Doctors vs Hospital: Will this battle become yours?

June 16, 2006

A Missouri practice offering ancillary services claims the local hospital is out to bury it. Could this happen to you, too?

Ferguson Medical Group and Missouri Delta Medical Center are virtually next-door neighbors in the small town of Sikeston, MO, about 140 miles south of St. Louis. In between them stands an Episcopal church.

And it just may take divine intervention to make peace between these two organizations. They're adversaries in a legal battle that shows how fierce the competition between doctors and hospitals is getting these days.

In 2002, five partners of Ferguson, who accounted for 30 percent of the group's net revenue, went to work for MDMC, the only hospital in town. Dealt this body blow, the now 19-physician group sued the doctors in state court for allegedly breaching a restrictive covenant that would've forced them to practice medicine out of town or else pay handsomely to avoid exile. The case goes to trial this fall.

Ferguson does seem to be giving MDMC a run for its money. For proof, just look in back of the clinic. There sits the year-old Sikeston Imaging Center, a joint venture between Ferguson and a radiology group, which boasts a CT scanner and an MRI. Identical equipment is a stone's throw away at the hospital.

Similar war stories are cropping up nationwide as doctors, squeezed by third-party payers, venture into income-boosting ancillary services that put them at odds with local hospitals, says consultant Preston Gee with Phase 2 Consulting in Austin, TX. "Hospitals view doctors as a big threat because they can peel off lucrative services like imaging," says Gee. "Hospitals respond by saying, 'We're going to play hardball.' "

For MDMC, hardball has meant employing a cadre of physicians, now 20 strong. Its growth has come at Ferguson's expense, especially in surgical specialties. Besides the five doctors named in the litigation, the hospital group includes six others hired away from Ferguson who weren't bound by restrictive covenants. Internal strife apparently made Ferguson ripe for the picking.

The two sides in the battle say they'd prefer to be noncombatants. "We've been allies in the past and I hope we can be allies in the future," says pediatrician and Ferguson spokesman Kevin Blanton. "I have no vendetta against anyone," adds Ancell. In the meantime, attorneys continue to file court papers.

A group practice grows ambitious-and unsettled

Surrounded by flat expanses of cotton, corn, and soybeans, Sikeston is perhaps best known for Lambert's Café, where waiters throw dinner rolls across the room to customers. But all is not fun and games for Sikeston's 17,000 residents. Twenty-one percent fall below the federal poverty level, compared to 12.4 percent nationally.

It's in this tough healthcare market, dominated by Medicare and Medicaid, that Ferguson and MDMC go toe to toe. Each facility is on Main Street; their parking lots connect in back. Patients can visit either rival for many of the same services-diagnostic imaging, urgent care, lab work.

Up until the late 1990s, the two organizations enjoyed a cozy relationship. MDMC helped Ferguson recruit new doctors by guaranteeing 60 percent of their salaries for the first one or two years as well as footing the bill for moving expenses and signing bonuses. The relationship started to seriously unravel when Ferguson began exploring ancillary services to offset declining reimbursements from third-party payers.

The imaging center is a case in point. Kevin Blanton says the group approached MDMC about jointly investing in one. When the hospital passed, Ferguson partnered with a radiology group in nearby Cape Girardeau, MO, and asked a state certificate-of-need committee to approve the $1.5 million project. "That made the hospital mad," says Blanton. Mad enough, he adds, to switch from using a mobile MRI that visited the hospital three days a week to installing one in-house.