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Court rules in favor of hospital in contract dispute

February 4, 2015

A Lake County medical center prevailed in an appeal filed by the other party in a contract to provide anesthesiology services for patients. The Indiana Court of Appeals affirmed summary judgment in favor of the hospital on several breach of contract claims.

St. Mary Medical Center Inc. and Community Anesthesia & Pain Treatment LLC entered into a contract beginning in October 2006 in which CAPT would provide anesthesiology services for patients at SMMC for three years. As part of the agreement, SMMC’s head anesthesiologist, referred to in the court documents as Dr. G., would become medical director of the CAPT group. Dr. G. had personal conflicts with staff, which later ended up becoming an issue and led to his resignation.

As part of the agreement, SMMC would pay CAPT a guaranteed monthly income and CAPT would remit to SMMC all of its net anesthesiology collections received in the immediately prior month up to $175,000.

The parties decided to end the contract in December 2008. SMMC paid CAPT $100,000 in order to release a doctor from any restrictive covenants regarding employment so the doctor could work for SMMC. After the agreement ended, CAPT claimed SMMC owed it nearly $220,000 for locum tenens reimbursement, believing SMMC was on the hook for payment for replacing Dr. G. after he resigned because SMMC asked for his removal. SMMC’s request occurred after Dr. G tendered his resignation letter with an effective date.

SMMC then sued CAPT alleging several counts, but the only one at issue in Community Anesthesia & Pain Treatment, LLC, v. St. Mary Medical Center, Inc., 45A03-1401-PL-44, is its breach of contract claim. CAPT countersued, with its breach of contract claims based upon SMMC’s failure to reimburse locum tenens costs and SMMC’s violation of the non-solicitation provision of the agreement.

The trial court granted summary judgment to SMMC on these three claims, which the Court of Appeals affirmed.

The judges agreed with the lower court that the agreement provides for four types of reconciliation payments – monthly, quarterly, annual and final. CAPT argued the court misinterpreted that section by concluding shortfalls carryover from year to year. It claimed the term “final reconciliation” was to confirm at the end of the three-year term that there was no expectation that there could be another reconciliation for the money that would come in from accounts receivable after the end of the three-year term. But the COA favored the interpretation of the contract that final reconciliation is not duplicative of the annual reconciliations, so that the final one may address any shortfalls not addressed during the three-year term of the agreement.

Regarding paying for a replacement doctor, the COA noted by the time SMMC sent its letter asking for Dr. G’s removal, he had already informed CAPT of his resignation and SMMC did not ask that he be removed prior to his last day of service. There were no costs incurred as a result of SMMC’s request for removal of the doctor. And finally, the judges found the provision in the termination agreement in which CAPT agreed to release a doctor in exchange for SMMC’s $100,000 payment is enforceable.

 

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