Saturday, June 19, 1999

Medical laboratories
mix it up in court
over Kauai contract

By Anthony Sommer


LIHUE -- The state's only two contract medical laboratories crossed syringes in Circuit Court yesterday over which will provide medical tests to almost the entire population of Kauai.

Judge George Masuoka will rule on the case later.

Clinical Laboratories of Hawaii Inc. is seeking an injunction halting implementation of a contract between its competitor, Diagnostic Laboratory Services, and Wilcox Hospital, by far Kauai's largest hospital and operator of clinics throughout the island.

The lawsuit claims Wilcox violated a confidentiality agreement by giving Diagnostic Laboratory Services information about the Clinical Laboratories' proposal that allowed it to submit the winning bid after it appeared to lose the first round.

The value of the proposals to take over all laboratory work now conducted in-house by Wilcox was sealed by the court. But last year, Wilcox grossed about $5 million on lab work it conducted for hospital and clinic patients.

Wilcox chief executive officer David Patton testified he invited both companies to assess Wilcox's laboratory, which he believed could be operated better by an outside contractor. The hospital signed confidentiality agreements with both, pledging to keep competing proposals secret.

Clinical Laboratories submitted three alternative proposals April 23, the date Patton said he wanted bids, although he testified it was not a deadline. Two of the options involved joint ventures, the other a purchase of Wilcox's laboratory.

Diagnostic Laboratory Services submitted its proposals April 30. None of them included a joint venture. On May 4, a Wilcox assessment committee headed by Patton heard presentations on the proposals.

The committee recessed until May 12 to give hospital finance staff a chance to study the proposals.

Patton testified he talked to Dr. John Edwards, Diagnostic Laboratories president, on May 6 and agreed to allow his company to submit yet another bid.

Patton said he told Edwards his competitor had submitted a joint venture proposal. He said he also told him he had rejected the idea of an outright sale of the laboratory.

Patton said he did not believe he violated the confidentiality agreement because joint venture proposals are common and he gave no details.

On May 7, Diagnostic Laboratory Services submitted a new proposal. Patton said he allowed his staff and the Diagnostic Laboratories Services finance staff to meet all day on May 11 to fashion a "totally new proposal" that contained elements of a joint venture.

On May 12, Patton recommended the new Diagnostics Laboratory Services bid to the assessment committee, which approved it. The same day it was approved by the Wilcox Hospital board, and it since has been approved by the Wilcox Health Systems board.

Dr. Barry Shitamoto, chief executive officer of Clinical Laboratories, said Patton warned him at the beginning that Diagnostic Laboratories had a big leg up because it is a subsidiary of Queen's Medical Center. Wilcox has a close ties with Queen's and is a beneficiary of the Queen's Foundation.

But after the May 4 presentations, Shitamoto testified Patton called him and told him it had been a "slam dunk" for his company and he was led to believe Diagnostic Laboratories had not filed a proposal worth considering.

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