In ever-tightening healthcare markets, independent radiology providers can be caught in a proverbial David-and-Goliath type of conflict, with more powerful opponents -- such as hospitals and insurers -- making it difficult for practices to remain financially viable. And to the distress of radiologists around the country, this kind of conflict appears to be cropping up with increasing frequency.
The latest version involves a New Jersey radiology firm: In September, the Center for Diagnostic Imaging (CDI) filed a complaint in the Superior Court of New Jersey, Cumberland County, against healthcare organization South Jersey Healthcare (SJH) and insurer Aetna Health of Fairfield, NJ, stating that the two entities conspired to squeeze CDI out of business in the geographical area. It's another case to watch because its results could set precedent for similar suits in the future, according to Steve Renard, president of Synergy Diagnostic Services in San Diego.
"[This trend] points back to the mass consolidation of the market that's been happening since the Deficit Reduction Act of 2005 was passed," Renard said. "More and more, it's bigger players versus small operations out there."
Founded in 2001, CDI of Vineland, NJ, has a network of referring physicians that represent 80% of the primary care physicians in the Cumberland County area, according to the company. Since it opened its doors, CDI has serviced 14,000 Aetna members; the group estimates that about 10% to 12% of its revenue and 16% of its total patient base has come from Aetna.
South Jersey Healthcare operates hospital facilities in Bridgeton, Vineland, and Elmer, and the organization also runs radiology, lab, and physical therapy outpatient offices.
Joint venture with SJH
According to the complaint, in 2001, CDI formed a medical group called Alliance Radiology to provide radiology services to hospitals in the SJH system. At the same time, CDI entered into a joint venture agreement with SJH to open an outpatient imaging center, with each entity owning a 50% share. Four years later, SJH ended its contract with Alliance and tried to negotiate a new agreement, including a requirement that departing physician members of Alliance would have to sell their interest in the venture to SJH, according to the complaint.
Alliance Radiology dismissed this proposal, and in 2006, SJH ended its participation in the joint venture and CDI took complete ownership.
"At the time SJH terminated its interest in the joint venture, SJH also reiterated that its ultimate objective was to either buy out [CDI's interest] or to otherwise eliminate CDI as a competitor in the relevant geographic market shared by [CDI] and [SJH]," the complaint states.
Aetna agreement
In July 2002, CDI and Aetna entered into an agreement that CDI would become an approved provider in Aetna's member network. In February 2008, CDI received a letter from Aetna stating that the insurer was terminating its agreement with CDI effective September 1. CDI met with Aetna to discuss the decision and was informed that it was non-negotiable, according to the complaint.
At around the same time, SJH initiated a meeting with CDI. During the meeting, SJH's chief operating officer, Wayne Schiffner, told CDI members that he knew Aetna had terminated its contract with the practice and that it was a good time for CDI to sell its practice to SJH. When this suggestion was rejected, Schiffner told CDI that SJH would have an exclusive contract with Aetna, that the hospital network planned to build or acquire new centers in Bridgeton and Vineland, and that it planned to buy other medical practices in Cumberland County, making it difficult for CDI to compete with SJH in that market, the complaint said.
"They sat down with us and told us that they'd gotten preferred status with Aetna, and that we should retire and get out of the county," said Dr. Satish Shah, an owner-member of CDI.
In May, SJH rejected a counteroffer CDI had submitted; the offer proposed that CDI lease its facility to SJH and that the facility would be jointly managed by CDI and SJH. In addition to rejecting the offer, SJH again expressed desire to purchase CDI outright.
SJH and Aetna announced in July that they had entered into a multiyear contract agreement in which SJH would be Aetna's preferred radiological provider in the Cumberland County area. SJH also announced that it would expand its radiology services by opening more outpatient centers in the same geographic areas as CDI. This contract began on September 1.
"We don't believe this suit has merit, and we will defend it aggressively," said Walt Cherniak, spokesperson for Aetna Health.
South Jersey Healthcare spokesperson Paul Simon said that SJH's policy is not to comment on litigation.
What's wrong with this picture?
CDI argues that SJH used its bargaining power over Aetna to cause the insurer to terminate its contract with CDI and contract exclusively with SJH and its affiliates, the complaint said. And Aetna ended its relationship with CDI to help SJH acquire CDI from its members at discount, or to drive CDI out of business. CDI has sustained and will continue to sustain financial loss, the complaint said.
"When a big player has business locked down in a geographical area, there's no way to break into the market unless the little guys start suing people," Renard said.
Patients are the ones who suffer the most from this kind of market contraction, according to Shah.
"What does SJH hope to accomplish?" Shah said. "Patients should have a choice as to where they receive imaging. We're not the only show in town, but patients get hurt [when healthcare options dwindle]."
By Kate Madden Yee
AuntMinnie.com staff writer
November 26, 2008
Related Reading
Florida Hospital forms own radiology group, May 22, 2008
Florida radiology group loses hospital contract, April 10, 2008
Rhode Island hospital opts for local radiology service, September 6, 2007
Mass General, Kent Hospital halt teleradiology talks, July 10, 2007
MGH teleradiology plan rankles Rhode Island radiologists, April 3, 2007
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