It would have four operating rooms and eight inpatient beds at an estimated construction cost of at least $2.5 million. The other, funded by the 90-physician Great Falls Clinic, would have three operating rooms, two procedure rooms and an undetermined number of beds at an estimated construction cost of $3.1 million.
Last September Benefis sued the two companies as well as the Montana health department in state court, alleging that the companies needed CON approval for their revised building plans and that they deliberately violated state laws by altering their plans in an attempt to sidestep CON approval. The case had not yet been scheduled for trial.
Previously, the scheduled Nov. 3 hearing on Benefis' appeal of the companies' original CON approvals was postponed until Dec. 15. The hearing was canceled in the wake of the settlement.
Under the settlement, both companies agreed to scrap their plans to build inpatient surgical hospitals and instead go back to their original plans to build outpatient surgery centers with no 24-hour patient stays.
Also, Benefis will become part owner of one of the new outpatient surgery centers. Under the settlement, Benefis will own a 49% interest in the center being built by Great Falls Clinic. Benefis, in turn, agreed to close its three-bed outpatient surgery center.
And the money that Benefis saves by closing its outpatient surgery center will count toward its $86 million in cost savings owed to the community under the previous antitrust settlement. The state has yet to calculate how much savings Benefis will be credited with by closing services.
"This compromise allows all three parties to focus their efforts and resources on the provision of medical care to our community as opposed to lengthy and expensive litigation," Benefis said in a statement.
Daniel Boatman, a former executive at one of the Benefis hospitals and administrator of the proposed Central Montana Surgery Center, characterized the settlement as a cave-in by Benefis. He said Benefis was suffering adverse publicity and perhaps wanted to cut its losses.
Boatman said his center is scheduled to open in October 1998, about six months later than scheduled. Great Falls Clinic's center was originally scheduled to open in mid-1998, but the litigation pushed back start of construction at least until November 1998. Officials there did not return phone calls seeking comment.