Imaging centers file antitrust suit against Providence Health

Apr 21, 2005

One caveat of creating a successful business model is that others will seek to duplicate it, often within the same geographic area. In the freestanding diagnostic imaging center market, rivals compete to provide the highest-quality service for patients and their referrers, the fastest report turnaround time, and studies conducted on the latest technology at a competitive price point.

By any measure, the diagnostic imaging center market is a growth industry in the U.S. -- one that can be very lucrative to entrepreneurs. As such, economic forces in many metropolitan areas are leading to the consolidation and provision of imaging services by well-financed entities.

Providence Health System in Portland, OR, recently took steps to ensure that the diagnostic imaging business of its provider panel would be conducted within its own facilities by announcing the termination of its preferred provider contract with Portland-based EPIC Imaging and Body Imaging Radiology on May 1.

In response Dr. Gerald Warnock, founder and medical director of EPIC, and Dr. Paul Meunier, medical director of Body Imaging Radiology, filed a request in U.S. District Court for the District of Oregon for an injunction against Providence Health System and two of its joint-venture imaging centers.

The centers' complaint states that Providence's action "seeks to stop the illegal advance of a vertically integrated hospital/health insurance/medical services combination that poses an immediate threat to monopolize the market for radiology and imaging services in Portland."

In addition, the two centers are seeking approximately $110 million in injunctive relief from Providence.

Providence, in an April 14 release, responded that it "continues to believe it has the same right as any other business to choose the firms it contracts with."

Provider panels

At the heart of the dispute is who controls patient and provider access for the Portland area. Providence sells its own insurance directly to consumers and employers. It also credentials and rents primary care and specialty physician panels to more than 100 insurance companies serving employers in the Portland market.

The companies still process their own claims, but reimburse the provider based on their contracts with the Providence preferred provider organization (PPO) plan. If a consumer/beneficiary wants to get services from a provider who is not on the Providence PPO panel, the beneficiary incurs out-of-pocket expenses that would not have been levied if the beneficiary had chosen a provider on the panel.

Because of this situation, removing a physician group from its panels essentially bars that group from receiving Providence business, as well as business from the insurance companies that rent its panel.

In a mailing to its physician base in the Portland area, Providence acknowledged that the centers had "provided excellent patient care over the years," but it had determined that it was in the best interest of its customers to consolidate imaging in its own facilities.

EPIC's Warnock, in a phone conversation with AuntMinnie.com, noted that his firm had attempted to negotiate directly with health insurance companies serving Portland. He said the group was told that pricing on other Providence services was tied to the insurers' plan participants utilizing Providence-controlled radiology and imaging services.

Demographics

The suit alleges that Providence currently holds a 34% to 39% share of the Portland market for outpatient radiology and imaging services. One element of this claim is the percentage of the area's population served by Providence.

EPIC Imaging and Body Imaging Radiology contend that Providence Health System covers more than 750,000 lives in Oregon and southwest Washington, a figure taken from the Providence Web site, which states that the institution covers more than 772,000 members and other eligible lives. Providence, in an April 4 release, said that this figure was inaccurate.

"The news release (by EPIC Imaging and Body Imaging Radiology) implies Providence Health Plan covers 750,000 people. This is not true. Statewide, Providence Health Plan has approximately 200,000 members in its EPO, Medicare, and Medicaid lines of business. 130,000 of them are in the Portland area. The Providence Preferred panel is available to approximately 378,000 people in Oregon -- approximately 300,000 of them in the Portland area."

According to the U.S. Census Bureau, the 2000 census for Portland places the city's population at 529,121.

Fees

In its notice terminating its medical services agreements with EPIC Imaging and Body Imaging, Providence offered the following rationale for its decision:

"Now that Providence Health System's own imaging facilities have expanded and can more than adequately handle patient capacity throughout the Portland area, we have determined that it is in the best interest of our customers to consolidate these services in Portland through the PHS facilities. As healthcare costs continue to escalate, consolidation of imaging services is one means by which to achieve affordability and efficiencies for our patients into the future."

Warnock said that within days of sending out the notice to its physicians and beneficiaries, Providence announced a 6% increase in payments for its radiology and imaging services. In its April 4 release, Providence said this account was inaccurate.

"Providence Health Plan has given an across-the-board reimbursement increase to all physicians and providers in the Portland metropolitan area."

For its part, Warnock said that EPIC offered imaging services consistently priced well below the fees charged by Providence.

Referring physicians in the area have not reacted favorably to the announcement of service termination with the imaging centers. Documents filed with the request for injunction include statements of support for the diagnostic services and technology provided at the independent facilities by Dr. Ralph Yates, a primary care physician; Dr. David Wilson, an otolaryngologist; Dr. Daniel Urbach, an internal medicine specialist; Dr. Glenn Snodgrass, a neurologist; Dr. Oisin O'Neill, a neurosurgeon; Dr. Patrick Lee, a colorectal surgeon; Dr. Patrick Hanley, an orthopedic surgeon; and Dr. Cynthia Gulick, a family practice specialist.

On April 14, in exchange for delaying termination from Providence-controlled insurance plans, EPIC Imaging and Body Imaging agreed to Providence's request for more time to prepare for the hearing in federal court. The agreement moves the termination date to July 1, 2005, a 60-day extension. The hearing before Judge Garr M. King is now scheduled for June 20, 2005.

By Jonathan S. Batchelor
AuntMinnie.com staff writer
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