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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF CONNECTICUT
UNITED STATES OF AMERICA, and
STATE OF CONNECTICUT,
ex rel.,
RICHARD BLUMENTHAL, ATTORNEY
GENERAL,
Plaintiffs,
vs.
HEALTHCARE PARTNERS,INC.,
DANBURY AREA IPA, INC., and
DANBURY HEALTH SYSTEMS,INC.,
Defendants. | )
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Civil Action No: 3:95CV01946
15 U.S.C. §§ 1, 2
(Antitrust Violations Alleged)
15 U.S.C. §§ 4, 26
(Equitable Relief Sought)
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COMPLAINT
The United States of America and the State of Connecticut,
by their attorneys and acting under the direction of the Attorney
General of the United States and the Attorney General of the
State of Connecticut, bring this civil antitrust action to obtain
equitable relief against the defendants named herein and complain
and allege as follows:
I.
JURISDICTION AND VENUE
1. This Complaint is filed by the United States under
Section 4 of the Sherman Act, 15 U.S.C. § 4, as amended, and by
the State of Connecticut under Section 16 of the Clayton Act, 15
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U.S.C. § 26, to prevent and restrain continuing violations by the
defendants of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§
1, 2. The jurisdiction of the Court is also invoked under 28
U.S.C. §§ 1331, 1337.
2. Each of the defendants maintains offices, transacts
business, and is found within the District of Connecticut, within
the meaning of 15 U.S.C. § 22 and 28 U.S.C. § 1391.
II.
DEFENDANTS
3. Danbury Health Systems, Inc. ("DHS") is a Connecticut
not-for-profit corporation with its principal place of business
in Danbury, Connecticut ("Danbury"). In the Danbury area, DHS
offers acute inpatient care, outpatient surgical care, and other
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services at its 450-bed acute care facility, Danbury Hospital.
4. Danbury Area IPA, Inc. ("DAIPA") is a
not-for-profit corporation with its principal place of business
in Danbury. Only active members of Danbury Hospital's medical
staff may be owners of DAIPA. Over 98% of the doctors on Danbury
Hospital's medical staff joined DAIPA.
5. HealthCare Partners, Inc. ("HealthCare Partners") is a
Connecticut not-for-profit corporation with its principal place
of business in Danbury. Danbury Hospital and DAIPA jointly own
HealthCare Partners, and each appoints six of the twelve
directors of HealthCare Partners' board of directors. DAIPA was
created as the vehicle for doctor ownership in HealthCare
Partners. HealthCare Partners has represented jointly Danbury
Hospital and all of the DAIPA doctors in negotiations with
managed care companies for participation in healthcare plans
offered by those companies.
6. Whenever this Complaint refers to any corporation's
act, deed, or transaction, it means that such corporation engaged
in the act, deed, or transaction by or through its members,
officers, directors, agents, employees, or other representatives
while they actively were engaged in the management, direction,
control, or transaction of its business or affairs.
III.
BACKGROUND
7. Danbury Hospital is the sole provider of general acute
inpatient care in the Danbury area. It faces no competition from
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other general acute care hospitals in the markets for these
services and, accordingly, possesses a monopoly in general acute
inpatient care.
8. Danbury Hospital is one of the only two providers of
outpatient surgical care in the area. The Hospital also has
close economic and administrative ties to a multispecialty doctor
practice group, Danbury Office of Physician Services, P.C.
("DOPS"). DOPS employs over 100 doctors of the 444 doctors on
the Danbury Hospital medical staff. Most DOPS doctors are
specialists.
9. As is common with most hospitals, only a doctor on
Danbury Hospital's medical staff may decide whether to admit a
patient to Danbury Hospital. Only those doctors with active
medical staff privileges at Danbury Hospital have enough
involvement with the Hospital to influence the efficiency and
cost effectiveness of care delivered by the Hospital.
10. Indemnity insurance plans cover a substantial
percentage of the patients admitted to Danbury Hospital. These
insurance plans pay a fee for each service or procedure provided.
Thus, doctors ordering the Hospital's acute inpatient services
for a patient covered by an indemnity plan have no financial
incentive or contractual obligation to be efficient in their use
of the Hospital.
11. In 1992, and perhaps earlier, innovations in the
financing and delivery of healthcare, namely the development of
managed care plans, were changing the financial incentives and
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contractual obligations of doctors on Danbury Hospital's medical
staff. Managed care plans generally contract with a limited
number of doctors in a community. By limiting the number of
doctors on the panel from which a managed care plan's enrollees
may receive their care, managed care plans induce doctors to
compete against each other for panel membership. Doctors may
compete by offering lower prices to managed care plans, by
agreeing to practice medicine in a manner that limits hospital
and doctor utilization, or by agreeing to provide care in less
costly but medically appropriate settings, such as outpatient
surgery facilities.
12. In contrast to indemnity plans, managed care plans
contract with doctors to create financial accountability for the
necessity and appropriateness of the medical services the doctors
authorize or deliver. The plans also review the utilization
rates of doctors ordering hospital services.
13. By 1992, managed care companies had recruited a
sufficient number of physicians with active staff privileges at
Danbury Hospital to offer managed care plans to employers and
individuals in the Danbury area.
14. As of 1992, the introduction of managed care plans into
the Danbury area had reduced the hospital's market power in
inpatient services by decreasing the number of hospital
admissions and the length of hospital stays, thereby causing the
Hospital to lose significant inpatient volume. Additionally, the
introduction of managed care plans resulted in increased
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competition among doctors and reduced referrals to specialists in
DOPS (Danbury Hospital's affiliated multispecialty practice
group).
15. In 1993, the Hospital took steps to form an alliance
with doctors to pursue jointly the economic interests of both the
Hospital and the doctors and forestall the continued development
of managed care plans in the Danbury area.
16. The Hospital created a Medical Staff Development Plan
that involved, among other things, the use of Danbury Hospital's
control over admitting privileges as a tool to combat competition
caused by, according to the Hospital, the oversupply of doctors
in the area. The Hospital began to use its control of medical
staff privileges and inpatient services to insulate itself from
competition from its outpatient competitors. For example, the
Hospital decided to limit the size and mix of its medical staff
to restrain competition among doctors in the Danbury area. In
addition, the Hospital proposed to amend its bylaws to require
that each member of the active medical staff perform at least 30%
of the doctor's outpatient procedures at the Hospital even though
the Hospital's consultants had advised it that they could find no
support for using minimum volume requirements. The mere proposal
of such a requirement, with the consequent threat to the doctors
of the loss of admitting privileges, caused doctors who preferred
to use the competing outpatient surgical center to increase their
use of the Hospital's outpatient surgery facilities.
17. During the development of the Medical Staff Development
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Plan, the Hospital and select doctors formed a committee to
create a vehicle for collective negotiations with managed care
plans. This committee considered managed care plans a threat to
the economic welfare of the Hospital and the doctors. It
informed the doctors that its purpose was to create a collective
negotiating and contracting unit. It also told the doctors that
they would be able to exercise bargaining power collectively that
they had not possessed individually.
18. On May 6, 1994, the committee's efforts resulted in the
incorporation of DAIPA and HealthCare Partners. DAIPA was open
only to active members of Danbury Hospital's medical staff. Each
doctor who joined DAIPA in turn signed a contract with HealthCare
Partners that authorized HealthCare Partners to negotiate with
managed care plans on the doctors' behalf. The Hospital signed a
similar contract authorizing HealthCare Partners to negotiate on
its behalf. HealthCare Partners was also authorized to establish
a minimum fee schedule for the Hospital and participating
doctors.
19. On May 6, 1994, DAIPA submitted membership applications
to Danbury Hospital's medical staff. It informed the doctors
that the Hospital, the largest employer in Danbury, would
contract only with HealthCare Partners. Accordingly, any doctor
who did not join DAIPA within 14 days would not be listed as
eligible to treat the 5,000 individuals on whose behalf Danbury
Hospital was expected to pay $3 million in doctors' fees during
the following year.
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20. HealthCare Partners conferred with a consultant
regarding the doctor fee schedule it intended to use for care
delivered to Danbury Hospital employees. The consultant advised
HealthCare Partners that the schedule was more generous than
those used by managed care plans in the area and would, in the
words of the consultant, send the message of "business as usual"
to the doctors. HealthCare Partners, accordingly, proceeded to
use that fee schedule confident that every doctor would agree to
it.
21. Further, pursuant to its contract with HealthCare
Partners, Danbury Hospital began referring any managed care plan
that wanted to contract with the Hospital to HealthCare Partners.
In the first three months of HealthCare Partners' existence, the
Hospital referred 12 plans to HealthCare Partners for its
consideration.
22. HealthCare Partners negotiated fees and signed
contracts with two managed care plans. Once negotiations were
completed, HealthCare Partners reported the negotiated fees to
each doctor for that doctor's approval. All DAIPA members
approved each schedule.
23. The resulting fee schedules for these plans were
generous to doctors. Indeed, as a result of these fee
negotiations, at least one of these plans, which believed its
standard fees for doctors were not low, was forced to raise its
fees to doctors in other markets, as well as in the Danbury area,
to avoid the costs it would have incurred to administer a
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separate fee schedule solely for the Danbury area.
24. None of the competing doctors shared financial risk or
otherwise integrated their practices as a result of joining DAIPA
or entering into the contracts that HealthCare Partners
negotiated on their behalf. HealthCare Partners took no steps to
implement utilization management procedures or assure quality
assurance before entering into negotiations. It did not offer
any new or additional product to the marketplace.
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IV.
INTERSTATE COMMERCE
25. Many employers and insurers remit substantial payments
across state lines to Danbury Hospital and the doctors on whose
behalf HealthCare Partners has acted.
26. Many employers that remit payments to Danbury Hospital
and those doctors are businesses that sell products and services
in interstate commerce, and the size of those payments affects
the prices of the products and services those businesses sell.
27. At material times, Danbury Hospital and members of its
medical staff have used interstate banking facilities, and
purchased substantial quantities of goods and services across
state lines, for use in providing healthcare services to
individuals in the Danbury area.
28. The activities of the defendants that are the subject
of this Complaint are within the flow of, and have substantially
affected, interstate trade and commerce.
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V.
FIRST CAUSE OF ACTION
(Contracts in Restraint of Trade)
29. Beginning at least as early as May 5, 1994, and
continuing until August 8, 1995, the defendants and others, not
named as defendants in this case, engaged in a contract,
combination, or conspiracy in unreasonable restraint of
interstate trade and commerce in violation of Section 1 of the
Sherman Act, 15 U.S.C. § 1. This offense is likely to continue
or recur unless the relief requested is granted.
30. This contract, combination, or conspiracy consisted of
a continuous agreement, understanding, and concert of action
among the defendants and others to authorize HealthCare Partners
to eliminate competition among competing doctors and competing
outpatient service providers, to negotiate jointly on behalf of
those doctors and Danbury Hospital, and to develop a minimum fee
schedule for the doctors.
31. For the purpose of forming and effectuating this
contract, combination, or conspiracy, the defendants and others
did the following things, among others:
(a) Formed DAIPA and HealthCare Partners;
(b) Directed managed care plans to HealthCare Partners as
their designated joint bargaining agent;
(c) Jointly negotiated fees and other competitive terms on
behalf of Danbury Hospital and competing doctors; and
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(d) Took steps to require that each member of Danbury
Hospital's medical staff perform at least 30% of the
doctor's outpatient procedures at the Hospital.
32. This contract, combination, or conspiracy had the
following effects, among others:
(a) It unreasonably restrained prices and other forms of
competition among doctors in the Danbury area;
(b) It caused higher prices for physician services in the
Danbury area and in other markets;
(c) It deprived managed care plans of the benefits of full
and fair competition between outpatient service
providers, in the Danbury area;
(d) It deprived managed care plans of the ability to
control and reduce unnecessary hospital and doctor
utilization;
(e) It hindered development of innovative healthcare
financing and delivery systems in the Danbury area; and
(f) It deprived employers and individual consumers of the
benefits from free and open competition in the purchase
of healthcare services in the Danbury area.
33. As a result of the aforementioned contract,
combination, or conspiracy, the general welfare and economy of
the State of Connecticut has sustained injury, and continued loss
and damage to the welfare and economy is threatened unless the
defendants are enjoined from continuing or renewing their
unlawful conduct.
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VI.
SECOND CAUSE OF ACTION
(Monopolization)
34. Beginning at least as early as May 5, 1994, and
continuing until August 4, 1995, DHS willfully maintained its
market power in inpatient hospital services and gained an unfair
advantage in markets for outpatient services through various
exclusionary acts in violation of Section 2 of the Sherman Act,
15 U.S.C. § 2. This offense is likely to continue or recur
unless the relief requested is granted.
35. For the purpose and with the effect of maintaining its
market power in inpatient hospital services, and of gaining an
unfair advantage in markets for outpatient services, DHS took the
following exclusionary acts, among others, in violation of
Section 2:
(a) It helped organize DAIPA and HealthCare Partners to
reduce or limit the development of managed care plans
in the Danbury area;
(b) It used its control over hospital admitting privileges
and acute inpatient services to coerce doctors and
managed care plans to use its facilities rather than
competing outpatient facilities; and
(c) It used its control over hospital admitting privileges
to block the entry of new doctors into the Danbury
area.
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36. As a result of the aforementioned exclusionary acts,
the general welfare and economy of the State of Connecticut has
sustained injury, and continued loss and damage to the welfare
and economy is threatened unless DHS is enjoined from continuing
or renewing its unlawful conduct.
VII.
REQUEST FOR RELIEF
Plaintiffs request:
1. That the Court adjudge and decree that the defendants
entered into unlawful agreements in unreasonable restraint of
interstate trade and commerce in violation of Section 1 of the
Sherman Act, 15 U.S.C. § 1;
2. That the Court adjudge and decree that DHS violated
Section 2 of the Sherman Act, 15 U.S.C. § 2;
3. That defendants, their officers, directors, agents,
employees, and successors, and all other persons acting or
claiming to act on behalf of any of them, be enjoined,
restrained, and prohibited for a period of ten years from, in any
manner, directly or indirectly, continuing, maintaining, or
renewing the conduct alleged herein or from engaging in any other
conduct, combination, conspiracy, agreement, understanding, plan,
program, or other arrangement having the same effect as the
alleged violations; and
4. That the United States and the State of Connecticut
have such other relief as the nature of the case may require and
the Court may deem just and proper.
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DATED: September 13, 1995
FOR PLAINTIFF PLAINTIFF
UNITED STATES OF AMERICA: STATE OF CONNECTICUT
RICHARD BLUMENTHAL
ATTORNEY GENERAL
____________/s/_____________
Lawrence R. Fullerton
Acting Assistant Attorney BY:
General
____________/s/_____________
WILLIAM M. RUBENSTEIN
Assistant Attorney General
Federal Bar No. CT08834
110 Sherman Street
Hartford, Connecticut 06105
____________/s/_____________ (203) 566-5374
REBECCA P. DICK
Deputy Director of Operations
____________/s/_____________
GAIL KURSH, Chief
Professions & Intellectual
Property Section/HCTF
____________/s/_____________
CHRISTOPHER F. DRONEY
UNITED STATES ATTORNEY
____________/s/_____________
MARK J. BOTTI
PAMELA C. GIRARDI
Attorneys ____________/s/_____________
U.S. Department of Justice CARL J. SCHUMAN
Antitrust Division Assistant U.S. Attorney
600 E Street, N.W. Federal Bar No. CT 05439
Room 9320 450 Main Street
Washington, D.C. 20530 Hartford, Connecticut 06103
(202) 307-0827 (203) 240-3270
f:\pip\cases\danbury\complain.t19
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CERTIFICATE OF SERVICE
I, Carl J. Schuman, hereby certify that copies of the
Complaint, Stipulation, Competitive Impact Statement, and
Notice of Lodging in U.S. v. HealthCare Partners, Inc., et.
al. were served on the 13th day of September 1995 by
first class mail to counsel as follows:
David Marx, Jr.
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606-5096
James Sicilian
Day, Berry & Howard
CityPlace
Hartford, Connecticut 06103
/s/__________________________
Carl J. Schuman
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