Steward Health Care Sys., LLC v. Blue Cross & Blue Shield R.I.

CourtUnited States District Courts. 1st Circuit. United States District Courts. 1st Circuit. District of Rhode Island
Citation311 F.Supp.3d 468
Docket NumberC.A. No. 13–405 WES
Parties STEWARD HEALTH CARE SYSTEM, LLC; Blackstone Medical Center, Inc., f/k/a Steward Medical Holding Subsidiary Four, Inc.; Blackstone Rehabilitation Hospital, Inc., f/k/a Steward Medical Holding Subsidiary Four Rehab, Inc., Plaintiffs, v. BLUE CROSS & BLUE SHIELD OF RHODE ISLAND, Defendant.
Decision Date23 April 2018

311 F.Supp.3d 468

STEWARD HEALTH CARE SYSTEM, LLC; Blackstone Medical Center, Inc., f/k/a Steward Medical Holding Subsidiary Four, Inc.; Blackstone Rehabilitation Hospital, Inc., f/k/a Steward Medical Holding Subsidiary Four Rehab, Inc., Plaintiffs,
v.
BLUE CROSS & BLUE SHIELD OF RHODE ISLAND, Defendant.

C.A. No. 13–405 WES

United States District Court, D. Rhode Island.

Signed April 23, 2018


311 F.Supp.3d 472

Brendan V. Sullivan, Jr., Colette Connor, Pro Hac Vice, Daniel W. Bell, Pro Hac Vice, Frank Lane Heard, III, Pro Hac Vice, James N. Bierman, Jr., Pro Hac Vice, Kevin Hardy, Pro Hac Vice, Mark S. Levinstein, Pro Hac Vice, Matthew P. Mooney, Pro Hac Vice, Steven R. Kuney, Pro Hac Vice, Williams & Connolly, LLP, Washington, DC, Robert Clark Corrente, Christopher N. Dawson, Pro Hac Vice, Joseph M. Cooper, Whelan, Corrente, Flanders, Kinder & Siket, LLP Providence, RI, for Plaintiffs.

John A. Tarantino, Joseph Avanzato, Patricia K. Rocha, Jamie Johnson Bachant, Leslie D. Parker, Adler Pollock & Sheehan PC, Providence, RI, Brian R. Birke, Pro Hac Vice, Adler Pollock & Sheehan P.C., Boston, MA, Emily M. Yinger, Pro Hac Vice, N. Thomas Connally, III, Pro Hac Vice, Hogan Lovells US LLP, McLean, VA, Justin Bernick, Pro Hac Vice, Robert F. Leibenluft, Pro Hac Vice, William L. Monts, III, Pro Hac Vice, Hogan Lovells US LLP, Washington, DC, for Defendant.

OPINION AND ORDER

WILLIAM E. SMITH, Chief Judge

I. Background1

In this antitrust action, Plaintiffs Steward Health Care System, LLC, Blackstone Medical Center, Inc., f/k/a Steward Medical Holding Subsidiary Four, Inc., and Blackstone Rehabilitation Hospital, Inc. (collectively, "Steward") claim Defendant Blue Cross & Blue Shield of Rhode Island ("Blue Cross") unlawfully blocked Steward from entering the Rhode Island health care and health insurance markets, by thwarting its attempt to purchase a failing community hospital in receivership, Landmark Medical Center ("Landmark"), in Woonsocket, Rhode Island. (Pls.' Corrected Statement of Disputed Facts ("SDF") ¶ 49, ECF No. 171–1.)

This is a complicated case, and the area of antitrust law governing the claims is, to put it kindly, confused and opaque. As explained in detail below, the Court's view on the outcome of this motion has changed as a result of careful and complete review of the record and the law; and without question, this is a close case—one that highlights the difficulty of applying less-than-clear antitrust doctrines and precedents to one of the most complicated and volatile sectors of the national economy. In the end, the analysis below has convinced the Court that a trial is required on all counts of Steward's Amended Complaint (ECF No. 90), and therefore Blue Cross's Motion for Summary Judgment (ECF No. 157) will be denied in full (Counts I–XVIII).

A. Landmark

Landmark Medical Center ("Landmark") is a "community based" hospital

311 F.Supp.3d 473

that has served northern Rhode Island since 1988. See Landmark Medical Center, History, https://www.landmarkmedical.org/About-Us/History.aspx (last visited Apr. 16, 2018). In 2008, facing increasingly difficult financial straits, Landmark entered receivership under the supervision of the Rhode Island Superior Court. (SDF ¶¶ 53, 62.) After entering receivership, Landmark operated under a court-appointed Special Master. (Id. ¶ 62.) Justice Michael Silverstein of the Rhode Island Superior Court oversaw the receivership proceedings and appointed attorney Jonathan Savage as Special Master. (Id. ¶ 63.) Special Master Savage solicited bids for Landmark from prospective buyers, including hospital systems Lifespan, Prime, and Steward. (Id. ¶ 64.)

As early as 1996, Lifespan sought to potentially acquire Landmark. (Id. ¶ 65.) Lifespan's interest resurfaced in the context of Landmark's receivership proceedings in April 2009 when the Special Master requested that Maria Montanaro, then-CEO of Thundermist Health Center ("Thundermist"),2 "outline a plan for how health services would be delivered in Woonsocket in the event that Landmark were to close." (SDF ¶ 66; Dep. of Maria Montanaro ("Montanaro Dep.") at 38–39, SDF Ex. 27, ECF No. 206–27.) The plan devised by Montanaro "called for the elimination of inpatient acute care at Landmark, and for the facility to provide primarily urgent care, emergency services, and outpatient surgery." (Id. ¶ 67; SDF Ex. 101, ECF No. 210–13; Dep. of Mary Wakefield ("Wakefield Dep.") at 31:1–6, SDF Ex. 30, ECF No. 206–30; Montanaro Dep. at 42:1–45:3, SDF Ex. 27; Dep. of George Vecchione ("Vecchione Dep.") at 14:8–14:14, SDF Ex. 29, ECF No. 206–29.) Underlying the plan was the idea that "a viable way to sustain Landmark hospital given its current financial and operational burdens [did] not appear to exist." (SDF ¶ 69.)

B. The Steward Model

Steward is a for-profit hospital system,3 which owns and operates multiple hospitals in neighboring Massachusetts.4 (Id. ¶¶ 9, 11.) In its contracts with Massachusetts health insurance companies, Steward receives compensation on a per-member-per-month ("PMPM") basis rather than a fee based on individual service(s) performed. (Id. ¶ 15.) As Steward describes it, this is a "risk-based" model, in which Steward shoulders "some amount of financial risk of providing healthcare services to the health insurers' members." (Id. ) To be

311 F.Supp.3d 474

successful, such a relationship requires a "working, constructive business relationship that involves the sharing of information and other cooperation" between health insurers and Steward.5 (Id. ¶ 16.) Moreover, the success of Steward's healthcare vision requires that "the payer and provider must together develop a system for sharing the health-care and health-expense history of the insured patient population, also develop an analytic for total medical expense (‘TME’) of that population, and agree on reasonable grounds for reducing TME and improving the quality of care." (Pls.' Statement of Additional Undisputed Facts ("SAUF") ¶ 196, ECF No. 177–1.)

Steward's vision was to offer a new, atypical health-care-provider model to Rhode Island. (SDF ¶ 35.) This model was premised on "(1) right-siting care, such that community-based, routine services are performed in community settings, whether hospitals, urgent care centers, ambulatory services centers, or physicians' offices; (2) improving the quality of care provided in the community; [and] (3) negotiating on behalf of an integrated network of physicians and hospitals to drive lower premiums." (SDF ¶ 40.) In exchange for participation in its own "narrow network," Steward would accept lower reimbursement rates. (Id. )

As a part of Steward's vision, its executives believed it could turn around the quality problems Landmark faced; indeed, "that was the fundamental premise of Steward's turnaround plan for the hospital." (SDF ¶ 54.) "Landmark quality of care is generally good, although it has room for improvement." (Id. )

Steward's long term goals extended beyond Landmark; it wanted to acquire more hospitals in Rhode Island. (SDF ¶ 28.) To this end, Steward petitioned the state legislature to amend the Rhode Island Hospital Conversion Act "to eliminate a three-year waiting period between hospital acquisitions by for-profit hospitals, which would have allowed Steward to buy more than one Rhode Island Hospital in a three year period." (SAUF ¶ 139.)

C. The Caritas and Steward Bid To Acquire Landmark

In August 2010, over one year after the receivership commenced, Caritas, Steward's predecessor, submitted a bid to acquire Landmark.6 (SDF ¶ 76.) A contract with Blue Cross was a precondition to Caritas's proposed Asset Purchase Agreement ("APA"). (Id. ¶ 77.) Feeling that it lacked the essential partners, including Blue Cross, for a successful transaction over Landmark, Caritas withdrew its bid in December 2010. (Id. ¶ 78.) In a press release following the failed transaction, the Special Master "indicated critical discussions related to reimbursement rates with Blue Cross/Blue Shield of Rhode Island did not produce tangible results." (Id. ) He added, "To date, this has been our biggest hurdle. Unfortunately, attempts to address our inadequate reimbursement rates with Blue Cross were not productive and in fact stalled our negotiations with Caritas." (Id. )

In May 2011, Steward submitted a new bid to acquire Landmark. (SDF ¶ 79.) An APA was proposed, and although amended fifteen times, this mostly extended the closing deadlines. (Id. ¶¶ 79, 81, 82.) While the various APA versions included numerous conditions, "[n]ot all important matters were included as conditions in the APA,

311 F.Supp.3d 475

nor were all conditions in the APA clearly ‘important.’ " (Id. ¶ 79.) Rather than rigid requirements, Steward considered the conditions to be "flexible leverage points for negotiations," or even "window dressing." (Id. ¶¶ 79, 82.) Indeed, after realizing certain conditions could not be met, Steward nevertheless plowed ahead in attempting to acquire Landmark. (Id. ¶ 79.)

For example, the APA submitted in March 2012 included the following conditions: "An agreement to purchase 100% of Rhode Island Specialty Hospital" ("RISH"); a Memorandum of Understanding ("MOU") with Thundermist; and "[a]n...

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