Atrium and Mednax part ways after months-long battle

 In August 2018

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On July 1, Atrium Health ended its 37-year relationship with Southeast Anesthesiology Consultants in favor of startup Scope Anesthesia of North Carolina. The new company’s 90 physicians include Jenny Dhingra, Jeffrey Plotkin and Blake Paterson.

For decades, physicians and hospitals in North Carolina have battled over control and compensation issues, often fiercely and almost always in private. But when the Atrium Health versus Mednax Inc. dispute flared this spring, a nasty side of health care was on public display.

The feud dates back more than a year, when Charlotte-based Atrium concluded anesthesia services was an area where the $10 billion hospital system could reduce costs without affecting care, spokesman Chris Berger says. Surveys have shown that Charlotte-area hospital charges exceed national averages, and Gene Woods, who became CEO in 2016, has made clear his goal of reducing cost increases. A not-for-profit system led by a volunteer board, Atrium estimates it provides $2 billion of uncompensated care and other public services annually, which shifts costs to businesses, Medicare and other paying customers. Anesthesiologists, who administer drugs and monitor patients during surgeries, are among the highest-paid medical specialists.

Caught in the crossfire was Southeast Anesthesiology Consultants, the 90-physician organization that had developed a reputation for excellence during its 37 years under contract with Atrium, which was previously called Carolinas HealthCare System. The doctors also had developed a reputation for business shrewdness, earning pretax income of more than $25 million on annual revenue of about $100 million in 2010, according to Deutsche Bank Equity Research estimates. That’s the year Sunrise, Fla.-based Mednax paid $200 million in cash for Southeast, prompting payouts to some physicians of $1 million or more. In return, the doctors agreed to noncompete agreements that restricted their ability to join other regional practices.

Mednax is a publicly traded company with a market value of $4.1 billion in mid-July. It has been led since 1979 by CEO Roger Medel, a physician who co-founded what was originally Pediatrix Medical Group Inc. Its American Anesthesiology division employs 1,400 physicians in 15 states, though about 20% work in Charlotte, Greensboro, the Triangle and Wilson, Barron’s reported in March. North Carolina laws permitting noncompete agreements make it attractive to employers such as Mednax.

As cost-cutting in U.S. health care accelerates, Atrium and other systems have pushed back in contract negotiations with Mednax. “Bickering is breaking out on the gravy train that’s carried America’s doctors and hospitals,” Barron’s noted in a story on the Florida company. A group of Greensboro physicians broke off from the company to form their own business in November, sparking noncompete-related lawsuits by Mednax, Barron’s reported.

When Atrium’s negotiations with Southeast hit an impasse, the system decided to replace the group, effective July 1, with Scope Anesthesia of North Carolina, a new physicians group started by Thomas Wherry. A former resident at Johns Hopkins Hospital in Baltimore, Wherry moved to Charlotte last year to consult with Atrium on anesthesia services. He wound up leading Scope.

Mednax went to court, alleging Atrium had stolen trade secrets. The group hired a local public-relations firm and launched a two-month advertising assault attacking the hospital system’s commitment to safety. Other ads alleged greed as Atrium tried to monopolize Charlotte’s medical industry. One showed a businessman holding a scalpel with a caption reading, “Who will they cut next?” Wherry, portrayed as a villain in Mednax’s lawsuit in the N.C. Business Court litigation, says the “whole situation has been beyond bizarre.”

Atrium responded with a countersuit and its own aggressive ad campaign, defending its devotion to patient care and assailing Mednax’s business approach. The system called Mednax’s actions “desperate, deplorable and unbecoming of professionals.”

It also worked with Wherry to attract 90 new anesthesiologists, who now work at seven Atrium hospitals around Charlotte. Among the newcomers are Jeff Plotkin, who specialized in serving transplant patients over the last 20 years at Georgetown University Hospital in Washington, D.C., and Blake Paterson, formerly at Johns Hopkins. The number of anesthesia-related professionals in Atrium operating rooms hasn’t changed, and surgery volumes haven’t budged from a year ago, Berger says.

Atrium hasn’t disclosed its contract terms with Scope, but Berger says it is similar to its previous Mednax agreement with two key exceptions. First, Scope agreed to so-called physician leasing that gives the hospital more authority to monitor and reduce costs — a key criticism by Mednax, which says the plans are onerous and unfair to doctors. Second, Scope has no noncompete agreements.

Those agreements left Southeast’s physicians in a bind because they can’t get out of their contracts with Mednax without an expensive legal fight. Nor has the company allowed any employees — including back-office staff — to join Atrium. Mednax filed a notice this summer stating plans to lay off 151 workers by September.

Southeast physicians are receiving six months of salary and benefits, a spokesman says. Some are working at other local hospitals or medical centers. Mednax’s national network provides opportunities for relocations, company officials have said. The court fight could drag on for more than 18 months, Berger estimates. In an April newspaper op-ed, Southeast’s Corporate Medical Director Russell Sauder wrote that Atrium’s goal of transforming health care “means transforming physicians right out of health care, allowing hospital monopolies to control medicine.”

Several Scope doctors new to North Carolina are excited about the opportunity. “I’ve been very impressed with the system,” Paterson says. “They are doing things right.” Plotkin says he was intrigued by the chance to build a new practice in a growing region. Asked if he was making as much or more money by joining Scope, he says, “I’m not going to make this kind of move if it doesn’t benefit me personally.”

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