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Professor Mark Hall quoted in American Medical News article regarding physician groups eye mergers but blindsided by legal fights

Courts are taking up lawsuits that are challenging such consolidations, and doctors need to be aware of their antitrust risks.

Declining payments and increasing financial pressures have led more physicians to become employees of large medical groups and hospitals. At the same time, the Affordable Care Act is prompting smaller practices to consolidate as a way to more easily participate in new health system delivery models such as accountable care organizations.

But as physicians attempt to escape administrative burdens and financial stress, they are encountering another hurdle­ — legal disputes brought about by mergers.

Courts are considering cases or have ruled on lawsuits challenging medical group mergers, consolidations and acquisitions. The suits highlight the legal and antitrust risks doctors face when they are part of a merger:

  • In October, an Indiana judge ordered a physician group to pay a neurosurgeon his rightful share of stock after a disputed merger with another group. David C. Hall, MD, sued his former practice for allegedly violating his rights and failing to pay him proper severance after he was terminated.
  • A Federal Trade Commission decision in August forced Nevada-based Renown Health to allow up to 10 cardiologists to join other practices without the doctors being bound by the noncompete clauses of their contracts. Nevada Attorney General Catherine Cortez Masto sued Renown over acquisitions of two cardiology practices in 2010. The FTC found the acquisitions reduced competition.
  • Two Idaho-based hospitals are suing St. Luke’s Health System for its attempt to acquire an area physician group. The FTC is investigating claims that St. Luke’s is engaging in anti-competitive behavior following several other acquisitions of medical practices. The health system denies any wrongdoing.

The U.S. Supreme Court is weighing whether a publicly held Georgia hospital’s merger with a privately owned hospital should be protected from antitrust scrutiny because of the “state action doctrine.” The doctrine protects bodies from FTC scrutiny if the state has clearly articulated a policy to displace competition and actively supervise the transaction in some way. The Litigation Center of the American Medical Association and the State Medical Societies has not sided with either party in the case, but issued a friend-of-the-court brief on a related issue. The Litigation Center is concerned that a ruling for the FTC in the case could improperly expose professional licensure boards to antitrust scrutiny.

Doctors in some states can dissent from a practice merger and get paid the fair market value for their shares.

Being unaware of legal dangers that stem from mergers can lead to unnecessary expenses and practice disruption, said Dale Grimes, a Nashville, Tenn.-based attorney with Bass, Berry & Sims and chair of the firm’s Antitrust and Trade Practices Group.

“There’s no question that we’re seeing more physician group mergers,” Grimes said. “When you have mergers and growing consolidation, it’s something that is likely to get the FTC’s attention, and that is certainly what is happening. Many times people don’t think there might be antitrust issues and that has turned out to be not a good idea because a number of transactions have been challenged after the deal has closed.”

Money spent on medical practice mergers and acquisitions jumped significantly in the second quarter of 2012 compared with the same period in 2011, according to data released July 19 by Irving Levin Associates, a research firm based in Norwalk, Conn. Data show 21 physician practices reported mergers and acquisitions in the second quarter, with $4.2 billion changing hands.

Eight physician groups reported a merger or acquisition in the third quarter of 2012. That number is expected to rise, said Stephen M. Monroe, editor of Irving Levin Associates’ Health Care M&A Report.

“In general, physicians are tired of the liability issues and tired of the business [responsibilities] and the reimbursement cuts,” he said. “They are finding the life of a practicing physician is a lot easier being employed by a physician group or by a hospital.”

However, legal experts warn that this desire for ease and efficiency can land physicians in court if they fail to consider the details. Along with antitrust scrutiny, doctors can face legal challenges by partners or employees if transactions hit snags.

“Changes in ownership and composition of professional businesses can end up being very contentious if partners don’t agree,” said Mark A. Hall, a law and public health professor at Wake Forest University School of Law in Winston-Salem, N.C. “These disputes can end up being very expensive because of the value that is built into professional businesses.”

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