Facts

Advanced Cardiac Specialists (ACS) and Mesa General Hospital (MGH) entered into an Agreement for Furnishing Cardiovascular Catheterization Services ("MGH contract"). Taken together, the MGH contract provided the terms under which ACS would lease cardiac catheterization laboratory space at Mesa General, perform inpatient and outpatient procedures "under arrangements" at Mesa General, and build and operate an Outpatient Treatment Center on a separate pad on the Mesa General campus. The MGH contract also contained terms and provisions relating to the valuation of and pricing MGH would pay for the services ACS would provide at Mesa General.

ACS and St. Luke's Medical Center (SLMC) entered into an Equipment and Services Agreement, under which ACS would perform inpatient and outpatient procedures under arrangements at St. Luke's ("SLMC contract"). The SLMC contract contained terms and provisions relating to the valuation of and pricing SLMC would pay for the services ACS would provide at St. Luke's. For regulatory compliance reasons, both the MGH contract and the SLMC contract contemplated that the services ACS was to provide under the contracts would be valued, priced, and paid at their fair market value. The contracts contained provisions for the joint retention of an independent third-party valuation expert to determine the fair market value of each of the services.

PLAINTIFF'S CONTENTIONS:
VMG Health (a neutral healthcare appraisal firm) provided its Fair Market Value Analysis for the ACS services performed at St. Luke's and Mesa General. In turn, ACS demanded payment from ACS, MGH, and Iasis Healthcare Corp. for services rendered pursuant to the Mesa General Contract and St. Luke's Contract.

SLMC, MGH, and IASIS Healthcare Corp. failed and refused to pay ACS for the fair market value of its services and for the interest that had accrued. During this time period, the parties to the MGH and SLMC contracts had retained the valuation company of Hill Schwartz Spilker Keller LLC ("HSSK") to perform a valuation analysis.

Don Barbo, a valuation professional employed by HSSK at the time, provided the parties with a Fair Market Value Analysis of the fee schedules for St. Luke's and for Mesa General. At some point after they received the VMG valuations, and without informing, consulting with, or obtaining the consent of ACS, IASIS, SLMC, and MGH retained Barbo to produce a valuation of the fair market value of the services ACS had provided at St. Luke's and at Mesa General during the relevant time periods.

IASIS, SLMC, and MGH did so in an effort to avoid honoring and complying with the VMG valuations and to escape liability for payment in accordance with the VMG valuations, and in an attempt to obtain a more conservative valuation for which only they would control the information provided to the appraiser.

Plaintiff claimed that the VMG valuations relied upon accepted valuation methodologies and approaches and are consistent with the fair market value (FMV). Furthermore, the VMG valuations were commercially reasonable and reflective of arrangements that would reasonably be entered into even if there had been no potential business referrals between ACS and IASIS. The HSSK valuation was not consistent with FMV as it appeared to be based on methodologies, which resulted in cost-based reimbursement (i.e., "without regard to a reasonable profit margin to be earned by the supplier of such services). Furthermore, given its failure to arrive at a fee schedule that enables a provider to earn a reasonable profit margin, the HSSK valuation produced results that did not appear to meet the definition of commercial reasonableness.

DEFENDANT'S CONTENTIONS:
Defendants contended that VMG's methodology and the resulting fee schedule were overstated and insupportable. Further, that the VMG fee schedule would result in an unreasonable financial impact on hospitals.

Result

After three days of hearing, the arbitrators awarded $9,411,213. The arbitrators also awarded attorney fees and costs as well as prejudgment interest from the date of the VMG December 2007 valuation, except that interest on later-submitted invoices runs from 15 days following the date each such invoice was delivered to defendants. The total amount resulted in $14,990,661.

Other Information

ARBITRATORS: Hon. Barry C. Schneider, retired; Richard S. Plattner, Plattner Verderame, P.C.; Michael D. Roth, Law Offices of Michael D. Roth. FILING DATE: Sept. 30, 2008.