Judge: Blue Cross, Lifespan may have engaged in ‘conspiracy’ over Landmark

Blue Cross RI_347469

PROVIDENCE, R.I. (WPRI) – A federal judge has found compelling evidence that some of Rhode Island’s biggest health-care companies may have engaged in a “conspiracy” to block a potential buyer from taking over Landmark Medical Center.

In a ruling last month, U.S. District Judge William Smith denied Blue Cross & Blue Shield of Rhode Island’s motion for summary judgment in an antitrust suit filed by Steward Health Care. Steward alleges Blue Cross conspired with Lifespan, the state’s top hospital group, and Thundermist Health Center, a major health provider in Woonsocket, to thwart its purchase of Landmark.

The decision marked a notable change of heart for Smith, who last November had tentatively sided with Blue Cross on the matter. But he said his opinion “evolved” and he now thinks Massachusetts-based Steward has “raised a triable issue as to whether Blue Cross engaged in a predatory refusal to deal by blocking Steward from entry into the Rhode Island health care and health insurance markets.”

Blue Cross spokeswoman Gail Carvelli said the insurer was “disappointed” by the ruling.

“We remain confident, however, that Steward Health Care’s claims are without merit, and that we will prevail at trial,” she said. “We will continue to defend our mission to provide high-quality, affordable health insurance to Rhode Islanders.”

Landmark, a Woonsocket hospital, filed for receivership in 2008 and spent subsequent years seeking a buyer to stabilize it. Smith’s 101-page decision chronicles a series of behind-the-scenes machinations over Landmark’s future by top executives at Blue Cross, Lifespan and Thundermist that led him to decide a jury trial was warranted.

“Steward sets forth an abundance of evidence that points toward a ‘distinctly anticompetitive bent,’ which could in turn persuade a reasonable jury that Blue Cross unlawfully monopolized the relevant markets by excluding Steward from Rhode Island,” he wrote.

In 2011, Thundermist decided to move its obstetrics patient referrals from Landmark to Women & Infants Hospital, owned by Care New England, the state’s No. 2 hospital group. Emails show Thundermist’s then-CEO, Chuck Jones, coordinated with Lifespan’s then-CEO, George Vecchione, to ensure Lifespan would support the change.

During the same time period, Lifespan agreed to start paying Thundermist $150,000 a year to offset the money Thundermist would lose from shifting referrals away from Landmark – even though the patient referrals would be going to Lifespan’s chief competitor, Care New England, not Lifespan.

“The explanations provided by Thundermist and Lifespan do little to clear the air about this strange payment,” Smith noted. Steward maintains Lifespan was working to weaken Landmark in order to either force its closure or take it over.

In a statement, Lifespan spokesman David Levesque emphasized that the hospital group is not a party to the lawsuit. (Thundermist is, as a movant.)

“At this juncture of the suit, the judge is required to assume the facts as claimed by the plaintiff to be true. A trial yet to be conducted will ultimately determine the actual facts,” Levesque said. “As such, we are confident that once the case goes to trial and the parties have the opportunity to fully present their respective cases, it will be determined that Lifespan was not involved in any conspiracy.”

Jones’s predecessor as Thundermist CEO, Maria Montanaro, was at that point working as a consultant to Blue Cross. In an email to Jones, she wrote that Blue Cross’s then-CEO, Peter Andruszkiewicz, “want[ed] to see Care NE then do the OB piece.”

“These explanations raise more questions than answers, and at least give the appearance of Blue Cross acting as a puppet-master distributing the spoils,” Smith wrote. “And the payment persisted for six consecutive years.”

Montanaro figured in the story again the following year, when Jones sought her counsel as he prepared to cut off negotiations with Steward over how their relationship would work if the company bought Landmark. When Jones tried to pay Montanaro for her time, she demurred, saying in an email, “I was there on BCBS’s dime.”

“A reasonable juror could conclude that, instead of an independent action by Thundermist, Jones’s choice was to align with Blue Cross (and Lifespan) to keep Steward out of Rhode Island,” Smith wrote. An email shows Jones also consulted with Dennis Keefe, Care New England’s CEO at the time, over the Steward talks.

Another section of Smith’s ruling focuses on a so-called “Red Team” that Blue Cross created in the summer of 2012, composed of a group of executives and consultants who examined competitive threats to the insurer.

“The Red Team’s motto was ‘Attack Adapt Advance’ and its logo appears to be a hatchet enclosed within the ‘shield’ of Blue Cross’s emblem,” Smith wrote.

The group was led by Michael Hudson, who was then Blue Cross’s chief financial officer and also led the insurer’s negotiations with Steward. At one point in the negotiations, Blue Cross moved to cut Landmark off from its network, and took the apparently unprecedented step of sending a letter to its patients and doctors warning them the hospital would soon be out-of-network. At the time, Blue Cross was trying to force the attorney overseeing Landmark to sign a new contract at rates the hospital opposed.

In a 2012 email referenced in Smith’s decision, Hudson explained that he would not negotiate with Steward until Landmark signed the new contract. He suggested that the terms Blue Cross was demanding “[c]ould force Steward’s hand – if they [Landmark] agree to the contract, then Steward is likely out.”

Smith noted that internal documents show Blue Cross made the move despite its own estimates showing that dropping Landmark from its network would actually cost the insurer millions of dollars, because its subscribers would instead seek care at higher-priced hospitals owned by Lifespan and Care New England.

“This evidence more than suffices to create a trial-worthy issue as to whether Blue Cross sacrificed short-term profits (by letting the Landmark contract lapse) for the long-term benefit of keeping Steward out of Rhode Island,” Smith wrote.

Smith also had little patience for Blue Cross’s argument that Steward’s projected improvements if it bought Landmark were speculative.

“Like the boy who kills his parents and then pleads for mercy as an orphan, Blue Cross’s argument is the height of chutzpah,” he wrote. “Steward cannot be faulted for having no direct evidence of the competitive benefits that it could have brought to Rhode Island when the barricade was erected by Blue Cross’s allegedly exclusionary conduct.”

The vast majority of the executives mentioned in Smith’s ruling, which was first reported by Providence Business News, have since left their jobs.

On Tuesday, Smith denied Blue Cross’s request to appeal his ruling to the 1st U.S. Circuit Court of Appeals. A trial date in the case has not yet been set.

In a regulatory filing earlier this year, Blue Cross executives acknowledged that the insurer’s “ultimate liability” in the suit “is presently difficult to estimate,” but said they believe “the outcome is not likely to have a material adverse effect” on its finances.

However, they warned: “It is possible that a court decision or settlement … could have an unanticipated material adverse effect on the plan’s results of operations, and risk-based capital.”

Ted Nesi (tnesi@wpri.com) covers politics and the economy for WPRI.com. He is a weekly panelist on Newsmakers and hosts Executive Suite. Follow him on Twitter and Facebook

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