116 3rd St SE
Cedar Rapids, Iowa 52401
NORTH LIBERTY — A Johnson County surgical group is posturing to sue member surgeons associated with Steindler Orthopedic Clinic, accusing them of violating a no-compete agreement by seeking state permission to build a new surgery center in what could become a new medical hub in North Liberty.
Johnson County Surgical Investors made its threat — and other arguments — in a letter urging the State Health Facilities Council to deny Steindler a “certificate of need” to build a $17.9 million ambulatory surgery center on 36 acres near the Interstate 380 interchange with Forevergreen Road.
A master plan for the Steindler North Liberty property — which is adjacent a newly-approved $395 million University of Iowa hospital project — includes a 35,880-square-foot ambulatory surgery center; 71,000-square-foot orthopedic clinic; 157,000-square-foot hospital; and four-story hotel.
“The very act of filing the (certificate of need) application constitutes a threat to violate the restrictive covenants, and any approval of (Steindler North Liberty’s) application by the department would further the … physicians’ unlawful plan,” according to the letter.
That project was to go before the state’s five-member council this month until Steindler last week asked it to postpone consideration into the new year after an in-state hospital system reached out about a potential collaboration that would change the application.
North Liberty growth
If the project moves forward in some sense, that swath of undeveloped land could anchor an explosion of development at that interchange, according to a letter of support from North Liberty City Administrator Ryan Heiar.
“We envision this area and the adjacent land to encompass a business park, including uses of medical, technology, office, and supporting services,” Heiar wrote in an Aug. 6 letter, provided to The Gazette under an open records request. “We are extremely excited that your 36-acre health care campus will be the cornerstone of this corridor.”
In the letter, Heiar reports the city is in the process of annexing over 500 acres that “can be developed almost immediately.”
“We are in talks with several developers on significant projects that include nearly 600 high-paying jobs and millions of dollars of investment in our community,” Heiar wrote. “With all our growth, health care is a pivotal piece of the puzzle. We are very supportive of your project as it will improve health care access to our residents and future residents as well as bring visitors to our community.”
But Johnson County Surgical Investors and Iowa City Ambulatory Surgical Center — a 13-year-old multi-specialty center jointly owned by the Johnson County group and Mercy Hospital in Iowa City — argue the Steindler development in North Liberty is not only unnecessary but unlawful. Their arguments are tied, largely, to a relationship between Steindler and the Iowa City surgical center giving 13 Steindler physicians “active medical staff privileges” at the center — located just a half mile from where Steindler is now in Iowa City.
Because those 13 are physicians and owners of both Steindler and Johnson County Surgical Investors, they signed agreements not to own, operate, manage, finance, lease or invest in any other ambulatory surgical center in Johnson County or provide management services to a competitor, according to the Johnson County group’s opposition letter. But Steindler President and Chief Executive Officer Patrick Magallanes said that “in my view, any contention that Steindler surgeons can’t provide services at a surgical facility of their choosing is legally unsupported.”
Johnson County Surgical Investors — which sent Steindler cease-and-desist letters over the summer — accuse Steindler of trying to circumvent the agreement by creating a new business entity. Using the new Steindler North Liberty Ambulatory Surgery Center name, one of the Steindler physicians who isn’t a member of the Johnson County group filed the state application for the North Liberty project.
‘Simply not suitable’
Iowa City Ambulatory Surgical Center argued it has plenty of space for Steindler to expand and grow within existing facilities — at a fraction of the cost. And the Iowa City center argued pulling Steindler surgeons from its operation would be detrimental.
“Steindler Orthopedic Clinic physicians historically have annually performed approximately 33 percent of the total volume of all ICASC procedures,” according to its letter. “Removing these procedures in their entirely, as (Steindler North Liberty) explicitly indicates it intends to do in its application, would greatly and unnecessarily reduce our already low utilization and make the surgery center even less efficient.”
But the Steindler application states that the “Iowa City Ambulatory Surgical Center is no longer suitable to meet the needs of Eastern Iowa patients for the increasing complexity of outpatient orthopedic procedures.”
“Steindler Orthopedic Surgeons can deliver better patient care in a facility specifically designed for the evermore complex outpatient orthopedic cases,” according to its application, noting if the state denies its requested certificate, “Steindler Orthopedic Surgeons will still move their surgeries out of Iowa City Ambulatory Surgical Center, as it is simply not suitable for outpatient orthopedic surgeries that must now be performed.”
With UI Hospitals and Clinics now moving ahead with a new 469,000-square-foot medical campus in North Liberty, the Steindler application argues its project will "play a critical role in preserving the private practice of medicine in Eastern Iowa.”
“My hope is that all of the health care providers can unite to focus on preserving a community hospital presence and private practice for our community physicians,” Magallanes told The Gazette.
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