Hospital Sues Medical Group. Medical Group Returns The Favor. Both Likely Lose.
This month’s lead article is an expanded version of a blog post that generated a significant number of “offline” comments from clients and friends of the firm. Based on their interest, I’ve provided additional observations and actionable comments. - Mark
At first I couldn’t believe my eyes.
It seemed like a plot from the old Divorce Court TV show. But no, it wasn’t a battle of the spouses over the failure of a marriage, it was a battle of a hospital and a medical group over what appears to be the failure of an exclusive contract.
Far more than simply appealing to prurient interest, the breakup saga provides valuable lessons to hospital-based group leaders and to office-practice physicians alike.
The Marriage
Trinity Health, a not for profit, Catholic healthcare system, operates more than 90 hospitals across more than 20 states.
Anesthesia Associates of Ann Arbor, also known as “A4,” is the largest anesthesia group in Michigan.
Trinity and A4 are parties to an exclusive anesthesia agreement that covers six of Trinity’s Michigan facilities. That contract apparently has provisions barring Trinity from soliciting the employment of A4’s anesthesiologists and CRNAs.
And, A4 apparently has covenants not to compete in its agreements with its anesthesiologists and CRNAs.
The Breakup
Earlier this year, A4 terminated its payer agreements with Blue Cross Blue Shield of Michigan and with Provider Health.
As a result, In July, Trinity sued A4 in federal court alleging that the terms of the exclusive anesthesia contract between them requires A4 to remain in network.
Additionally, Trinity’s lawsuit seeks to enjoin A4 from enforcing covenants not to compete with its anesthesia providers, whom, it appears, Trinity began courting so that it could employ them.
The other aggrieved spouse, I mean, party, A4, then filed suit in state court against Trinity alleging that the hospital system ignored the non-competes in the agreements between A4 and its anesthesiologists and CRNAs as well as non-solicitation provisions in Trinity’s agreement with A4.
Just as in divorce cases when spouses argue over child custody, this fight over who has “custody” of the anesthesiologists and CRNAs has an uncertain ending for the parties. (However, we can be sure that the divorce lawyers, I mean, trial lawyers, are going to come out okay.)
The Judgment
But no matter the ending, we can extract some valuable lessons from the overall dynamic for your benefit, no matter what medical specialty you’re in.
1. Covenants not to compete, in jurisdictions in which they are enforceable, remain powerful tools. However, they have their limits. They work best within an overall system of protection which combine a web of supporting strategies. For example, systems in which covenants not to compete and fiduciary duties combine.
2. Non-solicitation provisions in agreements with hospitals also remain powerful tools. They, too, have their limits, not simply because non-solicitation and “no hire” are distinct concepts and the hospital might not be the party that’s soliciting. Just as with covenants not to compete, non-solicitation provisions work best within an overall system of protection.
3. No contractual provision is perfect and will always be enforced. This is especially the case with restrictive provisions such as covenants not to compete. And, as medical groups grow larger and control more market share, it may be more difficult for them to effectively enforce restrictive covenants. This is either bad news or great news depending on whether you’re doing the restricting or the soliciting. On the “restricting” side, serious thinking needs to be done on whether other approaches that don’t necessarily involve classic restrictions might accomplish the same or similar goal.
4. Lawsuits aimed at enforcing covenants not to compete are likely most effective when brought against the individuals who agreed to them, not a third party. That’s not to say that separate non-solicitation provisions don’t form the basis for other legal action.
5. In light of the Trinity/A4 dispute, consider the problems with an agreement to remain in network. In network with whom, any and all payers? What if the reimbursement from a particular payer is ridiculously low? What if the payer doesn’t timely pay? What if the payer refuses to contract with you? Managed care plan provisions should be designed from another angle. There are at least several others.
6. Unless considered during the exclusive contracting process, medical groups can become uncompensated recruitment agencies. There are strategies to prevent this.
7. Suing the hospital with which you hope to maintain a relationship will probably be as effective as filing a divorce action to save a marriage. Sure, it might be a wake-up call, but more likely it’s a permanent parting of the ways. The more valuable time for action is in the strategy and negotiation phases as well as in regular and purposeful ongoing communication to keep the love alive.
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