A recent opinion from a federal court in Michigan, Cason-Merenda v. Detroit Medical Center, dramatically underscores the risk of excessive sharing of compensation information between hospitals in the same geographic market, particularly through use of third-party wage surveys that do not satisfy the requirements of the policy statement issued by the Department of Justice and Federal Trade Commission (“DOJ Guidelines”).

In this blog in August 2010, we reported on five antitrust class actions brought by nurses, in partnership with the Service Employees International Union (SEIU), in Memphis, San Antonio, Albany, Chicago, Detroit, and Arizona, alleging that hospital employers in each of these markets conspired to suppress nurses’ wages in violation of the Sherman Antitrust Act.

In Cason-Merenda, registered nurses (RNs) sued Detroit Medical Center, Henry Ford Health System, Mount Clemens General Hospital, St. John Health, Oakwood Healthcare, Bon Secours Health Services, Trinity Health Corporation and William Beaumont Hospitals for alleged “wage-fixing.” Early in the litigation, the court held that, if proven, the complaint stated an antitrust claim against all defendants. The plaintiffs alleged that the health care providers violated section 1 of the federal Sherman Antitrust Act by: (i) conspiring among themselves and with other local hospitals to hold down the wages of RNs employed by these institutions; and (ii) exchanging compensation-related information among themselves in a manner that reduced competition among Detroit-area hospitals in the wages paid to RNs. Three of the defendants—St. John, Oakwood and Bon Secours—entered into settlements with the plaintiffs, agreeing  to pay a maximum of $21,091,475, in the aggregate, with various future contingencies that could lower the sum significantly.

On March 22, following years of discovery, federal district court Judge Gerald Rosen ruled on the five remaining hospitals’ joint motion for summary judgment. The opinion, granting in part and denying in part the dispositive motion, ensures that a significant portion of the plaintiffs’ case survives for trial.

Both of the nurses’ antitrust claims were premised on the theory that the hospitals conspired to unlawfully depress nurses’ wages. In their first claim, the plaintiffs asserted that there was an actual agreement to “fix” salaries, which is a per se violation that does not require additional proof that the conspiracy caused competitive damage to nurses in the Detroit healthcare market. The second claim, which does require the plaintiffs to prove actual damage, was that the exchange of compensation information caused an unlawful suppression of nurses’ salaries. Calling the decision on both claims a “close call,” the court dismissed the claim of a per se violation but allowed the nurses’ second claim to survive for trial.

The hospitals argued that the record failed to establish any anticompetitive effects in the Detroit-area hospital market resulting from the exchange of compensation-related information. The court, however, found the evidence of regular and pervasive exchanges of information was sufficient to raise a question of fact as to whether the information exchanged resulted in depressed wages for nurses.

The plaintiffs identified three principal mechanisms through which compensation data were shared:

• Direct contacts between employees of the various hospitals who were involved in determining RN compensation;
• Meetings of health care industry organizations that addressed nursing issues, including compensation; and
• Third-party surveys of RN compensation sponsored by the defendant hospitals.

The record disclosed that human resources and compensation staff at each of the hospitals retained contact lists of their counterparts at other Detroit-area hospitals and contacted each other directly to obtain information about nurses’ compensation.

As to the exchange of information through salary surveys, the court and the parties acknowledged that salary surveys conducted by third parties are commonly used in healthcare and other industries and are not per se unlawful. In evaluating the legality of salary surveys, Judge Rosen relied on the DOJ Guidelines, which provide that the government “will not challenge, absent extraordinary circumstances, provider participation in written surveys of . . . wages, salaries, or benefits of health care personnel,” so long as: (i) the survey is “managed by a third-party;” (ii) the information provided is more than 3 months old; (iii) there are “at least five providers” participating in the survey, with no participant’s data representing “more than 25 percent” of a given reported statistic; and (iv) “the information disseminated is sufficiently aggregated such that it would not allow recipients to identify the . . . compensation paid by any particular provider.”

In Cason-Merenda, the court found that at least some of the compensation surveys sponsored or relied on by the hospitals in determining their RN compensation deviated in one or more respects from the criteria set forth in the DOJ Guidelines. According to Judge Rosen, “[p]laintiffs have produced evidence that . . . the results of various third-party surveys were reported to the sponsoring Defendant hospitals with unmasked, named hospital data, including wage rates and effective dates. Plaintiffs also point to instances where a Defendant hospital was given a ‘key’ that permitted it to identify the hospitals participating in a third-party survey. Indeed, Plaintiffs have identified several instances of the Defendant hospitals divulging information in third-party surveys as to their projected future pay increases, with the bulk of this data reported in a disaggregated format.”

It was, in large part, the alleged inappropriate use of and reliance upon compensation-related information, which the hospitals obtained directly from competitors, or through surveys that otherwise failed to comport with the “safety zone” criteria set forth in the DOJ Guidelines that created triable issues and resulted in denial of the summary judgment motion. Accordingly, the court held that the wages paid by the hospitals to their RN workforces may have been held below the competitive level based upon the inappropriate sharing of information. Of course, the Detroit hospital defendants can still voluntarily resolve the plaintiffs’ claims or seek vindication at trial. Nonetheless, this was a significant, albeit interlocutory, decision for the plaintiffs.

Health systems should take away some important lessons from the experience of their Detroit counterparts. First, direct communication between competitors regarding compensation is prohibited. Although independent wage surveys are lawful, they become illegal if the survey in question is managed by a competitor rather than a third party; the information provided by the survey is less than three months old; there are fewer than five providers participating in the survey; or the survey data allow the participating hospital to identify the compensation paid by any particular provider.

Photo credit: MBPhoto, Inc.