With portions of the healthcare industry in a financial squeeze, a growing number of hospitals have turned on each other over the issue of control, according to governance experts.
In some cases outside authorities are battling their own hospitals in court.
In a recent case, the Kentucky Conference of the United Methodist Church is fighting for control of 188-bed Pikeville United Methodist Hospital of Kentucky in the rural eastern part of the state. The hospital's board of directors filed suit against the conference in March, alleging it was interfering in the facility's operations.
The conference countersued, claiming the hospital is held in trust for its organization and that the hospital's chairman and other directors are engaged in conflicts of interest and should be removed.
A county judge is expected to rule on the validity of the suits in July. A trial date has yet to be set.
A case in Jackson, Miss., raises the question of whether a hospital controls its own satellite facility. Mississippi Baptist Medical Center and St. Dominic-Jackson Memorial Hospital have been fighting over the certificate of need awarded to Jackson-based Central Mississippi Medical Center, to build a campus in the northern part of town. Central Mississippi, formerly Methodist Hospital, was recently acquired by for-profit Health Management Associates of Naples, Fla. The hospital opened the north side campus in October 1996.
Mississippi Baptist and St. Dominic recently won an appellate battle, prompting a chancery court judge to order Central Mississippi to close its northern campus by the end of the year.
In May, however, Mississippi Gov. Kirk Fordice amended the state's health planning law to allow Central Mississippi to reapply for a new CON in July. Officials say Fordice's strong support for the north campus means the state will almost certainly grant a new CON.
Fordice spokesman Robbie Wilbur said closing the hospital "would be a waste of capital investment and cost 200 jobs."
However, the Mississippi attorney general last week declared that Fordice erred in amending the state health planning law and that the state health department should not abdicate authority to him. Fordice can proceed with his amendment, but the state health department must submit the plan to him again for approval.
In another case, the city of Conway, Ark., and 116-bed Conway Regional Medical Center have engaged in two years of litigation over the City Council's claim that it can review appointments to the hospital board and audit the facility's financials because the city owns the hospital. However, the city has leased Conway Regional to a separate not-for-profit organization for decades. That corporation, Conway Regional Medical Center Corp., claims it owns all the hospital's nonphysical assets and isn't under the city's control.
In May, the city and the hospital's board renegotiated a 99-year lease that allows the hospital to choose its trustees as long as two-thirds of them reside within city limits. It also allows the formation of a public facilities board to handle future bond issues for the hospital.
Such battles aren't surprising, said James Orlikoff, chief executive officer of Chicago-based governance consulting firm Orlikoff and Associates.
"Anytime you have entities presumed to share authority, you will have problems," he said. "Particularly with things getting tight and with hospitals doing things outside their venues, it begins to attract the attention of the superseding authority."
Orlikoff added that such turf wars are occurring throughout the country but declined to identify the hospitals.
Ed Kazemek, chief executive officer at Chicago-based governance consulting firm Accord, agreed that finances are fueling conflicts between hospital management and outside boards.
"(Operators) continue to be squeezed for economic viability, fights break out, and the courts are used to redress the issues," he said.
The bottom line seems to be driving the case in Jackson, where St. Dominic complained in court papers that Central Mississippi's new campus will "force it into the red."
St. Dominic and another of its competitors, Mississippi Baptist, argue that the state improperly granted the CON based on serving the minority community and the uninsured, rather than on the community's need for beds.
An attorney for Central Mississippi, Richard Cowart, said, "There is a lot of stress from the Balanced Budget Act (of 1997). We're going to be seeing the first of three lean years, and there are a lot of folks on edge. Some controversies that might have been overlooked before cannot be now, because you risk losing your margin."
Central Mississippi is no stranger to lean times. It posted a loss of $4.6 million on net patient revenues of $116.7 million in 1997, according to the latest figures available from HCIA, a Baltimore-based healthcare information firm.
But hospitals tucked in such remote rural areas as Pikeville and Conway-each with a population of less than 25,000-are even more vulnerable to tugs of war with outside organizations, said Charles Ewell, chairman of the Governance Institute in La Jolla, Calif.
"There are always battles for control and ownership, but in a small town, hospitals are much higher on the radar screen because they tend to be the town's largest employer," he said.
The Southeast may be a fertile battleground because it is one of the few areas where margins remain healthy, Ewell added.
Indeed, Pikeville might exemplify a facility that is becoming too healthy, according to hospital attorney Richard Getty. Pikeville reported 1997 net income of $10.8 million on net patient revenues of $78.1 million, up dramatically from 1996 net income of $5.5 million on net patient revenues of $68 million, according to HCIA.
Getty thinks those profits-combined with a $75 million expansion, which will allow the hospital to perform a wide range of cardiac procedures-may be prodding the Methodist conference to seek a for-profit buyer for Pikeville.
Conference officials and their attorney declined comment.
Court filings showed that friction built slowly between the hospital and the conference. Differences over the conference's choice of nine of the hospital's 23 trustees caused the hospital to impose a moratorium last year on the conference's trustee selections. That was followed by the lawsuit to extricate the conference from the hospital's business affairs.
In the countersuit, conference attorneys charge Pikeville board Chairman Walter May personally benefited from his position, because a radio station he owns aired paid commercials for the hospital and because he is married to the hospital's general counsel, Pamela Robinette-May. They allege that Robinette-May overcharges for her services to the hospital.
Getty countered that May's station had long provided free advertising for the hospital but was forced to accept market-rate payments because of federal laws governing equal access to airwaves. He also noted that May married two years ago, even though Robinette-May had been counsel for the hospital since the early 1980s, and that her hourly fee of about $100 is 75% less than lawyer charges in Louisville or Lexington.
Governance experts discourage hospitals from participating in business interests with their trustees. But such arrangements are allowable if they're fully disclosed and if trustees do not vote on matters related to their business.
Ewell and Orlikoff said a marriage such as the Mays' is ethical if spouses separate their public and private lives.
More cases like those in Pikeville, Jackson and Conway are almost certain to increase, observers said.
"Today's tight environment dictates a growing need for effective leadership, governance and strategy," Orlikoff said. "Organizations that had the luxury to finesse things with their affiliates or anyone else simply can't do that anymore."