CHI Franciscan settles antitrust lawsuit with Washington

Tacoma-based CHI Franciscan and the state of Washington settled an antitrust lawsuit alleging that the not-for-profit health system's affiliation with two Kitsap County physician groups raised prices and decreased competition, according to court records.

Details of the settlement have not been formalized, but CHI Franciscan said in a statement that its affiliations with WestSound Orthopaedics and the Doctors Clinic will remain in place. The court removed WestSound from the lawsuit, per a March 1 filing, and officially ended the trial March 15.

CHI Franciscan said in statement that the settlement is "good for patients and doctors on the (Kitsap) Peninsula, keeps our highly skilled doctors in our community and ensures everyone has access to great care close to home."

Washington state Attorney General Bob Ferguson said in a statement that "the terms include a significant payment to the state and will restore competition and choices for healthcare services on the Kitsap Peninsula, benefiting patients and doctors."

Ferguson sued the provider in federal court in August 2017 calling for CHI Franciscan to unwind its acquisitions of the physician practices and dole out compensation for "ill-gotten gains" as well as pay civil penalties. Thousands of Kitsap Peninsula patients allegedly faced higher prices, increased wait times, scheduling snafus and fewer services and locations as a result of the transaction.

In July 2016, CHI Franciscan acquired the assets of WestSound Orthopaedics, a practice of seven orthopedic physicians based in Silverdale. Two months later, CHI Franciscan announced an affiliation with the Doctors Clinic, a multispecialty practice with more than 50 physicians, which is also based in Silverdale and at the time had seven locations throughout Kitsap County.

WestSound, The Doctor's Clinic and CHI Franciscan were each other's closest competitors for orthopedic services before their respective deals. The combination of the three largest providers of orthopedic physician services in the Kitsap region significantly reduced competition, state officials argue.

According to emails obtained by the attorney general's office and included in the complaint, CHI Franciscan executives said that WestSound would allow CHI Franciscan to grow its surgery cases, which was the "fastest way to increase its bottom line." The redacted complaint cites contracts between CHI Franciscan and a major payer that allege double-digit percentage price increases for arthroscopic shoulder, ACL and knee surgeries following the deal.

As for the Doctors Clinic, the state claims that CHI Franciscan and the clinic are separate economic entities that entered into an agreement to fix prices.

CHI Franciscan acquired the clinic's ambulatory surgery center, imaging and laboratory services and has since closed its imaging services and a large portion of the ASC, shifting care to CHI Franciscan's Harrison Medical Center, according to the complaint. Unlike the WestSound transaction, CHI Franciscan did not acquire TDC's medical practices.

A Doctor Clinic executive wrote in an internal email obtained by the attorney general office that he "can't wait to hear how CHI messages the addition of TDC to (Franciscan Medical Group). 'You can now get your outpatient care in a complex, relatively unsafe and vastly more expensive location. You are welcome, Kitsap County."

Both the WestSound and Doctor's Clinic deals were motivated by gaining negotiating clout over healthcare insurers and charging higher rates for physician services, state officials allege.

State officials made the case that the higher prices gained through facility fees charged by hospital-owned outpatient departments, which CMS proposed in July to eliminate, were anticompetitive. CHI Franciscan countered that it wasn't an antitrust matter, it was a federal policy issue.

On its own, the state did not adequately prove that the WestSound acquisition was anticompetitive, according to a March 1 filing. One of the crucial designations for the Doctor's Clinic affiliation would've been whether the clinic and CHI Franciscan had become a single economic entity.

Regulators have cracked down on vertical integration cases where health systems buy competing physician groups. The Federal Trade Commission challenged similar deals in Nevada, Idaho and North Dakota.

Notably, most of these cases have been examined through horizontal case law. Although experts say that the evidence on vertical integration is mounting and cases may soon be tried through that lens.