Ill. hospital sues larger rival for $300 million

Methodist Health Services Corp. in Peoria, Ill., has sued its larger competitor in town for more than $300 million, saying the bigger hospital is breaking state and federal antitrust laws in contracts with insurance companies.

The 39-page federal complaint, filed in District Court in Peoria, is a variation on a type of dispute at issue in several antitrust cases in recent years involving exclusionary terms in contracts between hospitals and insurers.

Methodist Medical Center, a 282-bed hospital, says the parent company of 574-bed OSF St. Francis Medical Center has contracts with four insurance companies that threaten the payers not to sign contracts with St. Francis' competitors. St. Francis has threatened to pull out of insurers' networks or use financial penalties if insurance companies do business with its competitors, the lawsuit alleges.

“St. Francis has leveraged its size and status as a 'must-have' hospital to enter, maintain, and enforce these exclusionary contracts,” the lawsuit says (PDF). “Because St. Francis is the most expensive hospital in the area, this drives up healthcare costs and harms consumers.”

St. Francis' average Medicare charge has increased 50% between 2006 and 2011, while Methodist's average Medicare bill has gone up 20% in that time, the lawsuit says.

Jim Farrell, senior vice president and spokesman for St. Francis' parent, nine-hospital OSF Healthcare System in Peoria, declined to comment on the lawsuit Tuesday afternoon.

“We were informed this afternoon that Methodist Health Services Corporation has filed an antitrust lawsuit against OSF Healthcare System. It will take some time for our legal counsel to review the 39-page complaint. So, we are not in a position to respond at this time,” Farrell said in an e-mailed statement.

Methodist alleges that St. Francis' conduct is violating the federal Sherman Act, the Illinois Antitrust Act and the Illinois Consumer Fraud Act, and has interfered with its ability to do business with four insurers: Aetna, Blue Cross and Blue Shield of Illinois, Health Alliance and Humana.

In 2011, the Justice Department settled similar allegations of anti-competitive conduct between a hospital and insurers in Wichita Falls, Texas.

In that case, the hospital United Regional Health Care System settled the case without admitting to the allegations that its contracts with payers illegally excluded competitors and ultimately drove up consumer costs. Hospital officials disputed the government's assertions, but agreed to a seven-year moratorium on exclusionary pricing contracts.

In Michigan, the Justice Department is headed for trial later this year in a civil case in which Blue Cross and Blue Shield of Michigan is accused of using exclusionary terms in its contracts with hospitals that force the healthcare providers to give Blue Cross the lowest prices in the market—terms that competitors say drive up their costs.

But Dr. David Pate, president and CEO of St. Luke's Health System in Boise, Idaho, said antitrust lawsuits filed by private businesses against their competitors are becoming more common in healthcare.

“I think we may see much more of this down the road,” he said in an interview in December. “It is a very costly thing to go through for both parties, and it does slow you down.”

Pate's system was sued for antitrust violations by its competitor, St. Alphonsus Health System, which is seeking to block St. Luke's from acquiring a large physician practice because the deal would allegedly give St. Luke's control over physicians' referrals, cutting of St. Alphonsus' patient revenue. A judge has denied a preliminary injunction request, but the two sides are headed for an expedited trial in July.

“I think we are the bellwether,” Pate said in December. “I think there is going to be more of this.”