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Phoenix-Area Hospitals Ordered to Pay $15 Million in Bad Business Case

Garcia & Artigliere
PHOENIX, ARIZ. (June 28, 2011) – Stephen M. Garcia of Garcia & Artigliere and Robert Boatman and Mark Deatherage of Gallagher & Kennedy brought in a $15 million arbitration award, including damages, costs, and attorney fees, with additional interest on the judgment, running at the rate of 10 percent from May 10, 2010 until the debt is paid off, in a business case against St. Luke’s Medical Center in Phoenix, Mesa General Hospital in Mesa, and both hospitals’ general partner, Iasis Healthcare of Franklin, Tenn.

The three-member arbitration panel issued a ruling for the plaintiff in Advanced Cardiac Specialists, Chartered, an Arizona professional corporation, Robert M. Siegel, M.D., and Barbara Barker-Siegel, M.D., husband and wife, and Apache Junction Hospital, L.L.C., an Arizona limited liability company vs. Iasis Healthcare Corporation, a Delaware corporation; Iasis Healthcare Holdings, Inc., a Delaware corporation; Iasis Healthcare, L.L.C., a Delaware limited liability company; Mesa General Hospital, L.P., a Delaware limited partnership; and St. Luke’s Medical Center, L.P., a Delaware limited partnership (Case No. CV2008-024082)

“The real loser in this situation was the community,” says Garcia. “The community always loses out on badly needed quality healthcare facilities when a large out-of-state corporation attempts to promote its bottom line at the expense of patient care and proper payments to those who provide quality care.”

In the spring of 2007, Iasis opened a new hospital, Mountain Vista Medical Center, about 15 miles from Mesa, with the intention of closing Mesa General Hospital. Believing this would result in a shortage of healthcare to the community, Dr. Siegel began talking to the hospital’s landlord about purchasing or leasing the site in order to open a hospital and medical facilities on the former Mesa General site.

Among the services the new Apache Junction Hospital would provide was open heart surgery, cardiovascular surgery, and an emergency room.

Throughout most of the 2000s, Dr. Siegel, through his company Advanced Cardiac Specialists, entered into agreements with Mesa General and St. Luke’s to lease cardiac catheterization laboratory space from the hospitals and to provide inpatient and outpatient procedures. They also agreed that ACS would build and operate an outpatient treatment center on the Mesa General Hospital campus.

Apparently fearing the competition, Mesa General, St. Luke’s, and Iasis breached their contract terms with ACS and terminated the contract early.

For a number of years the amount the hospitals owed ACS had been in dispute, with the hospitals and Iasis refusing to pay the amount for services based on the fair market value analysis of the independent third-party analyst – as agreed upon and hired by all parties or by the analyst hired by the hospitals and Iasis on their own, contrary to contract terms. In fact, Iasis, Mesa General and St. Luke’s would not even pay the $1.7 million their own in-house analysts said they owed.

In spite of Dr. Siegel’s offer to purchase Mesa General’s assets when it was closed, there were allegations that Iasis and the hospital began a systematic fire-sale and destruction of Mesa General’s fixtures and property rather than selling them to Dr. Siegel for a potentially competing hospital facility. There were reports of hospital beds and divider curtains being thrown away, a stained glass panel from the chapel disappeared, efforts were even made to remove an ACS computer, used and owned by Dr. Siegel in his catheterization lab.

The situation was alleged to have gotten even uglier with Iasis and Mesa General allegedly interfering in Dr. Siegel’s attempts to purchase or lease the closing hospital. There were blatantly unfair and irrational demands for Dr. Siegel to “forgive” the debt they owed for the cardiac catheterization services ACS had been providing.

“So Iasis got paid for medical services performed by Dr. Siegel and then for years they refused to pay Dr. Siegal,” says Garcia. “Hardly the conduct of a community hospital focused on quality community medical services.”

“We appreciate that the arbitrators saw how Iasis, Mesa General, and St. Luke’s continuously breached their obligations,” says Garcia. “On top of that, their continuing refusal to pay for services they had received, their interference with Dr. Siegel’s efforts to provide quality community-based medical services . . . I can’t imagine how these people ever thought their behavior was fair and ethical, much less, legal.”

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