A commercial health insurer in Wichita, Kan., has filed a federal antitrust lawsuit against the largest health system in town and the system's own HMO and PPO, alleging that the system is trying to drive it out of business.
The lawsuit is the latest permutation of the fallout that can occur when hospitals do business with or as health insurers. In other cases hospitals have sued one another over alleged mismanagement of their own plans. At least one hospital association has seen its money-losing malpractice insurer seized by the state, and some hospitals have taken to using lawyers as routine members of their contracting teams (Aug. 27, p. 4).
In the Kansas case, Coventry Health Care of Kansas, a regional health plan owned by Bethesda, Md.-based Coventry Health Care, filed an antitrust lawsuit against Via Christi Health System and the system's HMO, Preferred Plus of Kansas, and its PPO, Preferred Health Systems. The suit, filed in U.S. District Court in Wichita, alleges that Via Christi has used its market clout in the acute-care business to steer patients to its own managed-care plans through favorable pricing deals in violation of federal antitrust law. Coventry says Via Christi used that scheme to wrest away the contract of Coventry's largest customer, Raytheon Aircraft Co., Wichita, with 25,000 members.
In addition, Coventry alleges that not-for-profit Via Christi has violated the terms of its tax-exempt status by extending the exemption to its for-profit managed-care products. Federal tax laws prohibit tax-exempt organizations from conferring private benefits on for-profit individuals or companies.
A Via Christi attorney denied the allegations.
Robert Heath, Via Christi's senior vice president and general counsel, said the conduct of the health system and its insurers relating to the Raytheon bid was "not anticompetitive by motive, intent or design. We believe the allegations are unfounded and will not withstand legal and judicial scrutiny."
He said the success of Via Christi and its managed-care programs is the result of a superior product and better business practices, as well as legitimate competitive action taken in response to market opportunities. Via Christi is a not-for-profit system based in Wichita, and it operates five hospitals in California, Kansas and Oklahoma. Its Kansas hospitals are 114-bed Mercy Health Center of Manhattan; 126-bed Mount Carmel Medical Center, Pittsburg; and 942-bed Via Christi Regional Medical Center, a two-campus hospital in Wichita.
For-profit Coventry knows the provider-owned managed-care world intimately, having built itself into a national company by acquiring a number of such plans that have been struggling. Most recently, Coventry agreed to acquire QualChoice of Virginia Health Plan from University of Virginia Medical Center in Charlottesville for $12.5 million in a deal slated to close next month (Aug. 6, p. 14). Coventry now has 1.8 million members in 13 markets. But in Via Christi, Coventry has encountered a tough adversary rather than a weak plan looking for a bailout.
Nationally, in the second quarter that ended July 30, Coventry earned $20.4 million on revenue of $786.7 million. But its Kansas operations, with offices in Kansas City and Wichita that include an HMO, a PPO and a point-of-service plan with a combined 34,000 enrollees, lost $1.8 million on total premium revenue of $213.7 million.
In its 38-page lawsuit, Coventry alleges that Via Christi and its two managed-care plans practiced predatory pricing and unfairly competed to steal the Raytheon contract. Raytheon Aircraft is a Wichita subsidiary of Falls Church, Va.-based Raytheon Co., a defense contractor with $17 billion in 2000 revenue.
Coventry's Wichita plan controls about 29% of the health insurance market in the city, according to the Kansas Insurance Department. With their combined 65,000 enrollees, Via Christi's health plans control about 52% of the local market, according to the suit.
Via Christi, through the October 1995 merger that joined two former Wichita competitors, St. Joseph's Hospital and St. Francis Regional Medical Center, has a combined 857 beds, and it controls 63% of the inpatient business in the city and 59% of all hospital discharges.
The suit charges that Via Christi illegally used its domination and market power in inpatient hospital care to control the managed-care market in Wichita and freeze Coventry and other insurers out by illegally lowering prices for services to win contracts and then funneling patients to its own hospitals and physicians.
In 1997, Coventry won the Raytheon account, which includes more than two-thirds of its Wichita members. In January, Raytheon requested that Coventry and other insurers bid for a new three-year contract. Coventry said its bid reflected large increases in hospital prices and healthcare costs. Its first bid was based on an anticipated 3% profit and its second on no profit. Even without a profit, Coventry said in the suit, its bid was $31 million higher than the bid from Via Christi's Preferred Health Systems, which won the account and begins serving Raytheon employees Jan. 1. "Via Christi has acted with a specific intent to monopolize the Wichita inpatient hospitalization market . . . and to eliminate Coventry as a viable competitor in the Wichita market," the suit alleges.
Via Christi's HMO earned $347,000 on premium revenue of $146.6 million last year, and its PPO lost $278,000 on premium revenue of $32 million.
"We hope the uncertainty caused by Coventry's filing of this suit will be resolved quickly so that Raytheon employees will not be subjected to further uncertainty," Heath said.
The case is set to go to trial Dec. 3. Coventry seeks unspecified damages plus attorney fees, an order prohibiting the defendants' alleged anticompetitive conduct and an order preventing PHS from servicing its Raytheon contract until the contract can be rebid fairly.