HEALTHCARE HOSTILITY: A CLASH BETWEEN CHARLOTTE'S GIANT HOSPITAL SYSTEM AND A BIG DOCTOR GROUP UPENDS A LONG-TERM RELATIONSHIP.

• Author: Mildenberg, David
• Position: FIRST TAKE

For decades, physicians and hospitals in North Carolina have battled over control and compensation issues, often fiercely and almost always in private. But when the Atrium Health versus Mednax Inc. dispute flared this spring, a nasty side of health care was on public display.

The feud dates back more than a year, when Charlotte-based Atrium concluded anesthesia services was an area where the $10 billion hospital system could reduce costs without affecting care, spokesman Chris Berger says. Surveys have shown that Charlotte-area hospital charges exceed national averages, and Gene Woods, who became CEO in 2016, has made clear his goal of reducing cost increases. A not-for-profit system led by a volunteer board, Atrium estimates it provides $2 billion of uncompensated care and other public services annually, which shifts costs to businesses, Medicare and other paying customers. Anesthesiologists, who administer drugs and monitor patients during surgeries, are among the highest-paid medical specialists.

Caught in the crossfire was Southeast Anesthesiology Consultants, the 90-physician organization that had developed a reputation for excellence during its 37 years under contract with Atrium, which was previously called Carolinas HealthCare System. The doctors also had developed a reputation for business shrewdness, earning pretax income of more than $25 million on annual revenue of about $100 million in 2010, according to Deutsche Bank Equity Research estimates. That's the year Sunrise, Fla.-based Mednax paid $200 million in cash for Southeast, prompting payouts to some physicians of $1 million or more. In return, the doctors agreed to noncompete agreements that restricted their ability to join other regional practices.

Mednax is a publicly traded company with a market value of $4.1 billion in mid-July. It has been led since 1979 by CEO Roger Medel, a physician who co-founded what was originally Pediatrix Medical Group Inc. Its American Anesthesiology division employs 1,400 physicians in 15 states, though about 20% work in Charlotte, Greensboro, the Triangle and Wilson, Barron's reported in March. North Carolina laws permitting noncompete agreements make it attractive to employers such as Mednax.

As cost-cutting in U.S. health care accelerates, Atrium and other systems have pushed back in contract negotiations with Mednax. "Bickering is breaking out on the gravy train that's carried America's doctors and hospitals," Barron's noted in a story on...