Antitrust limits on acquisitions of physician practices - new threshold suggested.

A recent out-of-court settlement involving the Sisters of Mercy Health System (SMHS) provides some guidance, at least with respect to one antitrust enforcer's position, on the question of whether there is a ceiling on the percentage of physicians in a particular specialty that hospitals or payers can acquire without violating the antitrust laws. SMHS is the parent company of St. John's Regional Health Center, which is the largest hospital in Springfield, Mo. SMHS reached an agreement with Missouri's Attorney General pertaining to its hiring of physicians and acquisition of physician practices.

In short, the agreement seeks to limit the numbers of certain types of specialists employed by SMHS in certain defined geographic areas to 40 percent of the physicians practicing in that specialty and geographic area. It does this by prohibiting the hiring of certain physicians, by prohibiting the enforcement of restrictions on certain physicians' discretion to end their employment with SMHS, by limiting SMHS's right to impose restrictive covenants on certain currently employed physicians who cease their employment with SMHS, and by prohibiting SMHS from restricting the access or admitting privileges of certain qualified physicians.

The agreement applies to physicians in nine defined specialties practicing within certain defined service regions in southwestern Missouri. It will be effective for three years. Within that time, a specialty and area will be restricted whenever SMHS employs (or, with the proposed hiring, would employ) at least four physicians in that specialty and area and at least 40 percent of the active and licensed physicians practicing in that specialty and area.

The agreement imposes four basic limitations on restricted specialties and areas. First, it provides that SMHS shall not hire physicians in any restricted specialty and area. Second, it prohibits SMHS from enforcing any contractual restriction on the discretion of a physician in a restricted specialty and area to end his or her employment with SMHS, provided that the physician complies with certain notice provisions. Third, it limits SMHS's right to enforce any contractually imposed restrictive covenant against a physician in a restricted specialty and area if that physician leaves his or her employment with SMHS, provided that the physician pays back any funds received from SMHS in connection with the physician's initial hiring--such as money for the acquisition of the physician's practice or money paid in exchange for a covenant not to compete. Fourth, it provides that, within any restricted area and specialty, SMHS may not limit the access or admitting privileges of an otherwise qualified physician just because he or she is not employed by SMHS. Similarly, it provides that SMHS may not prevent or discourage a physician employed by SMHS in a restricted specialty and area from obtaining or maintaining admitting privileges at other hospitals within certain defined areas.

Finally, the agreement provides that SMHS shall pay $30,000 to defray expenses that the Attorney General expects to incur in monitoring the agreement.

Whether or not one agrees with the Missouri Attorney General with respect to the thresholds for antitrust risk in this context, this settlement agreement does provide a potentially useful framework for thinking about such concerns. Hospitals and managed care networks facing similar issues should keep this framework in mind in planning for antitrust compliance in their physician acquisition strategies.