December 1998 Bulletin

Physicians fight PhyCor

Allege management agreement violates state law

By Sandra Lee Breisch

These days, it's getting hard to tell who the white knight in shining armor is: the physician practice management company or the hospital.

Take the tangled web of events that involves legal parrying between a group of health care providers in Fort Smith, Ark., a physician practice management company and a local hospital in town.

The latest skirmish involves PhyCor, Inc.'s filing of a complaint against Sparks Regional Medical Center and its newly formed non-profit medical foundation. The complaint alleges that the hospital created its foundation simply to destroy the clinic by taking all of its disgruntled physicians.

One-third of the physicians who fled the Holt-Kroch Clinic to practice at the hospital are still legally bound to a 40-year management agreement they signed with Phycor on Sept. 1, 1994. The physicians filed a lawsuit on April 17, 1998 in the Sebastian County, Arkansas Fort Smith District, contending that the restrictive covenant agreement, which limits their ability to practice medicine within a 30-mile radius, violates Arkansas state law. A summary judgement is pending.

According to Kevin J. Egan, a Chicago-based health care attorney representing Sparks Regional Medical Center, the hospital denies that the foundation was created to solely cause harm to the clinic. "The hospital states that it was only responding to the needs and requests of physicians wishing to sever their relationship with PhyCor and the clinic," he says. "Additionally, the hospital indicated it created the medical foundation in an attempt to maintain optimum patient care in the greater Fort Smith area."

As of this writing, no hearing is scheduled on the complaint.

Sparks has also agreed to pay any legal expenses and damages for their employees related to any alleged violations of the noncompete agreement. The six orthopaedists involved in the suit formed the River Valley Orthopaedics Center at the hospital.

Attorneys for the physicians expect a favorable outcome based on a previous summary judgment granted by the Circuit Court of Sebastian County, Ark. Fort Smith District that involved Gary L. Bodiford, MD, an ophthalmologist. He signed onto the same 40-year restrictive covenant agreement with the Holt-Kroch Clinic and PhyCor, as did the other physicians in the pending lawsuit, in September 1994. However, unlike the other physicians, Dr. Bodiford was terminated on Nov. 27, 1996 and then set up practice in the Fort Smith area. The plaintiff had asked the court for a declaratory judgment that the Holt-Krock and PhyCor had breached contractual and fiduciary duties owed to him and that he could practice medicine in Fort Smith, free of any contractual obligation to the defendants.

The court said the covenant not to compete was void and unenforceable and considered it unreasonable as to the geographic area covered. The judge said, "The public policy of this state is that the public has a right of access to the doctor for medical services." The court documents said the liquidated damages clause is also unenforceable because Holt-Kroch Clinic committed the first breach of the contract. The court also said damages claimed to have been sustained by the clinic are self-inflicted damages occasioned by the action of the clinic in terminating Dr. Bodiford.

Background

PhyCor, Inc., headquartered in Nashville, Tenn, operates 56 medical groups with about 3,760 physicians in 29 states, and manages IPAs with about 26,000 physicians in 36 markets.


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