The Supreme Court of Kansas ruled on May 16, 2008 affirmed in the case of Kansas Heart Hospital, LLC and Cardiac Health of Wichita vs. Badr Idbeis, M.D. and 13 other shareholder defendants, that the Kansas Heart Hospital, LLC and Cardiac Health of Wichita were justified in forcing a mandatory redemption of the other physician’s ownership interest due to investment in a competing medical facility.
Medical industry commentators were quick to compare this case to the Baptist Health case in which a hospital system is imposing non-competition or loyalty provisions as a condition for obtaining staff membership and clinical privileges, i.e. economic credentialing.
Note that the cases, although perhaps similar in impact, are quite different from a legal prospective. The Kansas Heart Hospital case involves a determination by the Kansas Court regarding the applicability of a very technical provision of corporate law regarding the difference between redemption provisions and corporate by-laws and repurchase provisions in corporate agreements involving private shareholders. The Court basically enforced the provisions of the corporate agreements voluntarily entered into by the physicians.
Baptist Health is quite a different story. It involves an attempt by a hospital to enforce economic credentialing by-law provisions which allow physicians to practice within its facilities only if they do not have competing investments. That case involves the application of fraud and abuse rules and the community responsibilities of non-profit heath care facilities. The Baptist Heart case has not yet been finally resolved.
A copy of the Kansas Heart Opinion appears at the link below.