Exclusive Contracts in the Hospital Setting: A Two-Edged Sword, Part 1: Legal Issues

Abstract

Hospitals routinely enter into contracts with radiology groups for the right to be the exclusive provider of radiology services at the facility in exchange for the group agreeing to provide and manage all aspects of that service within the hospital. These "exclusive contracts" generally result in the radiology department and associated equipment being closed off to physicians who are not part of the contracting group. Exclusive contracts are generally considered to be good for physicians who have them and bad for those excluded by them. In fact, while exclusive contracts offer obvious benefits to the physicians who receive them and obvious disadvantages for those who are excluded, they also present pitfalls for physicians in the chosen group. Part I of this article discusses the legal issues raised by exclusive contracts. Although these agreements appear to be anti-competitive, most courts have rejected antitrust challenges to exclusive contracts. Excluded physicians have had much greater success in attacking exclusive contracting arrangements on breach of contract and procedural/due process grounds. Exclusive contracting arrangements can also raise concerns under the Medicare-Medicaid anti-kickback statute if the contracting physicians are required to pay consideration or accept less than fair market value compensation in exchange for exclusive contracts. These agreements can also raise issues under the Stark II physician self-referral law if the contracting physicians are in a position to refer Medicare or Medicaid patients to the hospital. Part II of this article will discuss the advantages and disadvantages of exclusive contracts for physicians covered and not covered by such contracts, as well as strategies for avoiding them or minimizing their potential adverse impact. It also will discuss specific provisions of exclusive contracts that should be included or avoided.