Houston Chronicle, May 4, 1997, Sunday; SECTION: BUSINESS; Pg. 1

BYLINE: BILL MINTZ; Staff

WHEN Columbia/HCA Healthcare decided to build a new outpatient surgery
center at its Columbia Clear Lake Regional Medical Center, it offered
surgeons a chance to become partners in the project. While the ownership
stake was a carrot to encourage the doctors' loyalty to the facility,
some physicians say Columbia was just as willing to wield it as a stick
to protect its dominant position in the market.

In an antitrust lawsuit scheduled to go to trial this summer, some Clear
Lake-area surgeons claim that primary-care doctors linked to Columbia
threatened to withhold business from the surgeons if they went ahead
with plans to build a surgery center that would compete with Columbia's
facilities.

Columbia said no threats were made. Any changes in referral patterns
would come because health plans insisted that their members use Columbia
facilities, Columbia's lawyers have argued in court documents. The
evolution of Columbia's presence in Clear Lake demonstrates how the
company has built a dominant position in a lucrative segment of
Houston's health care market.

Clear Lake Regional Hospital became part of Columbia's network in 1993
through its acquisition of Galen Hospital Corp.The hospital is one of
the top performers - in terms of both financial and medical success -
among the company's national chain of about 340 acute-care facilities.

A year after buying the hospital, Columbia acquired Medical Care
America, which owned Bay Area Surgicare - an outpatient surgery center
less than 500 yards from the hospital.

The two deals gave Columbia a dominant position in an important segment
of the Houston-area health care market, where most of the population
receives generous health care benefits from employers.

"Columbia was buying everything around,'' said one of the Clear Lake
surgeons involved in the lawsuit.

Administrators weren't interested in doctors' suggestions about hospital
operations, said the surgeon, who asked not to be identified. ""They
wanted to put us on a Lotus spreadsheet and treat us like any other
supplier. '' Columbia also started building partnerships with primary
care physicians in the area.

The hospital company and the doctor groups formed networks to negotiate
contracts with managed care insurers, and then share the profits derived
from controlling medical costs.

In the new circumstances, the surgeons were almost totally dependent on
primary care doctors for referrals. The surgeons' incomes were dropping,
while primary care doctors' salaries rose.

That was the atmosphere in which the surgeons met Dr. Robert Kaminsky,
who told them about a partnership between surgeons who practice at
Columbia's facilities in west Houston.

The deal went further than the typical partnerships offered by Columbia.
It gave the doctors majority ownership in a new outpatient surgery
center, even though Columbia put up most of the money for its
construction.

The deal is already paying substantial dividends, and eventually
Columbia is expected to buy out the surgeons at a handsome profit.

The Clear Lake group, which eventually numbered 55 surgeons, proposed to
Columbia that they join to build a new outpatient surgery center in
Clear Lake in a partnership similar to the one offered to the west
Houston surgeons.

One Clear Lake surgeon said the doctors wanted to regain control of
their medical practices. "It would also be very profitable by providing
better and cheaper services,'' he said.

Indeed, ambulatory surgery centers are one of the major cost-saving
innovations in health care because they allow surgeons to perform a wide
range of procedures without incurring the costs associated with building
and running a full-service hospital.

The Clear Lake surgeons, who invested about $ 1.1 million, intend to
argue in court that their surgery center would have produced about $ 30
million in profits over the useful life of the center.

Columbia, however, rejected the surgeons' proposal. In depositions for
the lawsuit that followed, a Columbia official testified that repeating
the west Houston deal would open the door to more demands for similar
opportunities from surgeons in other parts of town.

The surgeons decided to go ahead with the surgical center without
Columbia, and in December 1994 they signed a letter of intent to pursue
the venture with smaller, Atlanta-based Surgical Health, which later was
taken over by Health South of Birmingham, Ala.

Columbia responded by proposing a competing surgery center it would
build to replace the aging Bay Area Surgicare. It offered surgeons a
partnership - but not majority ownership - in the center, which opened
in March. Columbia had planned to build a replacement for the older
center - but not so soon.

A company executive testified in depositions for the lawsuit that he
recommended building a new center to his superiors because of the
competitive threat presented by the surgeons' group. The center was
likely to lose money for Columbia in its early years, even if it was
profitable for the doctors.

"Under this plan, everyone would benefit,'' Columbia's lawyers said in
court documents. "The surgeons would get more operating rooms and an
opportunity to receive a substantial return on their investment. ''

In addition, the lawyers said, "the hospital would maintain its
position as a premier acute care facility. ''

The surgeons asserted in their lawsuit that Columbia went with Surgical
Health. In their lawsuit, the surgeons say Columbia launched a campaign
to split away key members of the surgeon group.

Columbia's lawyers say no such pressure was ever applied.

Some health maintenance organizations say the surgeons were bound to
have problems meeting their financial projections if Columbia had tied
up the primary care physicians in its provider networks.

The surgeons say they were confident they could get into the managed
care plans because they would offer competitive rates. None of
Columbia's managed care contracts was for more than one year, said one
member of the group.

The pressure from Columbia was effective, according to depositions and
the surgeons' court pleadings.

One surgeon pulled out of the Surgical Health partnership a few weeks
after he was entertained by Columbia executives at the Super Bowl in
Miami. An ophthalmologist backed out after he started negotiating to
sell his practice to Columbia.

The surgery center project was abandoned when the group couldn't deliver
a large enough block of surgeons to the Surgical Health partnership.

Columbia says the proposal failed for other reasons.

"Several of the doctors began to realize the proposal was more about
greed and money than either better patient care or better service to
patients,'' Columbia's lawyers argued. "They decided, without any
pressure from Columbia, that it had all of the characteristics of an
ill-fated 'dumb doctor deal. ' ''

Columbia has filed a counterclaim against Kaminsky and others, claiming
they tried to interfere with Columbia's contracts in the Clear Lake
area. Neither the doctors group nor Columbia executives would discuss
the case because of the upcoming trial.

But the Clear Lake surgeons are not the only group that has tangled with
Columbia.

A group of surgeons who practice at Columbia Sun Belt Regional Medical
Center on Interstate 10 East is planning to break ground in the next few
weeks on a surgery center a few blocks away from the hospital.

The doctors' partner is Amedysis, a Baton Rouge, La., health care
company that already operates a surgery center that competes with
Columbia Bayshore Medical Center in Pasadena.

Irv Gregory, president of Amedysis' outpatient surgery division, said
the Houston area's managed care market is large enough for the center to
prosper, even if Columbia has exclusive arrangements with some managed
care plans.

But as in Clear Lake, Columbia executives warned the surgeons that
Columbia's power with the managed care plans could make it hard for the
independent center to make money, said Dr.

Bruce Weiner, an orthopedic surgeon who is involved in the project.
"They made some extremely veiled threats. ''

The group chose Amedysis because Columbia was not willing to give the
surgeons' majority control of a new center, he said.