St. Luke's Hospital, one of San Francisco's two remaining freestanding hospitals, has sued rival California Pacific Medical Center for allegedly skimming St. Luke's best patients and putting its survival in jeopardy.
The antitrust and restraint of trade lawsuit, filed Jan. 14 in San Francisco Superior Court, charges that 1,254-bed California Pacific, through an exclusive contracting arrangement with Brown and Toland Medical Group, lured away many of 254-bed St. Luke's private-pay patients.
The lawsuit is the latest example of a growing trend: hospitals openly turning on one another.
Historically, hospitals have kept hardball business tactics hidden from public view, preferring to work behind the scenes to thwart competitors. But with an economic crunch facing many facilities, it's becoming a no-holds-barred marketplace.
* Last March, a for-profit hospital in Phoenix paid a $30,000 fine to settle "patient dumping" charges after a competing not-for-profit snitched to the feds (Oct. 5, 1998, p. 42).
* In October, a not-for-profit hospital system in Detroit sued a suburban competitor, alleging the hospital illegally lured away some of the system's physicians by offering them excessive compensation packages (Oct. 26, 1998, p. 20).
In the latest case, the 1997 defection of 20 key doctors who left St. Luke's to join Brown and Toland has translated into 250 to 400 fewer hospital admissions a year and a $1.5 million decline in annual patient revenues, according to officials at St. Luke's. Those doctors now can only admit patients to California Pacific and UCSF Stanford Health Care, according to the lawsuit.
The $1.5 million represents less than 2% of total patient revenues, but hospital officials considered it significant.
"This is the kind of thing that can tip the balance," said Philip Pillsbury, a San Francisco attorney who serves as vice chairman of St. Luke's board of directors.
Both hospitals are not-for-profit, but California Pacific is part of the 26-hospital, $2.8 billion Sutter Health system. Sacramento, Calif.-based Sutter is also named as a defendant in the lawsuit.
St. Luke's is fighting what many believe is a losing battle for survival in a San Francisco marketplace that is increasingly dominated by large integrated systems, including Catholic Healthcare West, Kaiser Permanente, Sutter and UCSF Stanford Health Care.
San Francisco-based Brown and Toland, which represents about 2,000 physicians who practice primarily at California Pacific and UCSF Stanford, allegedly requires its members to admit all their commercial HMO patients to those hospitals.
Cecilia Montalvo, Brown & Toland's vice president of strategic development, said the group has no comment on the lawsuit.
Executives at California Pacific insist that their business agreements with physicians adhere to all legal and ethical guidelines.
"These types of arrangements between hospitals and medical groups are standard in the marketplace," said spokeswoman Sara Kelley.
She declined comment on the specifics of the lawsuit.
Roughly 40% of St. Luke's patients are covered by Medi-Cal (California's Medicaid program), another 40% by Medicare and less than 16% by private insurers.
Making matters worse from St. Luke's perspective is that California Pacific acquired the former 205-bed Davies Medical Center last summer, further tightening its hold on the San Francisco private-pay market.
St. Luke's has struggled financially for years, although it had a surprisingly healthy 1998 because of an unusually large $10 million Medi-Cal disproportionate-share payment from the state. That one-time payment led to a nearly $3.8 million operating surplus for the year on revenues of nearly $80 million.
In 1997, in contrast, St. Luke's posted net income of $586,000 on net revenues of $76.7 million.
Eve Harris, a spokeswoman for St. Luke's, described the 1998 disproportionate-share payment as back pay for several years, and the lawsuit asserts that the hospital is operating on an extremely thin margin.
Officials at California Pacific appear to be confident they will prevail.
Said spokeswoman Kelley, "St. Luke's is attempting to resolve this matter through the media. Our approach is to rely on the impartiality of the legal system."
In 1997 California Pacific posted net income of $31 million on net operating revenues of about $290 million.