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Landmark, Blue Cross agree to mediation

March 24, 2012

PROVIDENCE – On the order of a Superior Court judge, Landmark Medical Center and Blue Cross/Blue Shield of Rhode Island have agreed to enter mediation in attempts to settle their dueling lawsuits over reimbursements.
Steward Health Care of Boston, which is poised to take over Landmark, also agreed to take part in the process. Though Steward is not a party to either of the suits, its predecessor, Caritas Christi Health Care, backed out of deal to buy the financially struggling hospital in 2010, saying Blue Cross’ reimbursement rates for procedures performed at Landmark were unfairly low, foreshadowing Landmark’s legal case.
Associate Superior Court Judge Michael Silverstein called for mediation yesterday as his court-appointed special master in charge of the hospital, Jonathan Savage, was preparing to argue a motion that would have allowed Landmark’s lawsuit against Blue Cross, stayed upon prior orders of the court, to move forward.
“Following this course rather than an inordinate amount of time on all sorts of litigation will make this case move,” Silverstein said. “The court believes everyone here must act in good faith.”
The judge said he understands various parties to the sale have divergent interests, “but those issues don’t neccessarily culminate in the big hole in Woonsocket that I talked about a couple of weeks ago.”
The hole he was referring to was the demise of Landmark, which is likely if the Steward deal collapses. The judge has made it plain on numerous occasions that he views the 214-bed acute care hospital as a key employment engine and health care provider that is too important for northern Rhode Island to lose.
Silverstein said he had someone in mind for the mediator’s job, but he wants a chance to make sure that person is available to accept the position before identifying the individual.
Also expected to participate in the mediation is state Health Care Commissioner Christopher Koller.
The move comes as the Steward deal appears to have entered an extremely sensitive juncture. Under review by state regulators acting under the Hospital Conversions Act, the deal is supposed to be approved or rejected by the state on a 180-day timeline that expires in mid-June. Also, two weeks ago, Silverstein granted Steward permission to walk out of the deal if several new contingencies are not satisfied, including a legislative amendment to the HCA that would allow Steward to buy more hospitals in Rhode Island faster than existing law allows.
At issue yesterday were two lawsuits, filed within days of each other in Superior Court about a year ago, over the amount of money BCBSRI reimburses Landmark for various medical procedures in comparison to other hospitals. In court papers filed on March 23, 2011, Savage argued that the health insurer had essentially starved Landmark to the point of insolvency, forcing the hospital to enter voluntary receivership in June 2008. The suit also contends that Blue Cross had abandoned its chartered, nonprofit mission of providing charitable care in order to enrich its administrators.
“Using its market dominance,” those papers say, “Blue Cross embarked up on a course of conduct designed to pay unaffiliated, nonprofit community hospitals such as Landmark as little as possible.”
The papers were filed just three months before the bidding process for Landmark closed, leading Silverstein to select Steward as the most qualified suitor for Landmark. At the close of those proceedings, Silverstein put a block on the lawsuit on the expectation that Savage and BCBSRI would iron out their differences in the form of a new and mutually satisfactory reimbursement agreement.
That hasn’t happened. Instead, Landmark and Blue Cross have been operating under repeated, temporary extensions of the same contract that was in effect when the lawsuit was filed. And it was extended again yesterday, this time until July 16.
“They’re dealing in bad faith,” Savage said as the hearing was about to begin. “The economics are clear.”
Calling Blue Cross a “monopolistic” force in the state’s health care market, Savage asserted that Blue Cross is pursuing an agenda that calls for putting Landmark out of business, a move that would probably divert about 85 percent of Landmark’s $130 million in annual gross revenues to hospitals controlled by the Lifespan network, including Rhode Island Hospital.
“That’s where most of their business comes from and that’s who they’re going to listen to,” Savage said. “The more they delay the greater the likelihood these community hospitals are going to disappear and their objectives will be met.”
Fours days after Landmark filed the suit in 2011, Blue Cross responded with a counterclaim asserting that it was owed some $3.5 million for coverage it had provided to the hospital’s employees. Blue Cross defended the move as an attempt to protect the broader interests of its members in the event that Landmark defaulted on its debts, but Landmark excoriated the response as a case of retaliatory overkill.
The rhetoric was notably absent from Silverstein’s courtroom during yesterday’s relatively brief hearing. As soon as Silverstein took the bench he put the lawyers on notice that he was considering ordering mediation, and called for a recess. About a half-hour later, Joseph DiOrio, a lawyer for Blue Cross, indicated his client was willing to participate, and Preston Halperin, on behalf of Savage, followed suit.
After the hearing, Savage praised the judge’s decision, saying, “The judge’s ruling should be heeded by all parties. We are moving forward in a spirit of cooperation with the ultimate goal of getting the hospital sold in accordance with the asset purchase agreement.” Kim Reingold, a spokeswoman for Blue Cross, declined to comment.
Even if Blue Cross and Landmark find some common ground on reimbursements, there are a number of unrelated reasons Steward could walk away from the deal. The for-profit hospital chain wants the General Assembly to amend the Hospital Conversions Act so it doesn’t have to wait three years to buy another hospital in Rhode Island after the Landmark sale. A House committee is expected to hold a hearing on the matter next week.
Steward could also terminate the deal if it’s unable to buy Landmark’s cancer ward from a third party on terms it deems satisfactory, or if it fails to strike a pact with Thundermist Health Center on the scope of services the clinic intends to purchase from the hospital.

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