Physician-Investors of Failed Houston Hospital File Lawsuit Claiming Nonprofit Rival Pressured Payors

In a lawsuit against Memorial Hermann Healthcare System in Houston, six physician-investors in a failed hospital assert that Hermann drove it out of business by threatening to change reimbursement rates with private payors that contracted with the new hospital, according to a report by the Houston Chronicle.

The 100-bed Town & County Hospital, with 110 physician-investors, went out of business in Jan. 2007 after failing to secure contracts with key payors.

David Beck, an attorney for 11-hospital Memorial Hermann, the largest health system in Houston, acknowledged that it did tell private payors it would change rates if they contracted with Town & County but added, "It is not illegal to exercise your contractual right."

He acknowledged that Town & County had taken about $5 million in business from Memorial Hermann, biting into the nonprofit's 3-5 percent margin that is needed to survive and provide charity care.

Mr. Beck argued that the real reasons Town & County went out of business was that it was undercapitalized, had a poor business plan and was poorly managed.

Read the Houston Chronicle's report on Town & County Hospital.

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