The Business of Healthcare

What A Tennessee Lawsuit Teaches You About Protecting Your Medical Group’s Business

You can’t build a bigger future for your medical group’s business if all you do is play is defense. You have to play offense, too: you must take affirmative steps to grow your business. But just the same, the failure to play defense can be fatal.

There’s a lesson in defense to be learned from the undercurrent of a lawsuit now playing out in Tennessee, in which the second largest hospital chain in the U.S., Community Health Systems (“CHS”) is suing Brian Bauer, the (fired) former CEO of its Fort Wayne, Indiana based Lutheran Health Network, seeking to prevent him from working with IU Health, a competitor in the Fort Wayne market. Following his firing by CHS, Bauer joined IU Health as CEO of its Fort Wayne unit.

Among the allegations are that Bauer, who apparently was not bound to any covenant not to compete, shared confidential and proprietary information with IU Health. CHS claims that sharing that information violates the terms of a CHS stock option agreement once in favor of Bauer. They also claim that Bauer violated the terms of that agreement’s non-disparagement clause.

Most interesting for our purposes is the fact that CHS is seeking an injunction preventing Bauer from engaging in any role with IU Health because Bauer inevitably could or would disclose or use CHS’ confidential or proprietary information.

According to an article in the Fort Wayne News-Sentinel, Bauer contends, among other things, that CHS’ lawsuit is “an attempt to sabotage that business relationship (between Bauer and IU Health) and curtail any potential competition.”

Last week, the trial court judge denied Bauer’s motion to dismiss the lawsuit. The case is now moving forward, with CHS’ motion for a temporary injunction to be heard soon. If granted, the temporary injunction could effectively be a knock-out blow to Bauer, as he’d be sidelined, unable to work for IU Health (and, potentially for any other competitor) for the months, if not years, until the final outcome of the case.

What you need to know for your own business purposes:

1. Covenants not to compete are creatures of state law. Some states favor their enforcement, others disfavor them, and still others don’t much like them but will still enforce reasonable restrictions.

2. In states that allow enforcement of covenants not compete, consider their use in your agreements with key players. Carefully draft them to increase the odds of enforcement. In some states, Texas for example, physician covenants not to compete are enforceable only if they comply with highly technical requirements.

3. In any state, even if it favors the enforcement of covenants not to compete and you use them in your agreements, consider the use of other key anti-competitive restrictions. There are many available strategies, both in terms of the way that agreements are structured within your entity, between your entity and its team members, and between your entity and third parties. For example, note that CHS’ alleged restrictions appear in a stock option agreement, not the typical place where they’d be found, and one in which, I’d assume, eyes get glassy with dancing dollar signs.

4. The use of litigation as a tool to project power is a fact of life. Don’t assume that trite sayings such as “speak truth to power” have much value other than as bumper stickers or motivational posters.

Comment or contact me if you’d like to discuss this post.

Mark F. Weiss

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The Business of Healthcare

Why the Lack of Power Corrupts Absolutely: Dealing With Petty Bureaucrats

A few months ago, while waiting at the gate for a flight, I couldn’t help but notice a gate agent making some woman unpack and repack and unpack and repack her expandable carry-on suitcase because it was too wide to fit into the measuring “box” for carry-on luggage.

It was obvious from the gate agent’s face that she took sublime pleasure in the exercise of her “power.”

When I commented to her a few minutes later that I next expected her to make the woman remove her underwear, she responded, “no one gets on my flight unless I say so.”

The reality is that such mini-dictators, the peons of bureaucracy, are nearly replete of any actual authority. Frustrated by their inability to control their destiny, they act out their near total lack of authority by overcompensating within the one slice of power they have – in this case, the power to drive a woman close to tears because her suitcase had to be pushed into the measuring device instead of sliding right in.

You’ve run into these people. They’re at the DMV and the post office and the TSA.

And, they’re at hospitals: The petty midlevel “executives” who occupy places on an org chart that looks like IBM’s in the 1960’s or a plate of spaghetti. They are the bureaucrats who can say “no,” but who lack any authority to actually say “yes.”

Lord Acton commented that power tends to corrupt, and absolute power corrupts absolutely. It appears that the lack of actual power does the same.

The quiver required to effectively deal with these people includes multiple arrows. Some are polite, others are political, and more than a few are pointed. An effective strategy involves knowing when and how to get the petty bureaucrat to open the gate, when and how to get around him, and when and how to get him pushed out.

Comment or contact me if you’d like to discuss this post.

Mark F. Weiss

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