Texas hospital brings lawsuit against GE for service policy

October 23, 1996

Hospital's charges resemble those in Montana suitGE Medical Systems continues to experience turbulence relatedto its licensing policies for advanced service software for medicalimaging equipment. A Texas hospital this month filed a

Hospital's charges resemble those in Montana suit

GE Medical Systems continues to experience turbulence relatedto its licensing policies for advanced service software for medicalimaging equipment. A Texas hospital this month filed a lawsuitagainst the Milwaukee vendor, charging that the company's advancedservice software policy is in violation of antitrust laws.

The Texas lawsuit covers the same territory as litigation filedin August by the U.S. Department of Justice in a Montana federalcourt. In that lawsuit, U.S. attorneys alleged that GE has beenillegally preventing hospitals whose in-house staff serviced GEequipment from servicing GE equipment at other hospitals (SCAN8/28/96).

In this month's suit, Wadley Regional Medical Center of Texarkana,TX, is alleging that it has been the victim of the same practicesinvolved in the Montana litigation.

"The anti-competitive conduct that the Department of Justicehas alleged to be an antitrust violation is similar to that allegedby Wadley Regional Medical Center," said Stephen Berry, apartner in the Washington, DC, law firm of Berry & Leftwich,which is representing the medical center in its lawsuit.

The class action, brought by Wadley in U.S. District Courtfor the Eastern District of Texas, alleges that GE has violatedfederal antitrust laws and overcharged the medical center andother hospitals nationwide for the service of GE imaging equipment.

GE spokesperson Charles Young said Wadley Regional's lawsuitis without merit and that GE will defend itself against the allegations.

Wadley Regional will ask permission from the district courtto represent a class of all hospitals and other healthcare providerswho have purchased service from GE for maintaining and repairingGE imaging equipment over the last four years. No other hospitalsneed to sign on to the action as a class representative.

The next step for Wadley Regional and its counsel -- Berry& Leftwich and co-counsel Victor Hlavinka of Texarkana --is to make a class certification to the court supporting its requestthat Wadley represent all the hospitals and clinics that purchasedGE service.

In making its determination, the court will look at severalfactors, such as the adequacy of representation and whether thereare common issues. If the class action is allowed, the stakesfor GE could be astronomical.

"We don't know the precise amount of the overcharging,but our initial estimates indicate that it is over $300 million,"Berry said.

The 439-bed medical center in eastern Texas has chosen to pursuea class action so as to open up the market to Wadley Regionaland other hospitals with in-house staffs that might provide serviceto surrounding hospitals and networks, Berry said.

At issue is GE's alleged practice of requiring hospitals thatmaintain their own equipment to agree not to compete with GE forcontracts to service the vendor's imaging equipment at other hospitals,if the hospitals providing service license GE's advanced diagnosticsoftware and service manuals. Because these hospitals have a criticalneed for GE's diagnostic software to efficiently service theirown GE-made equipment, they often have no choice but to sign GE'slicensing agreements, according to Berry.

In its response to the Justice Department's Montana antitrustaction, GE contends that it developed advanced service softwarein the mid-1980s at significant expense and that the company hasdecided not to license that software to its competitors. The companydid decide, however, to license the proprietary materials to customers-- hospitals and other healthcare providers -- that were not competitorsin providing equipment service to third parties.

Developments in the Justice Department's antitrust case againstGE could speed the Texas class-action suit along.

"Presumably, if documents were disclosed to the Departmentof Justice by GE that are relevant to our similar case, then theywill have to turn them over to Wadley Regional Medical Centeras well," Berry said.