Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Hospital Network Challenges Blue Cross & Blue Shield’s Efforts to Prevent Its Acquisition of Rhode Island Hospital, (Jun 5, 2013)

By Tobias J. Gillett, J.D., LL.M.

A Massachusetts community hospital network has filed a complaint in the federal district court in Providence, Rhode Island, alleging that Blue Cross & Blue Shield of Rhode Island (BCBSRI) engaged in a campaign of anticompetitive conduct that was intended to, and did, prevent the hospital network from acquiring a hospital in Rhode Island (Steward Health Care System LLC v. Blue Cross & Blue Shield of Rhode Island, June 4, 2013).

Steward Health Care System LLC owns a network of 11 hospitals in Massachusetts. Steward allegedly provides lower-cost health care services through community hospitals, and partners with certain health insurance companies to offer limited-network insurance products. Landmark is a general acute care community hospital in Woonsocket, Rhode Island currently operated by a court-appointed special master due to its distressed financial condition. In May 2011, Steward submitted a proposal to acquire Landmark, and the special master recommended its approval.

According to the complaint, BCBSRI is the dominant commercial health insurer and purchaser of hospital services in Rhode Island. BCBSRI allegedly sought to derail Steward’s acquisition of Landmark to preserve its position in the market. Despite an objection filed by BCBSRI, however, the court authorized the special master to execute an asset purchase agreement with Steward, and Steward filed an application for permission to acquire the hospital, which was later approved by the Rhode Island Department of Health and the State Attorney General.

BCBSRI did not halt its opposition to the transaction, however, according to the complaint. BCBSRI mounted a lobbying campaign against a bill in the Rhode Island legislature that would eliminate a provision in the Hospital Conversion Act preventing any owner of a for-profit hospital from converting more than one hospital to for-profit status in any three-year period, a provision Steward claims would prevent it from timely developing a network of Rhode Island hospitals. BCBSRI also sought conditions on an amendment to the Act that would bar new multi-hospital networks from negotiating collectively with commercial health insurance providers on behalf of its entire group of hospitals.

BCBSRI also filed an application with the Department of Health to modify its plan to remove Landmark from its provider network. In negotiations with Steward, BCBSRI refused to accept a proposal under which Steward would accept reimbursement rates lower than BCBSRI’s average statewide rates. BCBSRI allegedly offered proposals that would not “adequately compensate Landmark for the cost of providing service to BCBSRI subscribers,” would tie “a substantial portion of the rate increases it purportedly offered to quality measures” Steward asserted were unattainable, and would require Steward to have the special master dismiss a lawsuit against BCBSRI that challenged BCBSRI’s reimbursement rates to Landmark.

Even before the Department of Health completed its review of BCBSRI’s request to modify its plan, BCBSRI allegedly began informing doctors and subscribers of its action, and ceased making payment directly to Landmark, instead reimbursing subscribers directly. BCBSRI’s actions led to a sharp decline in patient volumes and cash receipts at Landmark, according to the complaint. BCBSRI’s pressure on Landmark also led the special master to seek court approval to drop its lawsuit against BCBSRI in exchange for BCBSRI agreeing to resume marking direct payments to Landmark and extending Landmark’s contract, an action the special master described as “a full and complete capitulation” to BCBSRI. BCBSRI also discouraged a large primary care clinic in Woonsocket from dealing with Steward, a clinic Steward considered important to its future plans for Landmark.

BCBSRI allegedly targeted Steward’s hospitals in Massachusetts, declining to renew its contracts with a hospital located on the Massachusetts-Rhode Island border. BCBSRI informed its subscribers that they could use the BlueCard program, a program intended for services provided outside of the health plan’s service area, at the hospital, even though the hospital was not outside BCBSRI’s service area. BCBSRI declined to accept a proposal for reimbursement at rates negotiated with Blue Cross & Blue Shield of Massachusetts, even though the proposal would save BCBSRI fees it paid to use the BlueCard program. On September 27, 2012, Steward announced it was abandoning its effort to acquire Landmark.

BCBSRI’s campaign against Steward allegedly permitted it to retain its negotiating leverage with Rhode Island’s disaggregated community hospitals, thus permitting it to pay reimbursement rates substantially lower than those paid to network hospital systems. BCBSRI’s efforts also eliminated the threat of Steward’s competitive limited provider network commercial health insurance.

The complaint asserts claims for monopolization in violation of Section 2 of the Sherman Act and the Rhode Island Antitrust Act, attempted monopolization in violation of Section 2 of the Sherman Act and the Rhode Island Antitrust Act, monopsonization in violation of Section 2 of the Sherman Act and the Rhode Island Antitrust Act, attempted monopsonization in violation of Section 2 of the Sherman Act and the Rhode Island Antitrust Act, tortious interference with contractual relations, and interference with prospective contractual relations.

The complaint seeks a judgment that BCBSRI engaged in unlawful conduct, trebled damages, costs of suit and attorneys’ fees, and any other appropriate relief.

The case is No. 1:13-cv-00405-S-LDA.

Attorneys: Robert C. Corrente (Burns & Levinson LLP) and Brendan V. Sullivan, Jr. (Williams & Connolly LLP) for Steward Health Care System LLC.

Companies: Steward Health Care System LLC; Blackstone Medical Center, Inc.; Blackstone Rehabilitation Hospital, Inc.; Blue Cross & Blue Shield of Rhode Island

News: Antitrust RhodeIslandNews