Nurses’ wage war

The nation’s anemic supply of nurses is a familiar headache for recruiters or executives who grapple with hospitals’ daily operations and budget.

Now it’s an issue for hospitals’ general counsels as well.

Lawsuits in a handful of states allege that hospital executives conspired to hold down wages amid a national nursing shortage, just when economic theory says demand should be pushing pay upward. Separately, legal action against a California hospital trade group contends the association helped hospitals collude to illegally fix overtime wages despite demand.

At stake are millions of dollars in alleged lost wages if judges in Albany, N.Y.; Chicago; Detroit; Memphis, Tenn.; and San Antonio grant plaintiffs class-action status.

Nurses’ yearly wages fell thousands of dollars short of where they should have been, lawyers contend. In Albany that amounted to $6,200 per nurse, per year; in Chicago it was $5,400; in Detroit, $5,000; and in Memphis, a whopping $14,100 per nurse, according to initial estimates, says Daniel Small, a Washington attorney with Cohen, Milstein, Hausfeld & Toll, who is representing nurses in all five cities. Even in San Antonio, the city with the lowest estimated losses, nurses’ wages were depressed by $1,334 per nurse annually, preliminary figures from the lawyers show.

Lost wages in three cities could total at least $376.9 million, based on the plaintiffs’ estimate of how many nurses worked in Albany, Memphis and San Antonio in 2005 and the percentage who were employed by defendants. In Detroit, rough estimates of the nursing workforce could put losses as high as $200 million. No estimates were available for Chicago.

The lawsuits, filed since June 2006, name 73 hospitals and 16 health systems and allege hospital executives agreed to regularly swap nonpublic figures on pay and anticipated raises for nurses and agreed not to compete on compensation. The lawsuits contend that hospital officials relied on informal and commercial wage surveys and professional meetings to exchange information on nurses’ compensation, anticipated raises and bonuses.

The defendants have rejected the claims. Employers contend they set nurses’ pay and benefits independently using legitimate, competitive compensation strategies, according to court filings. Lawsuits fail to cite direct evidence of a conspiracy for actions that could just as easily be competitive, note attorneys for Baptist Health System based in San Antonio. Nearly every defendant dismisses the lawsuits as an organizing vehicle for the Service Employees International Union, one of the nation’s largest nurses’ unions. The union backed an inquiry into nurses’ wages that prompted the lawsuits.

Small rejects the claims of union organizing as “distractions” from the lawsuits’ collusion allegations. “That’s what these cases are about,” Small says. “That’s why they were brought.”

Cathy Glasson, president of the union’s 85,000-member nursing arm, defends the union’s inquiry into nurses’ wages as necessary to address a critical issue that undermines nurses’ working conditions and exacerbates the U.S. nursing shortage. “It’s reasonable for us to examine those issues very closely,” she says.

Meanwhile, the Hospital Association of Southern California and a half-dozen hospitals and systems face allegations that they conspired to curb overtime pay for nurses and respiratory-care providers.

Employers used the Los Angeles-based trade group’s wage surveys to fix nurses’ pay, the complaint alleges, and the association orchestrated meetings where hospital officials colluded. “In a market characterized by an extreme shortage of nursing and technical-care specialists, defendants’ price-fixing arrangement has and continues to artificially and seriously reduce the income and benefits” of nurses, according to the complaint. James Lott, an association spokesman, declined to comment on a case that’s still pending.

The class-action lawsuits in Albany, Chicago, Detroit, Memphis and San Antonio don’t blaze any new legal ground, though collusion cases brought against buyers are less common than those brought against sellers. “It’s just as illegal for buyers to fix the price they’ll pay as it is for sellers to fix the prices they charge,” says antitrust attorney Jeff Miles with Ober, Kaler, Grimes & Shriver in Washington.

Miles says the lawsuits hinge in part on whether discovery—pretrial evidence-gathering—uncovers proof of a wage-fixing deal among employers directly or by sufficient circumstantial evidence. Proving the latter is more difficult when a few major players dominate a market, Miles wrote in the November issue of the Houston Journal of Health Law and Policy.

Under such conditions, businesses anticipate that competitors will mimic changing prices, wages or other maneuvers, Miles wrote. Businesses lose the incentive to cut prices or hike wages because it may only prompt rivals to do the same, he wrote, and business may act independently and legally, but results resemble collusion. Robert McCann, an antitrust attorney who is a partner at Drinker Biddle & Reath, calls proving that hospitals agreed to act on information “a big step” from showing they exchanged information.

However, market concentration may aid nurses’ second claim that hospitals’ practice of swapping wage information allowed employers to pay below-market compensation, Miles says. Exchanging wage data is illegal if such activity stifles competition among employers in a market.

Judges have yet to rule on the class-action status for any of the nurses’ antitrust actions in Albany, Chicago, Detroit, Memphis and San Antonio.

Courts in Albany, Memphis and San Antonio will first decide class-action claims before the cases can progress, says Small, the Washington attorney who represents nurses in the lawsuits. Proceedings in Memphis lag behind other cities thanks to an unsuccessful bid by Baptist Memorial Health Care Corp. and Methodist Le Bonheur Healthcare to have the lawsuit dismissed, he says.

U.S. District Judge Samuel Mays Jr. in Memphis rejected arguments by 14-hospital Baptist Memorial and two-hospital Methodist that the nurses’ allegations were too flimsy. Mays ruled the nurses’ allegations “stated facts sufficient to support their claim” and “adequately alleged the nature and object of the conspiracy,” he wrote.

“As we have previously said, Baptist is committed to vigorously defending and opposing this suit because we believe it is completely without merit,” says Ayoka Pond, the Memphis-based health system’s spokeswoman, in an e-mail. “Baptist provides competitive salaries and benefits to all of our employees because we highly value them,” she says, adding that the system uses “industry-standard and legal practices” to set compensation.

Methodist spokeswoman Ruth Ann Hale says, “We remain steadfast in our position that we adhere to fair, ethical and lawful pay practices, and we’re planning to vigorously defend ourselves in the lawsuit.”

One other defendant, Trinity Health, Novi, Mich., which owns and operates 43 hospitals, has moved to be dismissed from the wage-fixing litigation. The Catholic system claims the Detroit lawsuit names Trinity without “including a single, specific allegation as to how (if at all) Trinity participated in any conspiracy,” according to the system’s motion. Trinity’s attorneys cite in their defense a recent U.S. Supreme Court decision, Bell Atlantic Corp. v. Twombly, that refined criteria courts use to decide whether conspiracy cases have enough factual allegations to justify the costly, lengthy process of pretrial discovery. Kevin DiCola, a Trinity spokesman, declined to comment on ongoing litigation.

Several hospitals named in the lawsuits also declined to comment.

Dwight Angell, a spokesman for four-hospital Henry Ford Health System, says that the Detroit system “has set, adjusted and increased its compensation and benefits program unilaterally and independently at competitive levels.” Angell says Henry Ford Health System was vigorously defending itself against the claims. Karen May, spokeswoman for San Antonio-based Baptist Health System, similarly defends the system’s compensation practices. She dismisses the lawsuit as “a multicity public relations ploy by a Washington, D.C.-based labor union attempting to unionize nurses and other service workers in San Antonio and elsewhere.”

Evanston Northwestern Healthcare officials dismiss the lawsuit as “ill-considered litigation” in a written statement. The Chicago-area provider “appropriately and fairly” compensates its nurses, and the lawsuit regrettably diverts money to legal fees from healthcare, the statement says.

The lawsuits aren’t the only ones to pit healthcare’s largest occupation against some of the industry’s major players over nurses’ wages or hospital staffing.

The American Nurses Association and state affiliates in New York and Washington sued HHS and the CMS in June 2006 over enforcement of Medicare’s nurse-staffing regulations. The Silver Spring, Md.-based ANA alleges that federal officials wrongly allow the Joint Commission to ensure that hospitals meet nurse staffing criteria because the accrediting body’s standards fall short. The Joint Commission certified roughly 80% of U.S. hospitals for Medicare in 2002, according to the complaint. HHS and the CMS reject the allegations as a misreading of the laws and claims based on outdated version of accrediting standards. Federal officials have asked the court to dismiss the lawsuit. Jeff Nelligan, a CMS spokesman, says the agency does not comment on active litigation. Alice Bodley, general counsel for the ANA, declined to comment on federal officials’ claims.

Nurses aren’t the only ones suing over how hospitals pay or schedule nursing staff. In May, the Arizona Hospital and Healthcare Association settled with the U.S. Justice Department and the state attorney general, without admitting to wrongdoing, in an antitrust case involving temporary nurse agencies (May 28, p. 14). The deal prohibits the association from setting rates, cancellation policies, bonuses or other contract terms for temporary staffing agencies available through a registry operated by a for-profit subsidiary of the trade group. A civil lawsuit, brought by PC Healthcare Enterprises, Mesa, Ariz., was settled in August. Terms of the settlement are confidential, says Los Angeles attorney Maxwell Belcher, who represented the staffing agency.

At least one hospital employer has struck back. HCA unsuccessfully asked a federal judge in Wichita to award it roughly $396,000 in legal fees after the court threw out a $12.25 billion lawsuit over nurse staffing in July 2006. The class-action lawsuit, filed in U.S. District Court, alleged Nashville-based HCA unsafely understaffed its hospitals and misled consumers unsuccessfully. Judge J. Thomas Marten ruled the alleged misdeeds were not, as plaintiffs’ contended, consumer protection violations or unjust enrichment.

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