A small Oregon hospital has become the latest healthcare provider to sue a larger rival in federal court alleging anticompetitive behavior.
McKenzie-Willamette Hospital, a 106-bed independent community facility in Springfield, Ore., filed a 13-page antitrust suit against Bellevue, Wash.-based PeaceHealth, a system with six hospitals in Alaska, Oregon and Washington. McKenzie-Willamette alleged that PeaceHealth, which supplies 73% of acute-care hospital services in Lane County, Ore., to McKenzie-Willamette's 23% market share, prices its primary and secondary healthcare services below cost, but prices its tertiary-care services, for which it has no competition, "substantially in excess of cost."
The effect of the alleged "pricing scheme" is that PeaceHealth has exploited its market power in tertiary services to depress the price of services in which it competes with McKenzie-Willamette, the complaint alleged.
According to the suit, filed late last month in U.S. District Court in Eugene, Ore., PeaceHealth effectively shut out McKenzie-Willamette from providing care to more than one-third of the county's insured residents in an exclusive contract with Regence Blue Cross and Blue Shield of Oregon.
McKenzie-Willamette has alleged predatory pricing, an illegal tying relationship, restraint of trade, attempted monopolization and conspiracy to monopolize in violation of federal law. McKenzie is seeking triple an estimated $15 million in damages it allegedly suffered from 2000 to 2002 plus $20 million in punitive damages.
Brian Terrett, PeaceHealth's Oregon region spokesman, said the system is "both saddened and disappointed" by the filing of the lawsuit. Terrett said PeaceHealth is "very confident in the end we will prevail. We feel both the facts and the law will support our position. This will divert millions of dollars away from the community that would be better spent on improving community health."
Terrett said it is "absolutely not true" that PeaceHealth uses predatory pricing or has exploited its market power to exclude McKenzie-Willamette from the Regence contract, which has been in effect since 1986. He said the discount prices for that contract are based on estimated patient volume. "Did it mean we'd increase prices or offer less of a discount? Yes," he conceded. "Was it predatory? Absolutely not."
He said Regence was unable to sell a new plan to its customers; there was no coercion from PeaceHealth.
Expansion plans worrisome
McKenzie-Willamette is also concerned that PeaceHealth is moving its flagship hospital, 432-bed Sacred Heart Medical Center, across Interstate 5 from Eugene to Springfield. It plans to build a $350 million, 550-bed hospital one mile closer to McKenzie-Willamette. The River Bend Project is slated for a 2006 completion. Terrett said the motivation was not market dominance but a lack of expansion room in Eugene.
McKenzie-Willamette spokeswoman Rosemary Pryor said her hospital has attempted to work with Regence and PeaceHealth to resolve the exclusive contracting issue amicably.
"We have spent the better part of the last 12 months trying to persuade PeaceHealth that its contracting practices are unlawful because it has market dominance," Pryor said.
She said the hospital's commercial insurance revenue was on an upward swing until 2000, when it began a precipitous decline.
Pryor said McKenzie-Willamette, which earned a 2000 profit of $4.2 million, saw that figure drop to $1.7 million in 2001. At the same time, she said, PeaceHealth's profits grew to $28 million from $21 million.
"While our numbers were going down, theirs were going up in the very same market, and our only payer mix decline was in commercial insurance," she said. "This is among the evidence convincing us that this is a predatory pricing strategy to disable McKenzie-Willamette. It's either a well-thought-out strategy or a windfall."
She said that two managed-care plans, Province Preferred and Regence, had excluded McKenzie-Willamette from their provider panels before.
What has changed, she said, is that both plans are bigger players in the market and more employers are contracting with them. After making its case, McKenzie-Willamette convinced Province Preferred to include it as a preferred provider. But Regence allegedly told the hospital that its panels were set for the coming year and said that if they included McKenzie-Willamette as a provider, PeaceHealth would have to raise its prices.
Pryor said McKenzie-Willamette's board voted Aug. 31, 2001, to authorize the antitrust suit, and one week later PeaceHealth announced it would move Sacred Heart to Springfield, which has a population of 52,000, almost one-third of Eugene's 138,000.
Pryor said McKenzie-Willamette had no option but to "take 'em to court."
"They misused their market dominance," Pryor said. "It has to stop, and they need to pay us restitution."
The McKenzie-Willamette/PeaceHealth suit is the most recent among a handful of hospital vs. hospital antitrust suits. In 1996, Vicksburg (Miss.) Medical Center, then owned by Nashville-based HCA, sued the larger Parkview Regional Medical Center, at the time owned by Quorum Health Group. It claimed Parkview was trying to monopolize physician services in the community of 21,000. A judge threw out the claim in 1997, and the two hospitals later merged.
In 2000, Rockledge, Fla.-based Wuesthoff Health System dropped its 1999 federal antitrust suit against Melbourne, Fla.-based Health First. Wuesthoff had charged Health First with unfair managed-care contracting practices and anticompetitive behavior.ˆ