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State v. Franciscan Health System

United States District Court, W.D. Washington, Tacoma

June 28, 2019

STATE OF WASHINGTON, Plaintiff,
v.
FRANCISCAN HEALTH SYSTEM d/b/a CHI FRANCISCAN HEALTH; FRANCISCAN MEDICAL GROUP; THE DOCTORS CLINIC, a Professional Corporation; and WESTSOUND ORTHOPAEDICS, P.S., Defendants.

          ROBERT W. FERGUSON Attorney General

          JONATHAN A. MARK, WSBA No. 38051 AMY N.L. HANSON, WSBA No. 28589 ERICA A. KOSCHER, WSBA No. 44281 Assistant Attorneys General Attorneys for Plaintiff State of Washington

          FOR DEFENDANTS /s/ Mitchell Raup Mitchell Raup Herbert F. Allen Polsinelli PC, Matthew Hans Polsinelli PC, Jessica M. Andrade Polsinelli PC, G. Gabriel Zorogastua Polsinelli PC Attorneys for Defendants Franciscan Health System, Franciscan Medical Group, and WestSound Orthopaedics, P.S.

          Douglas Litvack Davis Wright Tremaine LLP, Douglas Ross David Maas MaryAnn Almeida Miriam Swedlow Davis Wright Tremaine LLP Attorneys for Defendant The Doctors Clinic, a Professional Corporation

          CONSENT DECREE

          BENJAMIN H. SETTLE UNITED STATES DISTRICT JUDGE

         WHEREAS, Plaintiff State of Washington, by and through its Attorney General (“State”), having conducted an investigation of the affiliations between Defendants Franciscan Health System and Franciscan Medical Group (collectively, “Franciscan”), The Doctors Clinic, A Professional Corporation (“TDC”) and Westsound Orthopaedics, a Professional Services Corporation (“WSO”), and having filed a Complaint alleging violations of Section 1 of the Sherman Act, 15 U.S.C. § 1, Section 7 of the Clayton Act, 15 U.S.C. § 18, and the Washington Unfair Business Practices - Consumer Protection Act, Wash. Rev. Code § 19.86.030 and 19.86.060, against Defendants in State of Washington v. Franciscan Health System, et al., No. 3:17-cv-05690-BHS; and

         WHEREAS, on March 1, 2019, the Court denied summary judgment for Franciscan and TDC on the State's claims challenging the TDC Affiliation pursuant to Sherman § 1 and Wash. Rev. Code § 19.86.030, and granted summary judgment for Franciscan and WSO on the State's claims challenging the WSO Acquisition pursuant to Clayton Act § 7 and Wash. Rev. Code § 19.86.060; final judgment has not yet been entered with respect to any of the State's claims; and

         WHEREAS, WSO is a party to this Consent Decree only as to its and the State's release of claims, covenant not to sue, entry of final judgment, and attorneys' fees, costs, and appeal provisions; and WSO is not bound by the injunctions, notice, reporting or disclosure requirements of this Consent Decree; and

         WHEREAS, to settle all of the State's claims, and without admitting liability or fault, Franciscan and TDC have agreed to undertake certain conduct and Franciscan has agreed to make certain divestitures; and

         WHEREAS, this consent agreement is for settlement purposes only and does not constitute an admission by Defendants that any law has been violated or that the facts alleged in the Complaint are true; and

         WHEREAS, Defendants agree that this Court has jurisdiction over them and the subject matter in this action; and

         WHEREAS, Defendants agree to be bound by the provisions of this Consent Decree, pending its approval by the Court and thereafter;

         NOW THEREFORE, there being no just reason for delay in resolving the claims alleged in Plaintiff's Complaint against Defendants, without trial or adjudication of any issue of fact or law on the State's claims relating to the TDC Affiliation, and upon the consent of the parties hereto, it is hereby ORDERED, ADJUDGED AND DECREED as follows:

         I. JURISDICTION

         1. Defendant Franciscan Health System, doing business as CHI Franciscan, is a non-profit corporation organized and existing under the laws of Washington, with its headquarters at 1717 South J Street, Tacoma, Washington 98405.

         2. Defendant Franciscan Medical Group, also doing business as CHI Franciscan, is a non-profit corporation organized and existing under the laws of Washington, with its headquarters at 1313 Broadway Plaza, Suite 2000, Tacoma, Washington, 98201.

         3. Defendant The Doctors Clinic is a professional corporation organized and existing under the laws of Washington, with its headquarters at 9621 Ridgetop Boulevard NW, Silverdale, Washington, 98383.

         4. Defendant WSO is a professional services corporation organized and existing under the laws of Washington, with its headquarters located at 4409 N.W. Anderson Hill Road, Silverdale, Washington 98383. WSO sold its assets to CHI Franciscan on or about July 1, 2016, and its physicians became employees of Franciscan Medical Group. WSO now has no employees and no business activities.

         5. This Court has jurisdiction over the subject matter of this action and over each of the parties hereto. The Complaint states a claim upon which relief may be granted against Franciscan and TDC under Section 1 of the Sherman Act, 15 U.S.C. § 1, and under Wash. Rev. Code § 19.86.030, alleged in the Complaint as a supplemental state claim.

         6. The Washington State Attorney General has the authority to bring this action on behalf of the State pursuant to Section 16 of the Clayton Act, 15 U.S.C. § 26, and Wash. Rev. Code § 19.86.080.

         7. Venue is proper in the United States District Court for the Western District of Washington.

         II. DEFINITIONS IT IS ORDERED that, as used in this Consent Decree, the following definitions shall apply:

         8. “Acquirer” means any Person that acquires the Divestiture Assets.

         9. “Adult PCP Services” means primary care physician services provided to any person 18 years of age or older by Physicians who specialize in Family Medicine, General Practice, or Internal Medicine and whose services are paid for by Commercial Payers.

         10. “Ambulatory Surgery Center” or “ASC” refers to the facility located at 2200 Northwest Myhre Road, Silverdale, WA 98383.

         11. “AGO” means the Antitrust Division of the Washington State Attorney General's Office.

         12. “Commercial Payer” means any HMO or other Person that sells commercial health insurance or other commercial health plans that cover the cost of Physician Services. It includes any Person that develops, leases, or sells access to networks of Physicians, for the creation of insurance products in the commercial market, including but not limited to commercial insurance, third-party administrator services, and other health plan services offered by Aetna, Cigna, First Choice, Kaiser/Group Health, Premera Blue Cross, Cambia/Regence Blue Shield, and United Healthcare. It does not include government payers for public health insurance programs, such as Medicare and Medicaid, or private entities that sell or manage government insurance programs including but not limited to Managed Medicaid, Medicare Advantage, or Tricare, but do not sell HMO, health insurance, or health plans in the commercial market.

         13. “Commercial Payer Contract” means a contract or agreement for Physician Services between Franciscan and a Commercial Payer, including but not limited to rates, definitions, terms, conditions, policies, and pricing methodology. It does not include contracts for government insurance programs such as Managed Medicaid, Medicare Advantage, or Tricare, even if a party to the contract also sells commercial HMO, health insurance, or health plans.

         14. “Commercial Payer Department” means the Franciscan department that will be responsible for or oversee Contract Administration for both Franciscan and TDC.

         15. “Commercial Payer Contracting Information” means information concerning Commercial Payer Contracts and negotiations with a specific Commercial Payer for Physician Services that is identifiable as being connected with or provided by that Commercial Payer, including charges, reimbursement rates, and documents and electronic health, billing and accounts receivable records otherwise reflecting this information; provided, however, that “Commercial Payer Contracting Information” shall not include: (i) information that is in the public domain or that falls in the public domain through no violation of this Consent Decree or breach of any confidentiality or nondisclosure agreement with respect to such information by Franciscan or TDC; (ii) information that becomes known to Franciscan or TDC from a third party that has disclosed that information legitimately; (iii) information that is required by law to be publicly disclosed; (iv) aggregate information concerning the financial condition of Franciscan or TDC; or (v) aggregate Commercial Payer information in which specific Commercial Payers are not identified or identifiable.

         16. “Contract Administration” means the act or acts associated with compliance with and implementation of final contract terms, such as payment monitoring, communication of Commercial Payer medical and administrative policies, utilization management, liaison to the business office, annual updates, and organizing Commercial Payer Contract-related budget information.

         17. “Defendant” or “Defendants” means Franciscan, WSO and/or TDC, as defined in this Consent Decree.

         18. “Divestiture Agreement” means any agreement between Franciscan and an Acquirer that receives the prior approval of the AGO to divest the Divestiture Assets, including all related ancillary agreements, schedules, exhibits, and attachments thereto, that have received the AGO's prior approval.

         19. “Divestiture Assets” means a controlling share of the Ownership Interest of the Ambulatory Surgery Center.

         20. “Effective Date” means the date this Consent Decree is entered by the Court.

         21. “Franciscan” means Franciscan Medical Group and Franciscan Health System (including Harrison Medical Center) collectively, d/b/a CHI Franciscan, along with their directors, officers, employees, agents, representatives, successors, and assigns; joint ventures, subsidiaries, divisions, groups and affiliates controlled by CHI Franciscan, and the respective directors, officers, employees, agents, representatives, successors, and assigns of each. For purposes of this consent decree, the definition of Franciscan does not include The Doctors Clinic or WSO, and does not include CommonSpirit Health or its affiliates other than Franciscan.

         22. “Franciscan Negotiating Team” means the team responsible for negotiating a Commercial Payer Contract for Physician Services for Franciscan.

         23. “HMO” means an organization receiving a certificate of registration pursuant to Wash. Rev. Code 48.46.

         24. “Hospital-Based Physicians” means physicians for whom Franciscan contracts with payers solely for payment for inpatient and outpatient services the physician provides at facilities in which Franciscan owns the majority share of the facility and does not include those physicians when they practice at other locations, including but not limited to physician-owned clinics.

         25. “KP/BI” means the Kitsap Peninsula, including Bainbridge and Fox Islands and the central peninsula towns of Bremerton, Silverdale and Poulsbo, along with Gig Harbor located in Pierce County at the southern end of the peninsula.

         26. “Non-Commercial Payer Contracting Information” means any information relating to a contract that does not meet the definition of a Commercial Contract, including contracts for government insurance programs such as Managed Medicaid, Medicare Advantage, or Tricare.

         27. “Orthopedic Physician Services” means Physician Services customarily provided by, and actually provided by, board-certified or board-eligible orthopedic surgeons to treat injuries of the bones, joints, ligaments, tendons, and muscles and paid for by Commercial Payers.

         28. “Ownership Interest” means any and all rights, present or contingent, of Franciscan to hold any voting or nonvoting stock, share capital, equity or other interests or beneficial ownership in an entity.

         29. “Person” means any individual, partnership, joint venture, firm, corporation, association, trust, unincorporated organization, joint venture, or other business or government entity, and any subsidiaries, divisions, groups or affiliates thereof.

         30. “Physician Services” means Adult PCP Services or Orthopedic Physician Services provided to patients, paid for as professional services by Commercial Payers.

         31. “Physician” means a doctor of allopathic medicine (“M.D.”) or a doctor of osteopathic medicine (“D.O.”).

         32. “Physician Group” means an entity that employs Physicians.

         33. “Pre-existing Commercial Payer Contract” means a Commercial Payer Contract between a Commercial Payer and Franciscan that is in effect on the Effective Date of this Consent Decree.

         34. “PSA” means the Professional Services Agreement that TDC and Franciscan entered into on September 6, 2016.

         35. “Qualified Arrangement” means a Qualified Clinically-Integrated Joint Arrangement or a Qualified Risk-Sharing Joint Arrangement between (1) Franciscan or TDC on the one hand; and (2) Physicians or Physician Groups other than Franciscan or TDC, on the other hand.

         36. “Qualified Clinically-Integrated Joint Arrangement” means an arrangement to provide Physician Services at locations in KP/BI in which:

a. all Physicians or Physician Groups who participate in the arrangement participate in active and ongoing programs of the arrangement to evaluate and modify the practice patterns of, and create a high degree of interdependence and cooperation among, the Physicians or the Physician Groups who participate in the arrangement, in order to control costs and ensure the quality of services provided through the arrangement; and
b. any agreement concerning price or other terms or conditions of dealing entered into by or within the arrangement is reasonably necessary to obtain significant efficiencies that result from such integration through the arrangement.

         37. “Qualified Risk-Sharing Joint Arrangement” means an arrangement to Provide Physician Services at locations in KP/BI in which:

a. all Physicians or Physician Groups who participate in the arrangement share substantial financial risk through their participation in the arrangement and thereby create incentives for the Physicians or Physician Groups who participate jointly to control costs and improve quality by managing the provision of Physician Services such as risk-sharing involving:
i. the provision of Physician Services at a capitated rate;
ii. the provision of Physician Services for a predetermined percentage of premium or revenue from Payers;
iii. the use of significant financial incentives (e.g., substantial withholds) for Physicians or Physician Groups who participate to achieve, as a group, specified cost containment or quality improvement goals, or
iv. the provision of a complex or extended course of treatment that requires the substantial coordination of care by Physicians in different specialties offering a complementary mix of services, for a fixed, predetermined price, when the costs of that course of treatment for any individual patient can vary greatly due to the individual patient's condition, the choice, complexity, or length of treatment, or other factors; and
b. any agreement concerning price or other terms or conditions of dealing entered into by or within the arrangement is reasonably necessary to obtain significant efficiencies that result from such integration through the arrangement.

         38. “TDC” means The Doctor's Clinic, a professional corporation organized and existing under the laws of Washington, with headquarters at 9621 Ridgetop Boulevard NW, Silverdale, WA 98383.

         39. “TDC Affiliation” means the 2016 affiliation of Franciscan with TDC, consisting of the following principal agreements: (1) the Asset Purchase Agreement by which Franciscan acquired certain assets TDC used to provide medical services to patients; (2) the Asset Lease Agreement, by which Franciscan leased certain assets TDC used to provide medical services to its patient; (3) the Professional Services Agreement, by which TDC agreed to perform medical services exclusively for Franciscan's patients and through which Franciscan agreed to pay TDC for these services and provide TDC the assets needed to perform the services; and (4) the Management Services Agreement by which Franciscan engaged TDC to provide certain management, administrative, consulting and other related services on Franciscan's behalf. “TDC Affiliation” also includes related ancillary agreements, amendments, schedules, exhibits, and attachments thereto.

         40. “TDC Negotiating Team” means the team responsible for negotiating the prices and terms on which TDC will provide Physician Services when a Commercial Payer elects to negotiate those terms separately from Franciscan.

         41. “WSO Acquisition” means the July 1, 2016 agreement between Franciscan and WSO whereby Franciscan acquired all of the assets of WSO, a physician practice with six orthopedists, and employed those physicians.

         42. “wRVU” means fee-for-service, productivity-based compensation tied to work Relative Value Units used by the Centers for Medicare and ...


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