The only two hospitals in Poughkeepsie, N.Y., will be forced to dissolve their 8-year-old joint operating company as punishment for using the company to fix prices charged to payers, MODERN HEALTHCARE has learned.
New York Attorney General Eliot Spitzer is expected to make the announcement this week, sources said.
The high price that the hospitals will pay for using their joint operating company to engage in anti-competitive behavior will serve as a warning to other hospitals that have used the popular joint operating model to consolidate their institutions, legal observers said.
In addition, the two hospitals--257-bed Vassar Brothers Hospital and 317-bed St. Francis Medical Center--will be required to abandon a number of joint services that they operate through their joint company, called Mid-Hudson Health, according to the sources, who requested anonymity.
Jeff Leon, the hospitals' antitrust attorney, and Robert Hubbard, director of the antitrust bureau of the New York attorney general's office, said the parties were negotiating and a settlement was imminent, but they refused to discuss details.
Spokesmen from the hospitals did not return phone calls seeking comment.
"The parties are working diligently to negotiate a settlement to avoid litigation," said a spokeswoman for the U.S. District Court in White Plains, N.Y.
In April, U.S. District Judge William Conner said the hospitals violated federal antitrust laws by using Mid-Hudson to fix prices and allocate services in their market. In a blistering 41-page opinion, Conner said the hospitals' behavior was so egregious that it constituted an automatic violation of federal law (April 17, p. 3).
The state of New York sued the hospitals in 1998, marking the first time that a hospital joint operating agreement was challenged on antitrust grounds in federal court.
The state said the hospitals strayed well beyond the initial intention of the agreement, which was to allow them to jointly operate lithotripsy, cardiac catheterization and magnetic resonance imaging services. The state had approved the hospitals' certificate-of-need application to combine those services.
The hospitals denied they used Mid-Hudson to fix prices and said their agreement was protected by the state action immunity doctrine, which holds that activities approved and monitored by the state are exempt from federal antitrust law. The hospitals also said that because they are a merged organization, they are thus incapable of conspiring.
After the April verdict an attorney general's spokesman said the state would seek to turn back the clock on the operating agreement. Spokesman Marc Violette said at that time remedies could include:
* Dissolving Mid-Hudson.
* Halting any arrangements beyond the initial agreement.
* Forbidding the hospitals from negotiating managed-care contracts jointly and setting prices.
* Assessing potentially millions of dollars in penalties and fines.
A scheduled June 5 hearing before Conner on what remedies the state would seek was postponed indefinitely because of the settlement talks.
Conner would have to approve any agreement between the hospitals and the attorney general's office.
Thomas Campbell, a healthcare antitrust attorney with the Chicago office of Gardner, Carton & Douglas, said Conner's ruling and the proposed settlement demonstrate the vulnerability of hospital joint operating agreements.
"A lot of (agreements) are held together with baling wire and don't meet the requirements of a real merger," Campbell said.