Florida practice tangles with Radiologix over management contract

June 12, 2002

Countersuit alleges fraud and coercionOne of the imaging service industry's biggest success stories is the target of a lawsuit. A Florida radiology practice has launched litigation against Radiologix, a nationwide radiology

Countersuit alleges fraud and coercion

One of the imaging service industry's biggest success stories is the target of a lawsuit. A Florida radiology practice has launched litigation against Radiologix, a nationwide radiology physician practice management company, to recover payments made to Radiologix and to formally end its business relationship with the company.

The lawsuit, filed in state court early in the year, contends that a stipulation in the practice's contract with Radiologix that allows the management company to collect a 30% fee on practice revenues cannot be enforced, said Dr. Alex Vennos, a plaintiff in the case and the chief radiologist at St. Lucie Medical Center. Radiologix has since filed a countersuit against the five-member practice seeking at least $10 million in damages.

The dispute began last August when Radiology Imaging Associates, a 10-person practice in St. Lucie, split in two. Vennos and four of the younger radiologists went to practice at the St. Lucie Medical Center hospital, while the other radiologists stayed with a nearby outpatient imaging center.

Vennos contends the split left his group paying the fee to cover management services provided by Radiologix and getting little in return. The four younger radiologists in the hospital practice did not benefit from the cash and stock buyouts that Radiologix provided to practice partners prior to the split, but they must still shoulder the burden of the management fee, he said. The lawsuit followed several months of failed attempts to negotiate a lower fee.

"The practice model is fundamentally flawed," Vennos said. "As older guys retire or leave, it hamstrings the practice as far as hiring people. The new guys have to part with 30% of their salary for the rest of their lives."

In the Radiologix version, the Vennos group asked for help to facilitate the practice split. Radiologix provided that help, including cash advances that have not been repaid. But after agreeing to a new arrangement with Radiologix, the Vennos group changed course and filed suit.

"The bottom line for Radiologix and TCIP (a Radiologix subsidiary) is that we will vigorously prosecute our claims because it is the right thing to do for the company and for the radiology groups with which they do business," said Paul R. Streiber, director of corporate communications for Radiologix.

The legal basis for the suit by the Vennos group involves a noncompete clause in the Radiologix contract that prevents radiologists from exiting the agreement and then setting up shop within 15 miles of their original location, Vennos said. The radiologists argue that the noncompete clause can be enforced only against the original practice, which signed the contract--and that the original practice was essentially dissolved with the split.

The practice group has hired its own billing company and relies on the hospital for administrative support, Vennos said. The suit seeks to recover about $250,000 to $300,000 paid for the management fee. The $10 million countersuit filed by Radiologix alleges fraud, coercion, and breach of contract.

Streiber said that the lawsuit filed by the Vennos group has no material impact on the company. Company executives state that all current litigation is either covered by liability insurance or not expected to adversely affect the business. Radiologix in early May reported revenue growth of 10.3% in 1Q 2002, achieving $72.7 million, with a 26.6% increase in net income to $4.4 million, compared with the first quarter of the previous year. Radiologix owns or operates 118 imaging centers located in 18 states, with concentrated coverage in California, Florida, Kansas, Maryland, New York, Texas, and Virginia.