An antitrust lawsuit in Florida is providing a rare glimpse into how intense competition between hospitals can escalate into legal action.
The hospitals at war in this case are Wuesthoff Health Systems of Rockledge and Health First of Melbourne, both in Brevard County, Fla.
Wuesthoff sued Health First in federal court Feb. 23, alleging violations of federal and state antitrust laws (March 2, p. 26).
The lawsuit alleges that Health First told physicians they would lose staff privileges at its three hospitals if they referred less than 51% of their patients to its facilities. Wuesthoff also charges that Health First threatened to boycott insurers and HMOs if they did business with Wuesthoff.
Health First, which owns three hospitals and an HMO in the county, controls about 60% of the private staffed beds in Brevard County, according to the latest information from the American Hospital Association. Wuesthoff, with one hospital, controls about 21%.
What makes the Wuesthoff case and others like it rare is that hospitals usually report potentially illegal activities to a state or federal agency, several healthcare attorneys said. Wuesthoff didn't report the case to government officials first, attorneys said.
"The first thing I would do is go to the attorney general and have them do my dirty work for me," said Jeff Miles, an antitrust attorney with Ober Kaler Grimes & Shriver in Washington. "(Hospital vs. hospital) cases arise when the one hospital has already gone to the agencies and didn't get any action."
However, there are advantages to going directly to the courts.
"When you report someone to an agency, you submit documents, but you don't know what kind of responsiveness you'll get," said Scott Becker, an attorney with Ross & Hardies in Chicago. "It's not as immediate as bringing someone to court."
"We felt we sustained personal injury in this," said Tucker Byrd, an attorney representing Wuesthoff. "The government could step in and take care of the problem, but we're not going to use them to fight our fight. We are being damaged daily."
Another advantage to going to court is the hospitals can win damages and participate in designing the terms of a settlement.
Wuesthoff, for example, is seeking $120 million in damages. But if the system was financially hurt by 3-year-old Health First, it would seem the damage must have been done after 1996, the latest year for which financial figures are available.
That year Wuesthoff enjoyed net income of $21.7 million on net patient revenues of $109.7 million, for a profit margin of 18.7%, according to HCIA, a Baltimore-based healthcare information company.
By comparison, the profit margins for Health First hospitals were not as fat. At 528-bed Holmes Regional Medical Center in Melbourne, Fla., 1996 net income was $19.4 million on net patient revenues of $185.4 million, for a profit margin of 9.7%, according to HCIA.
At 128-bed Cape Canaveral Hospital in Cocoa Beach, 1996 net income was $835,000 on net patient revenues of $52.1 million, for a profit margin of 1.5%.
Health First also owns Palm Bay (Fla.) Hospital, which has merged with Holmes Regional but maintains a separate campus.
John Cusack, an antitrust attorney with Gardner Carton & Douglas in Chicago who represents Health First, said Wuesthoff's charges are "unmeritorious. What it is, is that competition (among not-for-profits) is becoming more fierce," Cusack said.
The systems feuded in the past, when both put in bids last year for 210-bed Parrish Medical Center in Titusville, also in Brevard County. Parrish decided not to lease the facility after first agreeing to a proposal by Health First.
The systems also are locked in a heated debate over Wuesthoff's certificate-of-need application to build a $50 million, 50-bed acute-care hospital and outpatient surgery center in Melbourne. In exchange for the CON, the system agreed to cut 100 beds at its flagship facility in Rockledge.
The Florida Agency for Health Care Administration granted the CON in July 1997, but Health First appealed the decision.
In its antitrust suit, Wuesthoff has an uphill battle in court, some attorneys said.
"It's a difficult case, unless it's a big system doing really egregious things," Becker said. Even if Health First had 80% of the market, the case should have been brought by employers and health plan enrollees concerned about antitrust issues, he said.
But if history is any guide, Wuesthoff might be able to wrest some kind of settlement from Health First.
In February 1987, Lancaster (Calif.) Community Hospital, a for-profit owned by Paracelsus Healthcare Corp., sued Antelope Valley Hospital, a community hospital also in Lancaster, for alleged antitrust violations.
In its lawsuit, Lancaster Community accused Antelope Valley of illegally exercising its market power in perinatal services to increase its share of other inpatient services in the region. It did this by refusing to contract with managed-care plans for perinatal services unless they contracted for other services, Lancaster Community asserted. The hospitals eventually reached an out-of-court settlement in 1992, with Antelope Valley paying $250,000 to Lancaster Community but admitting no wrongdoing.
In a more recent hospital vs. hospital case, Orlando (Fla.) Regional Healthcare System in 1996 won a court victory over Nashville-based Columbia/HCA Healthcare Corp. involving breach of contract and antitrust charges. The suit followed the two sides' failure to reach an agreement on the sale of South Seminole Hospital in Longwood, Fla. (Feb. 27, 1995, p. 6).
The system alleged that Columbia's ownership of South Seminole would give the company too much market clout in the greater Orlando area, thus violating antitrust laws.
In May 1996 a federal judge sided with Orlando Regional and ordered Columbia to sell its stake in South Seminole to the not-for-profit system. Columbia finally sold its half of the hospital in September 1997 for $14.5 million (Oct. 27, 1997, p. 46).