Article Archives >> Lead Stories >> February 1-15, 2006

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Nonprofit Hospital Not Liable
For Killer Competition with Med Center
Actions taken to advance competitive interests
were not improper interference with Center’s business

Some arguably questionable business tactics by a nonprofit hospital do not amount to tortuous interference with business relationships when they are taken at least in part for competitive reasons, the Oregon Court of Appeals has ruled. The Court has affirmed a directed verdict against a proprietary medical center that claimed damages after going out of business. (Douglas Medical Center v. Mercy Medical Center, No. A118909, 1/11/06.)

The nonprofit Mercy Medical Center and proprietary Douglas Medical Center had been competing in Roseburg, OR, for about 50 years, but with regionalization and consolidation of medical treatment by the mid-1990s, it became clear that only one could survive. At the time, Mercy had about 80% of the inpatient care market.

Both institutions determined that they needed a better relationship with an outpatient surgical center and sought better affiliation. They were also competing to provide services to the Oregon Health Plan through SureCare, a health insurance provider.

When the Health Plan sought bids for an exclusive arrangement, it said it could pay only $28 per month per subscriber. Douglas submitted a bid of $48, concluding it could not provide the service at $28. Mercy bid at $28 even though it knew it would lose money. In addition, it agreed to waive a claim of $400,000 in additional payments for the prior year, and made a payment of $250,000 to SureCare so that it would have sufficient reserves to qualify under state requirements.

Although the $250,000 payment was originally characterized as a contribution, when the hospital realized it could not contribute to a for-profit organization, it made an arrangement with SureCare that it would waive a right to terminate an earlier agreement to provide legal consideration for the payment. In addition, however, Mercy agreed to a “carve out” of its exclusive contract to allow the surgicenter to also provide services under the Health Plan in the community.

When Douglas Medical Center was further frozen out of the picture, it went out of business the following year and sued Mercy for interference with its economic relationships.

After a 15-day jury trial, the Court gave a directed verdict for Mercy without allowing the jury to make a determination. The Court said that Douglas’ evidence was inadequate to show a conspiracy with the surgicenter and “it’s just as likely and in my opinion more likely that this was done just in the ordinary course of business.”

On appeal, the Court of Appeals agreed that it was not proper for the trial judge to weigh the evidence, but nevertheless concluded that there was no basis for the claim.

To prove tortuous interference, the plaintiff must prove, among other things, that the interference was accomplished through “improper means or for an improper purpose,” the Court said.

Citing the Restatement of Torts, a compendium of the common law, the Court said one is not guilty of an improper purpose if the purpose “is at least in part to advance [the person’s] interest in competing with the other.” In this case, the Court said, the institutions had been competing for about 50 years, and there was no evidence that would have permitted the jury to infer that Mercy’s conduct was motivated by any purpose other than a competitive purpose, let alone that the improper purpose was the sole purpose for its actions.

The Court then looked to the definitions of “improper means” that had been developed in the Restatement and various court cases. Those sources require action that is “independently wrongful,” such as violence, threats, intimidation, deceit, misrepresentation, bribery, unfounded litigation, defamation or disparaging falsehoods.

Douglas alleged 11 counts of improper conduct, but the Court rejected most of them without comment. On the claims that Mercy’s waiver of the $400,000 potential claim against the insurer and the “carve out” arrangement for the surgicenter constituted improper means, however, the Court said that Douglas could not prove any nexus between those actions and Mercy’s interference with Douglas’ own economic relationships with those organizations. The alleged “improper means” were several steps removed from the alleged interference with Douglas’ relationships.

YOU NEED TO KNOW

Although the nonprofit community seldom acknowledges competition between organizations, it is interesting to see that this Court had no trouble recognizing competition and embracing it as the basis for the nonprofit’s actions.

Article Archives >> Lead Stories >> February 1-15, 2006