Eye Clinic, P.C. v. Jackson-Madison County General Hosp.

• Decision Date: 24 July 1998
• Docket Number: JACKSON-MADISON
• Citation: 986 S.W.2d 565
• Parties: THE EYE CLINIC, P.C. and its shareholders; Dr. Ben House, Dr. Jim Price, Dr. Arthur Woods, Dr. Mark Bateman and Dr. Bruce Herron, Plaintiffs/Appellees, v.COUNTY GENERAL HOSPITAL, West Tennessee Healthcare, Inc., and Health Partners, Inc. Defendants/Appellants.
• Court: Tennessee Court of Appeals

Page 565

986 S.W.2d 565

THE EYE CLINIC, P.C. and its shareholders; Dr. Ben House Dr. Jim Price, Dr. Arthur Woods, Dr. Mark Bateman and Dr. Bruce Herron, Plaintiffs/Appellees, v. JACKSON-MADISON COUNTY GENERAL HOSPITAL, West Tennessee Healthcare, Inc., and Health Partners, Inc. Defendants/Appellants.

Court of Appeals of Tennessee.

July 24, 1998.

Application for Permission to Appeal

Denied by Supreme Court

Jan. 11, 1999.

William H. West, Nashville, Tennessee, for the Plaintiffs/Appellees.

John Knox Walkup, Michael E. Moore, Ann Louise Vix, Nashville, Tennessee, for the Intervening Defendant/Appellant.

Gayle Malone, Jr., Dan H. Elrod, Mary Ellen Morris, Amanda Haynes Young, Nashville, Tennessee, for the Defendants/Appellants.

William B. Hubbard, Carlos C. Smith, Mark W. Smith, Jerry W. Taylor, Nashville, Tennessee, for the Amici Curiae, Tennessee Hospital Association, Tennessee Public and Teaching Hospitals, Inc. and Hospital Alliance of Tennessee, Inc.

OPINION

LILLARD, J.

This suit involves a challenge by various eye doctors to the business activities of a public hospital district and its spin-offs. The trial court granted summary judgment to the plaintiffs after determining that the defendants' business activities violated the Tennessee Constitution. We reverse.

Defendant/Appellant Jackson-Madison County General Hospital District ("the District") is a quasi-governmental entity created by a Private Act by the Tennessee legislature. The District was created to provide health care services for area residents. The District created Defendant/Appellant Health Partners, Inc. ("Health Partners") and Defendant/Appellant West Tennessee Alliance for Healthcare, Inc. ("West Tennessee Alliance") to further its objectives. West Tennessee Alliance is a physician-hospital organization ("PHO"), created to permit hospitals and doctors to jointly obtain provider contracts with payors of health care benefits. The District owns fifty (50%) percent of West Tennessee Alliance, and the other fifty (50%) percent is owned by private physicians.

Health Partners is a preferred provider organization ("PPO"), and the District is its sole member. Health Partners contracts with health care providers to create a network to offer to customers. In addition, Health Partners contracts with third-party payors to offer health care services. In 1995, the District created another PPO called Sight Care Network ("Sight Care"). Sight Care is not an independent entity; it is a network of eye doctors created to provide services.

Plaintiff/Appellee The Eye Clinic, P.C. is a professional corporation. All of its shareholders are opthamologists and optometrists, who are also plaintiffs in this suit. All of the individual doctor plaintiffs had preferred provider agreements with Health Partners at one time, but they have since been terminated. The parties' stipulation explains the reason for the termination of the plaintiffs' agreements:

After the effective date of those terminations, Health Providers, Inc., plans to limit its provider network in Madison County to The Jackson Clinic, P.A., the West Tennessee Alliance for Healthcare, L.L.C., and physicians practicing in specialties or subspecialties not available through either of those organizations.

None of the individual doctor plaintiffs are members of the Jackson Clinic and none were invited to participate in West Tennessee Alliance or Sight Care.

The plaintiffs filed this lawsuit, alleging that Article II, §§ 29 and 31 of the Tennessee Constitution prohibit the District from jointly owning provider networks with private individuals. In addition, the plaintiffs asserted that the Tennessee Constitution prohibits the District from operating PPOs, such as Health Partners and Sight Care. The plaintiffs maintained that the District's operation of such PPOs results in a public entity engaging in a business carried on by private enterprise and violates the constitutional provisions for due process and equal protection. The plaintiffs sought to enjoin the District from operating West Tennessee Alliance, and also sought to enjoin the defendants from engaging in any similar enterprises in the future.

The defendants filed a motion for summary judgment. The defendants argued that their actions were authorized by the Private Act Hospital Authority Act of 1996 ("Hospital Authority Act"), Tenn.Code Ann. §§ 7-57-601 et seq., and that the state constitution does not forbid their conduct. This motion was denied.

The plaintiffs filed a motion for partial summary judgment and for a preliminary and permanent injunction. The trial court issued an order mandating notification to the State Attorney General that the constitutionality of portions of the Hospital Authority Act were being challenged. Consequently, the Attorney General intervened as a defendant in this action. The defendants then filed a cross motion for partial summary judgment.

In a cursory opinion, the trial court granted summary judgment in favor of the plaintiffs, concluding that the defendants' actions violated Article II, §§ 29 and 31 of the Tennessee Constitution. The trial court found that the District "is a joint venture of the City of Jackson and Madison County." The defendants were also enjoined from operating West Tennessee Alliance or any other company in which it co-owned shares of stock with private entities. The defendants were also enjoined from operating PPOs, such as Health Partners and Sight Care. From this order, the defendants now appeal.

On appeal, the defendants contend that the trial court erred by concluding that Article II, §§ 29 and 31 prohibit the District from co-owning with private entities shares of West Tennessee Alliance or any other company. They argue that the District is not a "county, city or town" within the meaning of Article II, § 29 of the Tennessee Constitution. They note that the Hospital Authority Act authorizes the District to own a provider network jointly with private individuals. They contend that Article II, § 31 of the Tennessee Constitution, prohibits "the State," but not an entity such as the District, from operating PPOs, such as Health Partners and Sight Care. The Attorney General asserts that the trial court erred to the extent that it found that the Hospital Authority Act violates the Tennessee Constitution. ¹

Summary judgment should be granted when the movant demonstrates that there are no genuine issues of material fact and that the moving party is entitled to a judgment as a matter of law. Tenn. R. Civ. P. 56.03. The party moving for summary judgment bears the burden of demonstrating that no genuine issue of material fact exists. Byrd v. Hall, 847 S.W.2d 208, 211 (Tenn.1993). On a motion for summary judgment, the court must take the strongest legitimate view of the evidence in favor of the nonmoving party, allow all reasonable inferences in favor of that party, and discard all countervailing evidence. Id. at 210-11. Summary judgment is only appropriate when the facts and the legal conclusions drawn from the facts reasonably permit only one conclusion. Carvell v. Bottoms, 900 S.W.2d 23, 26 (Tenn.1995). Since only questions of law are involved, there is no presumption of correctness regarding a trial court's grant of summary judgment. Id. Therefore, our review of the trial court's grant of summary judgment is de novo on the record before this Court. Id.

LEGISLATION

The defendants argue first that their actions are not prohibited by Article II, § 29 of the Tennessee Constitution because the District is not a "county, city or town" within the meaning of that provision. Against the background of the pertinent legislation, we shall examine Section 29.

The Hospital Authority Act was passed to enable private act hospitals to compete in the health care market. Several of its provisions incorporate by reference the Private Act Metropolitan Authorities Act of 1995 ("Metropolitan Authorities Act"), Tenn.Code Ann. §§ 7-57-501 et seq. (Supp.1997). The Metropolitan Authorities Act sets forth its purpose:

The general assembly hereby finds that the demand for hospital, medical and health care services is rapidly changing as is the way and manner in which such services are purchased and delivered; that the market for hospital and health care services is becoming increasingly competitive; and that the hospital and other health care providers need flexibility to be able to respond to changing conditions by having the power to develop efficient and cost-effective methods to provide for hospital, medical and health care needs. The general assembly also finds that the increasing competition and changing conditions forces hospitals and other health care providers to develop market strategies and strategic plans to effectively compete. The general assembly further finds that public hospitals in metropolitan areas are presently at a competitive disadvantage, and that significant investments in the public assets of private act metropolitan hospital authorities could be jeopardized by inability to compete with private hospitals because of legal constraints upon the scope of their operations and limitations upon the power granted to public hospitals under existing law.

Tenn.Code Ann. § 7-57-501(b).

The Hospital Authority Act broadened the powers of hospitals created by private act. The broadened powers include the power to:

participate as a shareholder in a corporation, as a joint venturer in a joint venture, as a general partner in a general partnership, as a limited partner in a limited partnership or a general partnership, as a member in a nonprofit corporation or as a member of any other lawful form of business organization, which provides hospital, medical or health care or engages in any activity supporting or related to the exercise of any power granted to a private act metropolitan hospital authority;

Tenn.Code Ann. § 7-57-603 (incorporating Tenn.Code Ann. § 7-57-502(b)(1)). Such hospitals may:

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