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Four Important Developments


Email Alert

May 29, 2007

DOJ and Arizona AG Reach Temporary Nursing Services Wage Fixing Settlement with Arizona Hospital Group

On Tuesday, May 22, 2007, the Department of Justice and the Office of the Arizona Attorney General announced that they had reached a settlement with the Arizona Hospital and Healthcare Association (AzHHA) and a related group (AzHHA Service Corporation or "Service
Corporation"). The consent decree settles charges in a complaint (filed the same day) alleging that AzHHA and AzHHA member hospitals—through a "Registry" operated by Service Corporation—agreed to set uniform billing rates and other "competitively sensitive" contract terms (i.e., differential structures, payment terms, cancellation policies or penalties, bonuses, and minimum usage requirements) for the purchase of temporary nursing services from nurse staffing agencies. United States v. Arizona Hospital and Healthcare Association, Case No. CV07-1030-PHX (D. Ariz.).

According to the Government's complaint, Arizona hospitals employ two types of temporary nurses to meet their nursing needs when each hospital's regularly employed nurses are insufficient: (1) per diem nurses, who typically are local and who work on short notice to satisfy hospitals' immediate needs on a single shift; and (2) travel nurses, who generally live outside Arizona, who contract to work at hospitals for longer periods (receiving short-term housing while in-state). Both types of nurses are primarily placed in Arizona hospitals by independent nurse staffing agencies; normally, hospitals compete on price to purchase temporary nursing services from such agencies.

In 1988, AzHHA instituted its Registry system (beginning with a Per Diem Registry and adding a Travel Registry in 1989) to provide quality assurance in temporary nursing service purchases through a focus on credentialing temporary nurses, record keeping and personnel standards (including background checks and drug test), and annual audits to
monitor nursing agency compliance. Hospitals participating in the Registry allegedly meet once a year or more to discuss operational issues and to
select participating nurse staffing agencies. In addition, AzHHA staff purportedly speak with employees of participating hospitals about temporary nurse billing rates and related contract terms, share the results of those conversations with employees of other hospitals, and seek agreement among participating hospitals before changing the Registry's operations or its contract terms. Approximately 80% of the hospital beds statewide and in the Tucson and Phoenix areas are controlled by AzHHA Registry members.

After focusing on quality assurance and credentialing activities for its first 10 years (during which it also allowed participating staffing agencies to set their own billing rates on the condition that the same rates were offered to every hospital), AzHHA and its participating hospitals allegedly restructured the Registry (beginning with the Per Diem Registry in 1997 and continuing with the Travel Registry in 1998) to require all participating staffing agencies to accept the same maximum bill rate from all participating hospitals. The maximum rate was established through a three-step process:

(1) averaging participating agencies' desired rates;
(2) forwarding the averages to participating hospitals and asking what prices the hospitals were willing to pay; and
(3) averaging the hospitals' responses and imposing those averages as the new billing rates.

Further, AzHHA and its participating hospitals purportedly monitored and attempted to enforce the Registry arrangement by: (1) initially, requiring participating hospitals to attempt to purchase nursing services from participating agencies in the first instance before moving to non-participating agencies; and (2) subsequently, by expelling any participating hospital that did not use the Per Diem Registry for at least 50 percent of its per diem nursing services needs. Finally, after learning of the Government's investigation, AzHHA returned to the previous quality assurance Registry model.

The Government's complaint alleged anticompetitive effects in three relevant markets: per diem nursing services in Phoenix, per diem nursing services in Tucson, and travel nursing services in the entire state of Arizona. To settle the allegations in the complaint, AzHHA and Service Corporation agreed to refrain from including in any Registry contract any provision setting payment terms, bill rates, bonuses, "first use" policies, or other competitively sensitive terms.

Also, AzHHA and Service Corporation may not collect competitively sensitive information except to the extent required to operate the Registry, may not share a Registry participant's competitively sensitive information with any other party, and may not establish minimum usage levels for the Registry. Notwithstanding these prohibitions, however, AzHHA and Service Corporation may continue to conduct certain enumerated activities, including the establishment of nurse types, a credentialing program, personnel requirements, and insurance and indemnification requirements, as well as communications with participating hospitals regarding results of nurse staffing agency audits.

Access the DOJ press release.
Access the DOJ complaint.
Access the DOJ proposed final judgment in the case.

District Court Denies Motion to Dismiss in Memphis Nurse Wage Case

On May 17, 2007, a district court denied a motion by two Memphis hospital defendants to dismiss a putative class action complaint brought on behalf of hospital RNs alleging a conspiracy among the hospitals and unnamed parties to depress wages and a conspiracy to exchange compensation information. Clarke v. Baptist Memorial Healthcare Corp., Case No. 06-2377 Ma/V (W.D. Tenn.). The case is one of five similar actions ongoing across the country.

The hospital defendants argued that the plaintiffs' complaint should be dismissed for two reasons: (1) failure to allege a plausible product market; and (2) failure to plead facts sufficient to provide the defendants with fair notice of the grounds on which relief could be granted (in violation of Fed.R.Civ.P. 8(a)). Regarding the alleged conspiracy to depress wages, the court found that the plaintiffs' claims were sufficient to allege a per se violation of Sherman Act Section 1 and, accordingly, the plaintiffs were not required to allege a relevant market in support of that claim.

The court also found that although the plaintiffs had not alleged facts that, if proven, would provide direct evidence of a conspiracy to depress wages, the plaintiffs had alleged (as permitted in the Sixth Circuit) circumstantial facts sufficient to state their claim under Rule 8(a). Moreover, regarding the alleged conspiracy to exchange compensation information (which plaintiffs conceded is subject to rule of reason analysis), the court found that: (1) the plaintiffs had adequately alleged a lack of reasonable interchangeability between hospital RNs and non-hospital RNs, and thus had alleged a plausible product market consisting of hospital RNs; and (2) had alleged sufficient facts to put the defendants on notice of the nature of the claims against them.

Access the court's decision.

District Court Uses Bell Atlantic Corp. v. Twombly to Dismiss Physician Credentialing Complaint

On May 24, 2007, a federal district court in Washington granted a motion by multiple physician defendants to dismiss a complaint alleging that the defendants had conspired to use a hospital's medical staff procedures to exclude the plaintiffs from that hospital, to boycott them, and to destroy their practice. Perry v. Rado, Case No. CV-07-5001-LRS (E.D. Wash.). In making its decision, the court quoted heavily from the Supreme Court's recent decision in Bell Atlantic Corp. v. Twombly, tightening the standard for a motion to dismiss in an antitrust case.

The plaintiffs in the Washington case were an obstetrical practice group and an obstetrician who holds privileges at one hospital (Kennewick) in the Tri-City area of Washington and who previously had held privileges at another hospital (Kadlec) in the area. The conspiracy alleged in their complaint encompassed the leaders of the Kadlec medical staff and certain rival obstetricians who served as medical staff committee members or as department chairs.

In dismissing the case, the court first noted that—per the Supreme Court's decision in Twombly—an antitrust plaintiff's obligation at the motion to dismiss stage is to plead enough factual matter, taken as true, to suggest that an agreement was made and to state a claim of relief that is plausible on its face. Because the plaintiff's complaint contained only conclusory allegations of injury to competition as a whole and conclusory allegations of boycott, the court held that this standard was not met. Further, the court held that the plaintiffs' proposed amended allegations of increased price, reduced quality, "and/or" reduced availability of "medical services" were too speculative to adequately cure the complaint's deficiencies. Accordingly, the court dismissed the case with prejudice.

Access the court's opinion.

U.S. Solicitor General Urges Supreme Court Not to Grant Certiorari in Tamoxifen Case

The Solicitor General has filed a brief with the Supreme Court recommending against granting certiorari in the Tamoxifen antitrust case concerning an allegedly collusive brand-generic settlement involving a so-called "reverse" settlement payment. The SG said that the court of appeals had not applied an incorrect standard, but that the unique fact setting of the case, subsequent regulatory changes, and apparent mootness of antitrust claims made the case inappropriate for Supreme Court consideration.

Access a copy of the brief.

We would like to thank Toby Singer (Jones Day, Washington, DC) and Art Lerner (Crowell & Moring LLP, Washington, DC) for providing these email alerts.

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