Hospital Sues Medical Group. Medical Group Returns The Favor. Both Likely Lose.

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 anesthesia contract.

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.

2, Non-solicitation provisions in agreements with hospitals also remain powerful tools. They, too, have their limits. And, they 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.

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, agreements to remain in network should be redesigned 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.

Comment or contact me if you’d like to discuss this post.

Mark F. Weiss

www.advisorylawgroup.com

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