Ocean State Physicians Health Plan v. Blue Cross

Decision Date27 July 1988
Docket NumberCiv. A. No. 86-0598-B.
Citation692 F. Supp. 52
PartiesOCEAN STATE PHYSICIANS HEALTH PLAN, INC., et al., Plaintiffs, v. BLUE CROSS & BLUE SHIELD OF RHODE ISLAND, Defendant.
CourtU.S. District Court — District of Rhode Island

COPYRIGHT MATERIAL OMITTED

Thomas A. Lynch, Lynch and Greenfield, Providence, R.I., William G. Kopit, Mark E. Lutes, Stuart Gerson, Epstein, Becker, Borsody & Green, P.C., Washington, D.C., for plaintiffs.

Patrick Quinlan, Quinn, Shectman & Teverow, Julius C. Michaelson, Providence, R.I., for plaintiff-intervenors.

Steven E. Snow, James Purcell, Partridge, Snow & Hahn, Providence, R.I., for defendant.

OPINION

FRANCIS J. BOYLE, Chief Judge.

STATEMENT OF FACTS

Defendant, Blue Cross & Blue Shield of Rhode Island, has been charged by Plaintiffs with restraint of trade and monopolization in violation of both federal and state law. After trial, a jury awarded Plaintiffs compensatory damages in the total amount of $2,693,437 and punitive damages in the amount of $250,000 for wrongful interference with contractual relationships, and found that Blue Cross & Blue Shield of Rhode Island was guilty of monopolization but awarded it no damages. Now pending are the Defendant's motion for judgment notwithstanding the verdict on the antitrust and tortious interference with contractual relationships claims. In the alternative, the Defendant seeks a new trial only on the interference with contractual relationships claims and not on the antitrust claims. Plaintiffs seek injunctive relief and an additur on the antitrust claims. In addition, the Defendant filed a counterclaim against the Plaintiff-Intervenors, the Physicians and Surgeons Association of Rhode Island, Inc. and thirteen individual members of the class, to prevent the Plaintiff-Intervenors from collectively negotiating fees with Blue Cross.1

Plaintiffs claimed that the Defendant violated Sections One and Two of the Sherman Antitrust Act, 15 U.S.C. §§ 1, 2 (Supp. 1986), violated the analogous Rhode Island Antitrust Statutes, R.I.Gen.Laws § 6-36-1 to 26 (Supp.1985), and breached the common law duty not to wrongfully interfere with contractual relationships. The Plaintiff Ocean State Physicians Health Plan, Inc. and the Plaintiff class of physicians sought monetary damages against the Defendant due to Blue Cross's business programs which for short hand purpose of reference are called prudent buyer, adverse selection, and HealthMate. Plaintiffs claimed that those programs were unlawful. Plaintiffs sought a permanent injunction prohibiting Defendant from using its prudent buyer and HealthMate programs.

THE PARTIES

The Plaintiffs, Ocean State Physicians Health Plan, Inc. (Ocean State) and Anthony J. Kazlauskas and Jeffrey C. Winters, on behalf of the class of physicians, commenced suit against the Defendant Blue Cross & Blue Shield in September 1986. The class of physicians was defined by a court order dated April 2, 1987 to include "all physicians who contract with Ocean State to provide physicians services and who are also reimbursed by Blue Cross & Blue Shield of Rhode Island for the provision of physician services to defendant's subscribers." The Defendant, Blue Cross & Blue Shield of Rhode Island, is a nonprofit hospital and medical services corporation which provides insurance for hospital and medical expenses.

Ocean State is a health maintenance organization (HMO) with headquarters in Warwick, Rhode Island. As an independent practice association type HMO, Ocean State contracts with physicians to provide medical care to its subscribers; Ocean State then pays its contracted physicians on a fee for service basis. Initially, subscribers paid little or no additional cost other than the premium paid to the HMO. The physicians' practice remained independent from the HMO.

In 1980, Ocean State submitted its license application to the Rhode Island Department of Health. It began operation by offering hospital and physicians costs coverage to employee groups of twenty-five or more. Originally, Medserco, a St. Louis based company managed Ocean State. Presently, United HealthCare, a Minnesota based company, manages Ocean State and is its single principal shareholder owning 20% of the stock. The remaining 80% of shares are held by some of the physicians who provide services to Ocean State subscribers. New Ocean State participating physicians pay up to $1,000 to contract with Ocean State to provide health services to Ocean State subscribers.

Ocean State is a federally qualified HMO. It determines its rates based on a community rating method. 42 U.S.C. Section 300e-1(8) provides that an HMO may choose to group by individual or family but within the chosen group, rates are to be equal subject to adjustment factors, such as age and sex. State law permits Blue Cross & Blue Shield to base its premiums for employer groups on the prior actual experiences of each particular insured group.

FACTUAL BACKGROUND—PROCEDURAL

In April 1987, the Court granted Plaintiffs Winters' and Kazlauskas' motion for class certification after the Defendant failed to object. The class, as noted, included all physicians who contract with Ocean State and who are also reimbursed by Blue Cross & Blue Shield. It was estimated that 900 physicians were certified as members of the class.

Although in their original complaint Plaintiffs did not request a jury trial, they subsequently demanded a jury trial. At the conclusion of Plaintiffs' case, the Court granted the Defendant's motion for a directed verdict on all claims under Section One of the Sherman Act against Ocean State and the class of physicians. The Court also granted Blue Cross & Blue Shield's motion for a directed verdict against the Plaintiff-Intervenors. At the conclusion of the case, the jury returned a verdict finding Blue Cross & Blue Shield liable to both Ocean State and the class of physicians on the Section Two antitrust claims. The jury, however, awarded no damages. On the claim of tortious interference with contractual relationships, the jury found Blue Cross & Blue Shield liable to Ocean State and awarded compensatory damages of $947,000 and punitive damages of $250,000. The jury also found Blue Cross & Blue Shield liable to the class of physicians on the interference with contractual relationships claim and awarded $1,746,437 in compensatory damages.

Pending before the Court are both equitable and legal claims. Plaintiffs move for a permanent injunction against prudent buyer and HealthMate. In addition, they seek an additur to the class of physicians on the antitrust claim. Defendant moves for a judgment notwithstanding the verdict on the antitrust claims and intentional interference with contractual relationships claims. In the alternative, the Defendant seeks a new trial on the claims of interference with contractual relationships.

FACTUAL BACKGROUND

For many years Blue Cross of Rhode Island and Blue Shield of Rhode Island were the unchallenged leading health care financing organizations in Rhode Island. Blue Cross of Rhode Island was incorporated in the 1930's as a non-profit hospital service corporation that provided insurance coverage for hospital services. Blue Shield of Rhode Island was incorporated later and limited its insurance coverage to payment of physician charges. Blue Cross of Rhode Island and Blue Shield maintained separate Boards of Directors, reserves, and auditing of financial statements.

Under an administrative services agreement, however, Blue Cross provided management and staff for Blue Shield. Usually Blue Cross and Blue Shield policies were marketed together as a package to employers. Occasionally, an employer could purchase Blue Cross coverage alone, but employees were not permitted to purchase only Blue Shield coverage. Neither Blue Cross nor Blue Shield were marketed with other health insurance.

In 1971, Rhode Island Group Health Association (RIGHA) a group model Health Maintenance Organization (HMO) entered the Rhode Island health care financing market. A group model HMO employs physicians to serve the medical needs of its subscribers. Services are usually provided at a fixed location and this was initially true of RIGHA. RIGHA had little impact on Blue Cross & Blue Shield's share of the market. RIGHA entered into an agreement with Blue Cross & Blue Shield whereby RIGHA would purchase hospital services through Blue Cross. Thus, RIGHA enjoyed Blue Cross & Blue Shield hospital discounts; while Blue Cross & Blue Shield benefited because they then claimed, RIGHA subscribers within their membership and thereby increased their claimed size of the market. As a result, Blue Cross was further able to negotiate favorable agreements for the cost of hospital care.

In addition, RIGHA entered into a joint marketing agreement with Blue Cross & Blue Shield to coordinate marketing activities. Both agreements were terminated in March 1982, after a newspaper article disclosed the arrangement. There was testimony, however, that the sharing of hospital and physician discounts continued through May 1986.

In 1980 at the time Ocean State applied to the Rhode Island Department of Health for licensing as an HMO, Blue Cross & Blue Shield continued to dominate the health care financing market. Blue Cross & Blue Shield controlled a very large percentage of the market. Competition from other health care financing insurers was virtually non-existent. RIGHA was then the only licensed HMO in Rhode Island and its market share was minimal.

Although Blue Cross & Blue Shield researched the financial background of Medserco, Ocean State's original management company, and considered using that information to discredit Ocean State's regulatory application, it did not do so. Blue Cross and Blue Shield took an active interest in Ocean State's licensing procedure, but did not oppose the application. Subsequently Ocean State's application was approved.

At about the same time Blue Cross and Blue Shield were negotiating...

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    ...evidence may not be set aside simply because the judge would have reached a different result." Ocean State Physicians Health Plan v. Blue Cross & Blue Shield, 692 F.Supp. 52, 65 (D.R.I.1988), aff'd, 883 F.2d 1101 (1st In Freeman v. Package Machinery Co., 865 F.2d 1331 (1st Cir.1988), the co......
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