Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Outpatient surgery center operator allegedly used noncompete pacts to foreclose competition, (Aug 19, 2015)

By Linda O’Brien, J.D., LL.M.

A leading operator of ambulatory surgery centers in the U.S. has engaged in anticompetitive practices by requiring its partner physicians to execute overly broad and unreasonable noncompete covenants that limit the opening and operation of new surgery centers in central Oregon, according to a complaint filed by physicians and their medical practice in the federal district court in Eugene, Oregon (Wallace v. AmSurg Holdings, Inc., August 14, 2015).

AmSurg Holdings, Inc. owns and operates more than 240 ambulatory surgery centers (ASCs) across the United States. ASCs offer patients an alternative to the hospital setting for outpatient surgical procedures. Physicians Kent Yundt and Anthony Hadden formed Northwest Medical Specialists, LLC, doing business as Northwest Brain and Spine (NBS), in 2004 to provide brain and spinal care to Central Oregon residents.

The complaint states that, in 2011, Yundt and Hadden purchased a partnership interest in Bend Surgery Center (BSC), which was formed as an ASC. In May 2014, the partners of BSC approved an agreement under which Amsurg would acquire a majority interest in BSC. Pursuant to the acquisition, the parties executed an operating agreement that included a restrictive noncompete covenant. The covenant provided that no owner or affiliated physician could have a direct or indirect ownership interest in a competing business within a 25 mile radius of BSC for five years from the date of the agreement or two years after such owner ceased to be a partner in BSC.

According to the complaint, beginning in 2014, Yundt and Hadden developed plans to move the existing NBS medical practice to a larger office and open an ASC in the same building to provide certain surgical services to Central Oregon patients. In December 2014, the physicians notified BSC of their intent to operate an ASC in connection with their medical practice and subsequently received approval for the surgery center. In reliance on that approval, NBS formed NW Pain and Surgery Center, LLC, moved the practice to a new building, and began construction of the ASC facility. Despite BSC’s previous approval, AmSurg sent Yundt and Hadden a letter, claiming that the planned surgery center would violate the noncompete covenant and sent an arbitration demand for injunctive relief.

AmSurg is the majority owner of three of the four ASCs in Bend, Oregon, and two of three owned by AmSurg are the only providers of outpatient neurosurgery procedures in the area. Additionally, there are only two other ASCs within approximately 150 miles of Bend, one of which provides neurosurgery services. There are five neurosurgeons in Central Oregon and all but one of those physicians has signed and is restricted by AmSurg’s or a substantially similar noncompete covenant.

The complaint alleges that AmSurg unlawfully maintains its monopoly power through its restrictive and one-sided noncompete covenants and by its arbitration demand to enforce the covenants. AmSurg’s anticompetitive practices allegedly harm Central Oregon residents by restricting a majority of the surgeons in the area from being able to provide residents better access, choice, and lower prices in obtaining surgery services. Moreover, the noncompete covenant is overly broad and unreasonable, and makes it impossible for any new ASCs to open and operate in Bend by constraining the limited number of neurosurgeons from becoming members of any other ASC, according to the plaintiffs. The noncompete covenant serves no legitimate business purpose other than to permit AmSurg to maintain monopoly power in the ASC market in Bend and greater Central Oregon, the complaint contends.

The plaintiffs assert claims for intentional tortious interference with business relationship and prospective advantage, as well as monopolization and attempted monopolization in violation of Section 2 of the Sherman Act. The action seeks declaratory and injunctive relief, a stay of arbitration, treble and punitive damages, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 6:15-cv-01548-MC.

Attorneys: Gregory P. Lynch, Peter C. Richter, and Joshua M. Sasaki (Miller Nash Graham & Dunn LLP) for Philip Wallace, Kent Yundt, Anthony Hadden, and Northwest Medical Specialists, LLC.

Companies: Northwest Medical Specialists, LLC; Amsurg Holdings, Inc.

News: Antitrust OregonNews