GRAND RAPIDS — Trinity Health Michigan’s federal antitrust case against Orthopaedic Associates of Michigan PC represents a “money grab” that resulted from a business dispute between the two health care organizations.
That’s the assertion of attorneys defending Orthopaedic Associates of Michigan against the legal claims in the lawsuit filed by Trinity Health Michigan and four recently departed orthopedic surgeons that the Catholic health system now employs.
“This case is about the falling out of a contractual relationship between defendant Orthopaedic Associates of Michigan and Saint Mary’s Hospital, and the subsequent money grab by Saint Mary’s and certain of OAM’s former orthopedic surgeon employees,” attorneys for Kirkland & Ellis LLP wrote in a memorandum supporting a motion that seeks to have the case dismissed.
Trinity Health Michigan’s Grand Rapids hospital was formerly known as Saint Mary’s prior to a 2022 rebranding.
The response from OAM’s attorneys offers a sharp rebuke to the lawsuit Trinity Health Michigan and the four surgeons filed in January. The lawsuit claims that the non-compete agreements for Drs. Timothy Henne, Tim Lenters, John Healey Jr. and Geoffrey Sandman are unenforceable and violate federal and state antitrust laws because they essentially created a monopoly in the market for OAM by limiting competition.
Attorneys wrote that the “standard” non-compete agreements resulted from a “routine business decision” to include them as part of a 2018 deal when OAM bought the surgeons’ former practice, River Valley Orthopaedics. The non-compete agreements bar an orthopedic physician who leaves from practicing within 50 miles of an OAM office for a year after their departure.
“As courts across the country have recognized, this is a routine and standard practice in the purchase or acquisition of a business. Indeed, such transactions would not happen without such a protection,” Kirkland & Ellis attorneys wrote in their March 24 filing in the U.S. District Court for the Western District of Michigan in Grand Rapids. “It is easy to imagine how the value of an acquired physician practice could swiftly plummet to zero if the physicians that sold their practice, then turned around and left, bringing their patients with them, to start a competing business across town.”
OAM’s attorneys also claim the four surgeons, who previously provided on-call services at Trinity Health Grard Rapids, “benefited substantially from the very provision they now challenge” because other physicians who have left the practice were prevented from competing against them.
“But then the physician plaintiffs decided to resign from OAM, and did not want the same contract provision to apply to them upon departure,” according to the court filing. “Instead, they devised a plan with Saint Mary’s — while they were still directors and shareholders of OAM and still under their OAM employment agreements — whereby Saint Mary’s would hire the Physician Plaintiffs directly and cut OAM from the shared on-call revenue arrangement between OAM and Saint Mary’s.”
OAM’s response to the lawsuit asks Judge Hala Jarbou to dismiss the case. Since the surgeons left OAM in March to work at Trinity Health Michigan, and because they do not allege “any conduct taken by OAM to date to enforce the non-competition provision or prevent physician plaintiffs from going to work for Trinity,” they “cannot claim to have suffered any concrete and ripe injury,” according to court documents.
OAM’s attorneys also claim that the lawsuit does not meet the legal threshold for an antitrust violation or a monopoly. An appellate court in 1997 “categorically rejected” legal arguments used against OAM in the lawsuit as being “insufficient,” attorneys wrote in the response. They also contend that Trinity Health lacks legal standing in the case because it was not a party to the contracts between OAM and the surgeons that contain the non-compete clauses.
When the surgeons informed OAM they intended to leave and go to work for Trinity Health Michigan, the practice “made it clear its willingness to engage in good faith negotiations” and have the health system buy out their contracts “as is standard practice,” according to court documents.
A day after OAM rejected “a pretextual ‘buy-out’ offer far below market value,” Trinity Health Michigan and the surgeons filed the federal lawsuit for “this routine business dispute to intimidate OAM out of enforcing its non-compete provision,” OAM attorneys wrote in court filings.
The lawsuit asks the court to triple the $10 million in damages sought by Trinity Health Michigan and the doctors.
Rule change ahead?
The Trinity Health Michigan-OAM dispute brings a spotlight to how non-compete agreements are commonly used in health care and many other industries, a practice that federal trade regulators want to ban as anticompetitive.
The Federal Trade Commission in January proposed a rule to ban non-compete agreements. A number of public comments regarding the FTC’s rule proposal submitted from Michigan residents working in health care, a few of whom specifically mention the Trinity-OAM litigation.
A Grand Rapids-area physician with Trinity Health who submitted a comment to the FTC noted that “just about every physician who has ever signed an employment contract has been affected by a non-compete clause. They are wrong and affects [sic] patient care negatively.” He wrote that the Trinity-OAM dispute is “affecting our ability to cover orthopedic patients in our ER and affects my ability to get my patients needed orthopedic care. This proposed rule cannot come soon enough.”
An OB/GYN in a rural market in Michigan commented that she works for a large health system. Because of the system’s size, if she were to pursue a job elsewhere, she would have to leave the state because of an existing non-compete agreement.
“I spent 13 years of my life working to get my medical license only to have it basically owned by my current employer,” she wrote in her comment to the FTC. “Even though rural Michigan is in desperate need of OBGYNs and I am willing to help some of the areas that are in need — I cannot because of the non-compete clause that was thrown into my contract. Non competes need to be banned. Now.”
An orthopedic surgeon in private practice told the FTC he left his job in January. A non-compete agreement his prior employer enforced prevents him from working within 10 miles of his former practice and “effectively blocks me from working in the practice of my choice and serving the people of my city that I seek to serve.”
“My opinion is that employers need to be incentivized to value their employees so that they don’t want to leave in the first place. Removing the noncompete effectively provides a proper incentive,” he wrote in a comment to the FTC.
An association representing 40 federally qualified health centers and four Native American care providers in Michigan supported the use of non-compete agreements, but only for higher-level staff.
In a March 22 comment submitted to the FTC, Michigan Primary Care Association had “no objection” to banning non-competes for low-wage earners, CEO Phillip Bergquist wrote.
Bergquist encouraged the FTC to refocus the proposed rule “to more narrowly focus on lower-wage employees who have genuinely unequal power.” The Michigan Primary Care Association supports retaining non-compete agreements for “highly compensated clinicians working in health centers,” he said.
“In most employment circumstances, these highly paid employees have significant leverage in negotiating their employment arrangements with little of the power imbalance observed with lower-wage employees,” Bergquist wrote. “In addition, health centers often make extensive investments to establish a clinician’s practice within their organization and reasonable non-compete arrangements provide some assurance those investments will result in stable services for health center patients.
“And, in the many communities where there is an ongoing shortage of licensed clinicians, non-compete arrangements help moderate scarcity-driven competition which can lead to wages skyrocketing well beyond what would be considered fair or competitive compensation.”
Since issuing the proposed rule in January, the FTC has received nearly 12,000 comments. The public comment period runs through April 19.