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GADSON v. NEWMAN

December 3, 1992

MICHAEL T. GADSON, M.D., PLAINTIFF,
v.
RICHARD L. NEWMAN, INDIVIDUALLY; RICHARD L. NEWMAN LTD, AN ILLINOIS CORPORATION, D/B/A NEWMAN CLINIC; ST. MARY'S HOSPITAL, AN ILLINOIS NOT-FOR-PROFIT CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Richard Mills, District Judge:

OPINION

Presented here is a novel twist to the issue of whether physicians, lawyers and other professionals may be liable under the Illinois Consumer Fraud Act.

True, one does not ordinarily think of medical doctors in the business of selling products that defraud consumers.

However, the Illinois Consumer Fraud Act was amended to prohibit not only unfair competition, but any deceptive act or practice in the conduct of trade or commerce.

Thus, the issue before the Court: whether the practice of medicine qualifies as trade or commerce for the purposes of the Illinois Consumer Fraud Act. And specifically: whether an alleged agreement between a psychiatric clinic and a hospital to monopolize psychiatric services defrauds medical consumers.

I. Facts

There are three players involved in this dispute. Defendant St. Mary's Hospital (SMH) is a non-profit hospital in Quincy, Illinois. Plaintiff Dr. Michael T. Gadson is a psychiatrist. Defendant Dr. Richard L. Newman is a psychiatrist and practices medicine through the corporation "Newman Clinic Ltd."

Dr. Gadson alleges that on January 1, 1989, he entered into a contract with SMH to serve as the director of the SMH psychiatric "family" unit. Later, after becoming aware of the Gadson-SMH contract, Dr. Newman and his clinic signed a separate contract with SMH to manage all of SMH's psychiatric units during the term of Dr. Gadson's contract. The arrangement provided that SMH and Dr. Newman's clinic would jointly establish "programs" for all inpatient psychiatric treatment at SMH. One program, supervised by Dr. Gadson, would be for adult psychiatry. Another program director would be appointed for a "behavioral medicine" program. Dr. Newman's clinic would develop specific treatments for patients in the program. Psychiatrists participating in the program would be approved by both Dr. Newman's clinic and SMH.

Under the arrangement, SMH physicians could refer patients to the program. Psychiatrists from Dr. Newman's clinic could also refer patients requiring hospital treatment to the program. SMH agreed to pay Dr. Newman's clinic $90.00 per day per patient admitted to the program.

Dr. Gadson charges that the arrangement between Dr. Newman and SMH violates the Illinois Consumer Protection Act. First, Dr. Gadson alleges that the arrangement operates as an "undisclosed joint venture and profit center for SMH and Dr. Newman and his Clinic to the exclusion of Dr. Gadson and other potential competing entities, and to the detriment of health care consumers in the area of Quincy, Illinois, served by SMH."

Second, that under the arrangement, financially responsible patients upon emergency admission to SMH are self-referred by Dr. Newman to himself and other psychiatrists employed at his clinic.

Third, that the arrangement provides "undisclosed financial incentives" to Dr. Newman and psychiatrists of his clinic to admit patients to SMH in order to increase the patient census and revenue of SMH.

Fourth, that the arrangement provides "undisclosed financial incentives" to Dr. Newman and psychiatrists of his clinic for prescribing additional ancillary medical procedures to be performed at SMH thereby increasing SMH revenue, increasing health care costs, and decreasing competition in the Quincy area.

Fifth, that the arrangement provides for undisclosed substitution of employees of SMH with employees of Dr. Newman and his clinic with intent "to generate illegal, unethical, and conflict of interest self-referral of patients covered by Medicare," Medicaid, public aid assistance, insurance, and financially responsible patients.

Plaintiff Dr. Gadson seeks relief under the Consumer Fraud Act (Count IV), for conspiracy to commit consumer fraud (Count V), and for declaratory judgment and injunction (Count VII).

Defendants SMH and Dr. Newman move to dismiss Counts IV, V, and VII. In the alternative, they move for a more definite statement of Count VII per Fed.R.Civ.P. 12(e).

II. Legal Standard on Motion to Dismiss

In ruling on a motion to dismiss, the Court "must accept well pleaded allegations of the complaint as true. In addition, the Court must view these allegations in the light most favorable to the plaintiff." Gomez v. Illinois State Board of Education, 811 F.2d 1030, 1039 (7th Cir. 1987). Although a complaint is not required to contain a detailed outline of the claim's basis, it nevertheless "must contain either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory." Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir. 1984), cert. denied, 470 U.S. 1054, 105 S.Ct. 1758, 84 L.Ed.2d 821 (1985). Dismissal is not granted "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957).

III. Analysis

(A). "Trade or Commerce"

Defendants SMH and Dr. Newman first argue that the Illinois Consumer Fraud Act does not apply because the medical profession does not engage in "trade or commerce." The fact that a wrongdoer must engage in "trade or commerce" to be liable under the Act is well established. For instance, the stated purpose of the Illinois Consumer Fraud Act, as set forth in its preamble, is "[t]o protect consumers and borrowers and businessmen against fraud or deceptive acts or practices in the conduct of any trade or ...


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