Belmar v. CipollaBelmar v. Cipolla
The opinion of the Court was delivered by
This case presents the question whether a hospital may enter into an exclusive contract with an anesthesiologist or group of anesthesiologists for the provision of all anesthesiological services at the hospital. In an unreported decision, the Chancery Division approved the right of the hospital to enter into such an exclusive contract and therefore dismissed plaintiffs’ complaint that challenged the agreement. The Appellate Division affirmed, also in an unreported decision. We now affirm the judgment of the Appellate Division.
I
Plaintiffs, Jose Belmar, Armando Sulit, and Ying Bang Lin (plaintiff doctors), like the individual defendants, Joseph Cipolla, Shih-Piau Hsu, and Wellington Hsia (defendant doctors), are medical doctors and former partners in the defendant partnership, Anesthesia Associates. Defendant Community Hospital Group, Inc. (Community), a nonprofit corporation, operates John F. Kennedy Community Hospital (J.F.K.), the hospital where Anesthesia Associates practiced anesthesiology.
In the agreements, Community guaranteed fees of “at least $135,000.00 for three anesthesiologists and $180,000.00 for four anesthesiologists.” The contracts provided further that staff privileges would be granted to a limited number of physicians, originally set at four, who would comprise the anesthesiology department at J.F.K. Plaintiffs contend that the agreements were nothing more than minimum income guarantees.
Although the trial court noted that the arrangement between the parties was “somewhat haphazard,” it found that the contracts contemplated that defendant doctors would have the exclusive right to provide anesthesiological services at the hospital. That finding is supported by substantial credible evidence and we sustain it. Ramirez v. Autosport, 88 N.J. 277, 290 (1982).
Specifically, the contracts provided that all anesthesia at J.F.K. “will be practiced without referrals.” The effect of that provision was to prevent surgeons from requesting a particular anesthesiologist for an operation. The provision was important to the defendant doctors, who believed that referrals gave individual surgeons too much control over anesthesiologists’ schedules and compensation. From prior experience, the anesthesiologists also thought that the referral system bred discontent in an anesthesiology department.
In exchange, the hospital received the assurance from the doctors that they would not provide anesthesia services at any other hospital and that they would provide those services at J.F.K. “in the operating room on a 24-hour basis.” The hospital retained control over the department through a provision for
The trial court found that hospitals generally staff an anesthesiology department in one of three ways: an open staff, a non-exclusive closed staff, or through an exclusive contract. Under an open staff arrangement, any anesthesiologist who meets the hospital’s professional qualifications is granted staff privileges. A hospital with a non-exclusive closed staff has a maximum number of available positions, and it may award staff privileges until reaching the maximum number. Under both open and closed staff arrangements, staff members provide the necessary coverage for anesthesia services.
The Community Board of Governors, acting on the advice of the hospital’s executive director, made the policy decision before opening J.F.K. that the radiology, pathology, and anesthesiology departments should operate under exclusive contracts. According to the executive director, an experienced hospital administrator, the advantages of an exclusive contract for anesthesiology included “better use of * * * operating room personnel,” the ability “to process more operative procedures,” the avoidance of “fee splitting that exists between surgeon and anesthesiologist,” and “better coverage in terms of 24 hour coverage.”
When a hospital enters into an exclusive contract, the contracting anesthesiologists assume many, if not most, of the administrative responsibilities of running an anesthesiology department. At J.F.K. those responsibilities included hiring and firing personnel, establishing department procedures, distributing cases, collecting fees, paying bills, scheduling vacations, and determining the compensation of the anesthesiologists. As the trial court found, exclusive contracts “are not uncommon
On the day before signing their contracts with Community, Drs. Cipolla, Hsia, and Burgos entered into a partnership, Anesthesia Associates, by signing an “Agreement between the members of the department of anesthesiology of John F. Kennedy Community Hospital.” The partnership agreement, which was less formal than the agreement with Community, provided for the collection of fees, payment of expenses, and equal division of net profits. Consistent with the hospital regulation that required a department director to be board certified, the agreement provided that a board certified anesthesiologist was to be the chief of the department. The department chief, also known as the director or chairman, was to represent the department at hospital meetings and schedule “daily cases.” In fact, Drs. Cipolla and Hsia were the only board certified members of the group and they alternated serving as department chairman. The partners also agreed to share equally in the department’s work and, consistent with the contract between defendant doctors and Community, agreed not to honor individual referrals of patients from other doctors. In brief, all anesthesiological work at the hospital was to be channeled through the partnership.
Over the years the department grew, and various anesthesiologists joined and left the staff. The partnership interviewed and recommended doctors for appointment, subject to the hospital’s review for competency and proper credentials. Similarly, either the partnership or the hospital could terminate the privilege of practicing anesthesiology at J.F.K. These facts support the finding of the trial court that “[t]he exclusive contract gave Drs. Hsia and Cipolla the right to terminate members of the department.”
Plaintiff Drs. Sulit and Lin joined the department in 1978 with an assurance of full partnership after a two-year probationary period. Shortly before the end of that period, however, Drs. Cipolla and Hsia offered them a “junior partnership.” After negotiations, in which Dr. Belmar became embroiled, the parties agreed that Drs. Sulit and Lin would become partners and receive 85% of a full share.
Throughout its life, the partnership was fraught with disharmony. In particular, the trial court found that Dr. Belmar “was a divisive and uncooperative factor in the department.” That court further found “as a fact that Dr. Belmar’s conduct in the department was uncooperative, abrasive and stubborn.”
Finally, on June 8, 1978, Dr. Cipolla sent a letter to Drs. Belmar, Hsu, and Hsia dissolving the partnership. Thereupon Drs. Cipolla, Hsia, Hsu, Sulit, and Lin formed a new partnership known as J.F.K. Anesthesia Associates (J.F.K. Associates). A year later, however, in June 1979, Drs. Sulit and Lin withdrew from J.F.K. Associates and formed a new partnership with Dr. Belmar. The defendant doctors retained control of the scheduling of cases, and as time went on, Drs. Sulit, Lin, and
Friction developed between the two groups, and the conflict spread to the operating room. The hospital formed a grievance committee to mediate the controversy, but eventually the executive director advised the Board of Trustees that “it was extremely difficult for us to operate with two separate groups and still maintain an efficient operation * !f *. The groups are not speaking with one another and are literally fighting with one another * * *. This situation is affecting the hospital— scheduling of time off is not being coordinated, etc.” Consequently, at a meeting of the hospital board of trustees on November 27, 1979, the board unanimously adopted a resolution “to continue the contract with Dr. Cipolla as it is in effect now and have the Anesthesia Associates cover us with qualified people twenty-four hours a day.” By February 1980, the defendant doctors had hired other doctors to replace the plaintiff doctors, who were excluded from the assignment schedule.
The plaintiff doctors instituted separate actions seeking damages and an accounting from the defendant doctors and damages and an injunction against Community. In amended complaints filed one day before the pretrial conference, the plaintiff doctors asserted further that the contractual arrangement between the defendant doctors and the hospital violated the New Jersey Antitrust Act, N.J.S.A. 56:9-1 to -19.
The trial court sitting without a jury found that “exclusive contracts may be debatable but they are not unlawful. Hospitals have a broad range of discretion within which to structure the delivery of health services. Only if they act arbitrarily or
II
Analysis of the legal consequences of the relationships between the parties requires some comprehension of the nature and function of a modern hospital. To say that a hospital is a place where sick people receive medical and surgical treatment is accurate but incomplete. In providing necessary treatment, a hospital must have available numerous doctors, nurses, and attending staff. It must provide operating, recovery, and patient rooms; as well as medicines, food, beds, and support equipment. Payment of hospital bills by third-party payors (private insurance companies or governmental agencies) requires a complicated billing and collection system. State and federal regulations add to the administrative burden. In short, a hospital is a complex business vitally affected with a public interest.
From another perspective, a hospital is a work place for hundreds of people who care for patients, maintain and operate the plant and equipment, and conduct the business of a complicated health care facility. Included in the wide range of professionals who work at a hospital are doctors. For some doctors, such as surgeons and anesthesiologists, a hospital may be the primary place to practice their profession. Consequently, staff privileges, which are crucial to their practice, create judicially-protected interests, such as the right to procedural
No matter what arrangement a hospital may have with doctors, its primary purpose remains to serve the public. Garrow v. Elizabeth Gen. Hosp. and Dispensary, 79 N.J. 549, 557 (1979); see Greisman, supra, 40 N.J. at 404. As long as those entrusted with the management and governance of a hospital make reasonable decisions .consistent with the public interest, their decisions should be respected. Doe v. Bridgeton Hosp. Ass’n, Inc., 71 N.J. 478, 489 (1976). Consequently, courts normally do not interfere with a reasonable management decision concerning staff privileges as long as that decision furthers the health care mission of the hospital. Greisman v. Newcomb Hosp., supra, 40 N.J. at 403-04.
Nonetheless, hospitals must adopt rules, regulations, and bylaws concerning procedures for admission to staff membership, N.J.A.C. 8:43B-6.2, and they may not arbitrarily prevent otherwise qualified doctors from exercising staff privileges. Greisman v. Newcomb Hosp., supra, 40 N.J. at 403-04; Doe v. Bridgeton, supra, 71 N.J. at 489. Additionally, a hospital has a right and a duty not only to review the qualifications of doctors, but also to consider the need for and impact of additional doctors on the hospital’s staff and patients. In balancing the interests of the hospital management with those of a doctor who desires to practice at the hospital:
Hospital officials are properly vested with large measures of managing discretion and to the extent that they exert their efforts toward the elevation of hospital standards and higher medical care, they will receive broad judicial support. But they must never lose sight of the fact that the hospitals are operated not for private ends but for the benefit of the public, and that their existence is for the purpose of faithfully furnishing facilities to the members ofthe medical profession in aid of their service to the public. They must recognize that their powers, particularly those relating to the selection of staff members, are powers in trust which are always to be dealt with as such. [Greisman v. Newcomb Hosp., supra, 40 N.J. at 403-04].
When striking the balance, hospitals are constrained not only by judicial decisions but also by statutes and administrative regulations. Regulations adopted pursuant to the licensing statute, N.J.S.A. 30:11-1 to -26, require the hospital to appoint an organized medical staff responsible to the governing board. N.J.A.C. 8:43B-6.1 to -6.6. Other requirements oblige a hospital to provide an anesthesia department, N.J.A.C. 8:43B-1.11(q)(12), to provide a physician to direct those services, N.J.A.C. 8:4 3B-1.11(q)(12)(i), and to provide a system to assure sufficient personnel for emergency needs. N.J.A.C. 8:43B-1.11(q)(12)(iii).
Although essential to many medical procedures, the practice of anesthesiology differs from other medical and surgical specialities. The record reveals that generally the surgeon or other primary care physician, not the anesthesiologist, admits the patient, who expects that physician or the hospital to arrange for ancillary services such as anesthesia. Patients rarely select an anesthesiologist and in most, if not all, cases, a patient desires anesthesia only in connection with another procedure.
To a certain extent, surgeons are sources of business for anesthesiologists, who may compete for referrals. Conversely, surgeons may conclude that they can exert unreasonable demands on a favored anesthesiologist. For example, Dr. Cipolla testified that when he practiced under an open system, he would sometimes be called back from vacation by a surgeon, under the threat of loss of future referrals, to administer anesthesia to the surgeon’s patient, although other anesthesiologists were on duty and available. Competition for business from surgeons can breed dissension among anesthesiologists, even when they are partners. Sometimes, as occurred at
Although the experts at trial differed about the relative advantages and disadvantages of the exclusive contract between Community and defendant doctors, all agreed that an exclusive contract was a recognized method of providing anesthesiology services. At trial, plaintiffs relied on an amendment to the statement of policy of the American Society of Anesthesiologists that disapproves exclusive contracts between hospitals and anesthesiologists. The statement, apparently adopted in response to the use of nurse anesthetists by some hospitals, is advisory only and does not subject contracting anesthesiologists to ethical sanctions.
Nonetheless, Dr. Belmar wrote letters complaining of the conduct of the defendant doctors to the State Board of Medical Examiners, the Federal Trade Commission, the Middlesex County Medical Society, the New Jersey Society of Anesthesiologists, and the American Society of Anesthesiologists, none of which found that the doctors had committed any ethical violations.
No one criticized the quality of anesthesia services at J.F.K. or asserted that the cost of anesthesia would be reduced under a different arrangement. An exclusive contract, nonetheless, is not the only acceptable method of providing anesthesia services. Hospitals must have latitude in exercising their management discretion and, depending on the circumstances, a different arrangement might also be reasonable. That conclusion is consistent with the position taken in these proceedings by the Attorney General who, in declining our invitation to participate in this appeal, wrote that the Department of Health was “neutral” on the subject of exclusive contracts between hospitals and physicians engaged in specialities such as anesthesiology. The Attorney General advised further that the department had “no regulatory preference for a particular staffing structure.”
The evidence points to the conclusion that the decision to enter an exclusive contract for the provision of anesthesia services was motivated by the hospital’s desire to insure a high standard of medical care. In reaching that decision, the hospital considered that the benefits of the contract outweighed any limitation on the freedom of choice of surgeons or patients to select a particular anesthesiologist. Those benefits included 24-hour-a-day coverage and more efficient use of operating rooms, the easing of tension among staff doctors, and a reduction in administrative problems. Under the circumstances, the decision to enter an exclusive contract was a reasonable choice, and the contract does not violate public policy.
That conclusion comports with decisions of other jurisdictions holding that similar exclusive arrangements with various medical specialists represent the reasonable exercise of discretion by the hospital governing body.
See, e.g., Capili v. Shott,
487
F.Supp.
710 (S.D.W.Va.1978),
aff'd,
Ill
On the day before the pretrial conference, plaintiffs amended their complaint to assert a violation of the New Jersey Antitrust Act. Plaintiffs’ claim was predicated upon N.J.S.A. 56:9-3 that provides: “Every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce, in this State, shall be unlawful.”
The plaintiff doctors claimed that the exclusive contract constituted an illegal tying arrangement resulting in a per se violation of that act. The essential allegation is that Community has unlawfully tied the sale of other hospital services, particularly surgery (the tying service), to the sale of anesthesiological services (the tied service).
Despite the perfunctory proof at trial, plaintiffs pressed their antitrust claims before us, primarily relying on the decision of the United States Circuit Court of Appeals for the Fifth Circuit in
Hyde v. Jefferson Parish Hosp. Dist. No. 2,
In Hyde, East Jefferson Hospital entered an exclusive contract with Roux Associates for the operation of an anesthesiology department. Although a subsequent agreement omitted the exclusivity clause, the hospital continued to treat Roux, who employed nurse anesthestists as well as anesthesiologists, as the exclusive provider of anesthesiological services. Accordingly, the hospital denied staff privileges to Hyde, who alleged that the contract was an illegal tying arrangement in violation of section 1 of the Sherman Act. That section, which was the model for N.J.S.A. 56:9-3, states: “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations is declared to be illegal.” 15 U.S.C. § 1.
On appeal, the Circuit Court determined the relative market to be the east bank of Jefferson Parish, a smaller area than metropolitan New Orleans.
Until the Fifth Circuit decision in
Hyde,
the federal courts had unanimously rejected doctors’ claims that hospital policies pertaining.to staff privileges violated the federal antitrust laws.
Smith v. Northern Michigan Hosps., Inc.,
703
F.
2d 942, 954 (6th Cir.1983) (summary judgment for defendants under section 1 of Sherman Act affirmed as to hospital, but reversed and remanded under section 2 as to exclusive contractor for emergency room services);
DosSantos v. Columbus-Cuneo-Cabrini Med. Center,
684
F.
2d 1346, 1352-53 (7th Cir.1982) (in vacating preliminary injunction against enforcement' of exclusive contract for anesthesiology services, Circuit Court has “serious
Since the date on which we heard oral argument, the United States Supreme Court has reversed the judgment of the Fifth Circuit in the Hyde case and remanded the matter to the United States District Court. Jefferson Parish Hosp. Dist. No. 2 v. Hyde, — U.S. -, 104 S.Ct. 1551, 80 L.Ed.2d 2 (1984). Although all members of the Court voted for the judgment of reversal, it divided five-to-four on the appropriate rationale.
In an opinion by Justice Stevens, the majority observed that certain types of contractual
arrangements
— e.g., price-fixing— “are deemed unreasonable as a matter of law,” —
U.S.
at -, 104
S.Ct.
at 1556,
The Court began its analysis of the market or markets in which the two products are sold. Focusing on the sale of services to patients, not on the contractual arrangement with the provider of anesthesiological services, Justice Stevens observed that the record established that Roux billed separately for anesthesia services and that patients or surgeons often requested specific anesthesiologists to come to the hospital to administer anesthesia. Hence, he found that anesthesiological services were separable from other services and that the arrangement presented a tying of two separate products.
That ruling, however, was only the beginning of the inquiry. The dispositive question was whether the hospital employed its market power to force “patients to use an unwanted anesthesiologist in order to obtain needed hospital services.” —
U.S.
at - n. 40, 104
S.Ct.
at 1565 n. 40,
In the concurring opinion, Justice O’Connor, joined by three other members of the Court, urged abandoning the
per se
rule and refocusing “the inquiry on the adverse economic effects, and the potential benefits, that the tie may have.” —
U.S.
at -, 104
S.Ct.
at 1570,
On the other side of the balance, Justice O’Connor concluded that the tie-in conferred significant benefits upon the hospital and the patients such as standardization of procedures, efficient use of equipment, and increased quality control. Id. Noting that such arrangements are generally accepted in the health care industry, she observed that the record contained no evidence of patient dissatisfaction with anesthesiological services at the hospital.
Notwithstanding the previously mentioned deficiencies in the record in the Hyde case, that record was more complete than the one before us. In Hyde, for example, the plaintiff presented testimony to establish the hospital’s share of the relevant geographic market. By contrast, the only evidence adduced to establish J.F.K.’s market area was an unexplained excerpt from a hospital planning document. This record is devoid of proof that patients were forced to purchase the service of defendant doctors as the result of the hospital’s market power.
As in
Hyde,
—
U.S.
at -, 104
S.Ct.
at 1567,
Allowing plaintiff doctors to practice at J.F.K. would increase the range of choice at the hospital, but the nature of the transaction and the hospital’s right to exercise some control
Furthermore, the trial court found that the tying arrangement relieves J.F.K. of an administrative burden. That finding is consistent with Justice O’Connor’s statement in Hyde that the tie-in insures 24-hour-a-day coverage and permits more efficient hospital administration. — U.S. at -, 104 S. Ct. at 1575, 80 L.Ed.2d at 33.
In another context, the adoption in Hyde by the United States Supreme Court of a per se test might pose a dilemma for us. The New Jersey Antitrust Act mandates that it “shall be construed in harmony with ruling judicial interpretations of comparable Federal antitrust statutes * * *." N.J.S.A. 56:9-18. Previously, however, we have employed the rule-of-reason test in analyzing alleged ties. Pomanowski v. Monmouth County Bd. of Realtors, 89 N.J. 306, 315 (1982); State v. Lawn King, Inc., supra, 84 N.J. at 210-13. The rule-of-reason test is particularly appropriate when, as here, we are confronted with a novel and complex issue with which New Jersey courts have had little experience. Id. Because the proof fails to satisfy both tests, however, we need not determine whether we would eschew the per se test for a rule-of-reason analysis in another case.
Because we find no violation of the New Jersey Antitrust Act, we need not determine defendants’ alternative argument that Community is exempt from the New Jersey Antitrust Act pursuant to the statutory exemption for “bona fide religious and charitable activities of any not for profit corporation, trust or organization established exclusively for religious or charita
The judgment of the Appellate Division is affirmed.
For affirmance —Justices CLIFFORD, SCHREIBER, HANDLER, POLLOCK, O’HERN and GARIBALDI—6.
For reversal —None.