The Executive Suite: My Medical Practice is Being Squeezed by the Local Hospital: Litigation as a last resort

Two healthcare industry trends are threatening many independent medical practices: the consolidation of healthcare markets and hospitals integrating into physician markets. Hospitals are now frequently the main competitors for many different independent medical specialty groups, and this has changed the relationship between the two and their perspectives of each other.

How Hospitals Squeeze Independent Physician Practices

When hospitals compete against physician practices, they often begin to view these independent physician practices as a threat to their bottom line. Econ 101 taught us that competition is good because it benefits consumers–in this case patients–by keeping prices in check while encouraging innovation and high-quality care. Many independent physician practices are highly efficient and have the flexibility to adjust with market changes, but large hospitals are typically not as nimble. As a result, they may engage in improper conduct because they cannot effectively compete against a well-run physician practice.

Even in Free Markets, Competition has Limits

When a dominant hospital sets its sights on a medical practice, even the most efficient and patient-centric practice may not have the ability to fight back effectively. Competition is a rough process, but it still has to be fair, which is why antitrust laws were created. These laws draw lines that a hospital with market power should not cross, including:

Creating exclusive contracts that prevent health insurers from contracting with targeted independent physician practices
Predatory hiring of physicians that is designed to disrupt or destroy independent practice groups
Preventing referrals from its employed physicians to independent physicians
Entering into joint ventures with critical third parties that drive referrals to the hospital and away from independent physicians
Making repeated defamatory statements about physicians and their practice

Triple Benefits: When Litigation is the Best Solution

Previous articles in this series have discussed how physician groups can attempt to resolve these issues through filing a complaint with the government or negotiating with the hospital. Although these are important alternative first steps, if negotiations fail, litigation is a potential next step.

Under the antitrust laws, a physician group can recover three times their lost profits and their attorneys’ fees. These high-value awards are designed specifically to encourage individuals and firms harmed by anticompetitive conduct to bring antitrust lawsuits, as the federal government does not have the resources to investigate–let alone prosecute–every antitrust violation in the United States.

Elements of a Strong Lawsuit

Filing an antitrust lawsuit should not be a snap decision, as it can be a lengthy and expensive process. The first step is identifying the anticompetitive conduct and providing evidence on how it has harmed competition and consumers. This includes:

Interviewing members of the practice to learn about its history, growth, challenges, actions by the hospital, and the practice’s place in the market
Interviewing third parties about the market, actions by the hospital, and how competition has developed or changed in the market
Gathering public disclosures made by firms in the market, news articles, and other publicly available information

Antitrust claims are complex and fact intensive, and the physician group has the burden of articulating a plausible antitrust claim. It is important that the complaint alleges the necessary facts and lays out a compelling antitrust theory of liability. Demonstrating that the hospital has market power is typically a key element, and developing a proper market-power story requires the help of an economist who can collect and analyze the relevant data.

This complaint will be used as a roadmap for the court to determine what information the physician group can force the hospital and other third-parties to produce. Complaints that are cryptic or too narrow can haunt the plaintiff when trying to force the hospital to provide important information, as the hospital will be reticent to release information that paints it in a negative light.

Making the Right Choice for Your Practice

The success of independent physician groups is critically important to our healthcare system. They create the healthy competition that results in overall better pricing and patient care. When hospitals use their market power to crush these groups, the antitrust laws are implicated, and physician groups who cannot find relief through filing a complaint with the government or negotiating with the hospital may consider litigation. Although it does not come without sacrifices, the rewards can be substantial.