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Peoria Day Surgery Center v. OSF Healthcare System

December 30, 2009

PEORIA DAY SURGERY CENTER, PLAINTIFF,
v.
OSF HEALTHCARE SYSTEM, AN ILLINOIS NOT-FOR-PROFIT CORPORATION D/B/A SAINT FRANCIS MEDICAL CENTER, DEFENDANT.



The opinion of the court was delivered by: Michael M. Mihm United States District Judge

ORDER

Now before the Court is Defendant OSF Healthcare System's, an Illinois not-for-profit corporation d/b/a Saint Francis Medical Center ("SFMC"), Motion for Summary Judgment. For the reasons set forth below, SFMC's motion is GRANTED IN PART and DENIED IN PART.

JURISDICTION

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1331, as the claims asserted in the Second Amended Complaint present federal questions under Section 1 of the Sherman Act, 15 U.S.C. § 1 ("Section 1"). This Court has supplemental jurisdiction over the claims asserted under Illinois state law pursuant to 28 U.S.C. § 1367, as they are so related to the claims within the Court's federal question jurisdiction that they form part of the same case or controversy.

BACKGROUND

Plaintiff Peoria Day Surgery Center ("PDSC") is a freestanding ambulatory surgery center ("ASC")*fn1 in Peoria, Illinois. In 2008, PDSC performed over 5,700 outpatient ambulatory surgeries. Defendant SFMC, the largest of three hospitals in Peoria, has a main facility offering general acute inpatient hospital services. SMFC also controls the Center for Health ("CFH")*fn2 , an ASC, in Peoria. The CFH opened in 2001 and performed over 14,600 outpatient ambulatory surgical procedures in 2004, making SFMC currently the largest provider of outpatient ambulatory surgeries in Peoria.

The facts of this case go back to the early 1990s. At that time, all three hospitals in Peoria offered outpatient ambulatory surgery at their main facilities, and none had freestanding ASCs. PDSC originally opened as Peoria Urological Associates ("PUA")*fn3 , a medical practice group and freestanding ASC in Peoria performing urological surgery. PDSC eventually expanded the types of surgeries it performed and increased its number of shareholders to include other physicians who would perform their specialties' surgeries there. The last group to purchase shares in PDSC was Midwest Urological Group ("MUG") in 2007. Other Peoria ASCs in the early 1990s included Orthopedic Institute of Illinois ("OII") and Peoria Ambulatory Surgery Center.

In July 1992, Caterpillar Inc. ("Caterpillar")*fn4 , self-insured for its health insurance, sought to reduce its healthcare costs for its employees, retirees, and members of their families in Peoria by entering into a 5-year exclusive contract with SFMC. The contract stated that SFMC would provide inpatient services and outpatient ambulatory surgery services, with two exceptions for the latter, for Caterpillar employees in Peoria. SFMC and Pekin Hospital would be fully reimbursed as in-network providers of hospital services and outpatient ambulatory surgeries. In the event a Caterpillar health plan Member chose hospital services or ambulatory surgery at a non-network facility, the Member would be responsible for 30% of the facility's allowed charges and Caterpillar would pay the remaining 70%.

The two exceptions to the exclusivity of the SFMC-Caterpillar contract provided that PUA (now Plaintiff PDSC) would be fully reimbursed as in-network for urological ambulatory procedures performed at its facility. OII would similarly be fully reimbursed for facility charges as in-network for orthopedic ambulatory procedures. PUA was named a Caterpillar Network Member for medical services in 1992 and the parties entered into a Letter of Understanding ("LOU") which reflected that PUA would be fully reimbursed as in-network for urological ambulatory surgeries performed at its facility. The 1992 LOU provided that it would continue until December 31, 1992, and then could be extended by mutual agreement. The extension of the LOU was apparently not documented.

In July 1997, SFMC and Caterpillar entered into a new 5-year exclusive contract, after Caterpillar sought proposals from all three Peoria hospitals, which again included the same exceptions for PUA and OII as did the 1992 contract. Caterpillar continued to fully reimburse PUA on an in-network basis for facility charges related to urological ambulatory procedures until August 1, 2004. Caterpillar additionally reimbursed PUA 70% of its facility charges for out-of-network non-urological ambulatory procedures performed for Caterpillar health plan Members until April 1, 2006. The Caterpillar Member was responsible for the 30% co-pay.

In July 2001, SFMC and Caterpillar entered into the exclusive contract that forms the basis of PDSC's antitrust claims in this litigation. The 2001 contract was not sent out to bid as the 1997 contract had been. The 2001 exclusive contract was similar to its 1992 and 1997 predecessors regarding inpatient services and ambulatory surgery procedures, but contained a new clause which stated:

[Caterpillar] and [SFMC] agree that Ambulatory Surgery services may be provided by the following providers at their respective facilities.

Peoria Urological Associates . . .

Orthopedic Associaties of Peoria . . .

However, [Caterpillar] and [SFMC] agree to monitor ambulatory surgery capacity and access at [SFMC] on an on-going basis and mutually determine the continued need for Ambulatory Surgery services to be provided by the above providers. At such time that [SFMC] can meet [Caterpillar's] ambulatory surgery capacity expectations, [Caterpillar] shall terminate arrangements with the above providers after prior discussion and notification to [SFMC]. Plf's Exh 58. This contract was to be effective for nine years.

Also in July 2001, SFMC opened its outpatient ambulatory surgery facility, the CFH. Then in the fall of 2002, SFMC opened six new ambulatory surgery operating suites at the CFH. In March 2004, SFMC informed Caterpillar that it had sufficient capacity to perform the expected volume of urological ambulatory procedures as contemplated by their 2001 contract. In May 2004, Caterpillar informed PUA (PDSC at this point) that the latter would no longer be considered in-network for urological surgical facility charges, effective August 1, 2004. From that point on, Caterpillar would reimburse PDSC for facility charges at the out-of-network rate of 70%, with the remaining 30% to be collected by PDSC as a co-pay from Caterpillar Members.

As early as August 1997, Caterpillar notified PDSC of its continuing obligation to collect the 30% co-pay from Caterpillar health plan Members for non-network services performed by PDSC. Caterpillar again dealt with PDSC's obligation to collect the 30% co-pay in 1998, 1999, 2001, and 2005. Caterpillar further explained, on more than one occasion, that if PDSC continued to refrain from collecting the 30% co-pay, benefits provided to PDSC by Caterpillar could be reduced another 30%. Caterpillar even sent letters to its health plan Members requesting information as to whether the Members had been billed the 30% co-pay as non-network providers were required to do. In Caterpillar's and SFMC's 1992 and 1997 exclusive contracts, one provision stated that Caterpillar would monitor whether or not non-participating hospitals were billing health plan Members for the 30% co-pay and that the Members were actually making the payments. In a letter dated March 1, 2006, Caterpillar notified PDSC of its decision to no longer pay any claims for facility services at PDSC, effective April 1, 2006. Caterpillar cited that it had previously requested that PDSC have health plan Members sign statements indicating their awareness of the 30% co-pay penalty for using a non-network facility and that PDSC had failed to do so. Caterpillar also explained that an audit was conducted by a division of UnitedHealthcare, Ingenix, which revealed that PDSC was still not requiring health plan Members to pay the co-pay. The "zero-pay" status continued until April 1, 2007, when Caterpillar added PDSC to its network for all services provided, following the change in ownership of the CFH to a joint venture between SFMC and several physician groups.

In 2003, Midwest Orthopedic Center ("MOC") began discussions with PDSC, SFMC, and the other two hospitals in Peoria regarding a possible investment in an ASC by the MOC doctors. MOC considered a joint venture with an existing ASC or building its own. The discussions were eventually limited to a possible joint venture with PDSC or SFMC, and MOC internally considered the proposals made by each party at its directors' meetings. In a September 8, 2004, letter, MOC informed PDSC that "[a]fter review of the risks and the current potential rewards of the investment, the directors voted not to pursue the purchase of shares in [PDSC's] ASC any further." MOC and PDSC resumed negotiations in 2005, but in late 2006 MOC decided to invest in SFMC's CFH.

Also in 2003, PDSC and ChoiceCare Network, a division of Humana, entered into a contract where PDSC became a network provider of healthcare services to the ChoiceCare Network's members. The contract automatically renewed each year if it was not terminated by either party giving 90 days' prior written notice to the other. PDSC's and ChoiceCare Network's contract was renewed for 2004, 2005, 2006, 2007, and 2008. After negotiations with SFMC, Humana acquired OSF Health Plans, a subsidiary of the OSF Healthcare System, in May 2008. Humana and SFMC negotiated which ancillary providers would be included in the Humana ChoiceCare Network after the acquisition was completed. SFMC and Humana differed regarding ...


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