Eight years ago, the only two acute-care hospitals in Poughkeepsie, N.Y., ushered in a new model of hospital collaboration with their "virtual merger." Last week, a federal judge signed an order dissolving the hospitals' joint operating company as punishment for using the company to engage in anti-competitive behavior.
U.S. District Judge William Conner in White Plains, N.Y., signed the 17-page consent decree, bringing to an end the state of New York's antitrust lawsuit against the company, Mid-Hudson Health, and its hospital owners, 257-bed Vassar Brothers Hospital and 317-bed Saint Francis Hospital.
In a written statement, Ron Mullahey, chief executive officer of Vassar Brothers, said, "The hospitals were disappointed with the decision because we felt we had done nothing illegal and, on the contrary, had been encouraged to collaborate for community benefit."
Mark Horoschak, a former healthcare antitrust enforcer with the Federal Trade Commission, said the Poughkeepsie case will embolden other state and federal antitrust agencies to examine hospital joint operating agreements and expand enforcement efforts.
"They (JOAs) must be carefully crafted to affect actual economic integration between the hospitals extending to most, if not all, their operations," said Horoschak, now an attorney with Womble, Carlyle, Sandridge & Rice in Charlotte, N.C.
In the mid-1990s, the joint operating model became a popular form of hospital collaboration as competing facilities looked to bolster their market shares without merging their historic assets or ownership. The Poughkeepsie hospitals were two of the first to implement the strategy and at the time were hailed as industry leaders.
The state attorney general's 1998 suit against the hospitals alleged that, although New York initially gave the hospitals certificate-of-need approval to form the JOA to operate limited clinical services, Mid-Hudson became nothing more than a sham company to allow the competing hospitals to illegally fix prices and allocate services among themselves.
In April, Conner agreed and said the hospitals' actions violated federal antitrust law (April 17, p. 3).
Last week's order signed by Conner implements an agreement hammered out between the hospitals and the attorney general's office.
Under the order, the hospitals must dissolve Mid-Hudson within 60 days and reimburse the state nearly $600,000 in legal costs and fees.
The hospitals also are barred from jointly setting prices, allocating services and entering any business agreements with each other, except for medical education, limited joint purchasing and a shared information technology system (See box).
Late last month, MODERN HEALTHCARE disclosed that Mid-Hudson would have to be dissolved (June 26, p. 2).
The hospitals will not pay any antitrust damages under the agreement.
Vassar Brothers spokeswoman Jeanine Agnolet said it's too early to predict the costs of unwinding the JOA or the long-term financial impact on the two hospitals.
The original agreement allowed the hospitals to jointly operate lithotripsy, cardiac catheterization and magnetic resonance imaging services. The ownership of those services will revert to the hospital that operates it now.
"It's unfortunate that the community will not reap the benefits of that relationship any longer," Agnolet said.