Steward Health Care System, which terminated an agreement to buy a Woonsocket, RI, hospital last fall, charged in a lawsuit Wednesday that Rhode Island’s largest health insurance company blocked the deal by failing to negotiate reasonable health care payments.
In a complaint filed in state Superior Court in Providence, Boston-based Steward, which runs a chain of hospitals and doctors groups across eastern Massachusetts, alleged Blue Cross Blue Shield of Rhode Island engaged in anticompetitive practices and interfered with prospective contractual relations to thwart Steward’s proposed acquisition of Landmark Medical Center.
Steward, owned by the New York private equity firm Cerberus Capital Management, demanded a trial by jury and asked for Blue Cross Blue Shield to pay unspecified financial damages as well as reimburse its attorneys’ fees involved in taking the court action.
Representatives of Blue Cross Blue Shield, which failed to agree on a contract with Landmark after it signed a pact to be bought by Steward, released a statement saying they would defend themselves against the suit and were confident they will prevail.
“At a time when Rhode Island is focused on assuring access to quality health care for all residents, lowering costs and increasing collaboration in the provider community, Blue Cross & Blue Shield of Rhode Island is disappointed with Steward’s decision to file a lawsuit,” Michele Lederberg, the insurer’s general counsel and chief administrative officer, said in the statement.
The collapse of Steward’s deal to take over Landmark marked a setback in the health care chain’s efforts to build a national for-profit hospital and physician network. Steward, formed in 2010 to acquire six Caritas Christi community hospitals in Massachusetts, has since taken over four other Bay State hospitals.
But while it has negotiated with financially troubled hospitals in Florida and Maine, in addition to Landmark, it has yet to complete an out-of-state deal.
In the case of Landmark, a bankrupt hospital that has been run for years under state receivership, Steward committed to putting up between $71.6 million and $76.6 million through a mix of investments, debt forgiveness, and other payments—including $49 million in capital improvements --according to a bid summary. Steward also committed to provide $7.5 million in working capital and forgive a $2 million loan Caritas Christi had made to Landmark.
Blue Cross Blue Shield “acted with the purpose of interfering with the asset purchase agreement by... refusing to enter into a contract with Steward providing for reasonable reimbursement rates for Landmark, taking steps that materially adversely affected the financial condition of Landmark prior to Steward’s completion of its proposed acquisition, and interfering with Steward’s ability to enter into contracts with third parties,” the suit said. It specifically cited Thundermist Health Center, a community health center affiliated with Landmark.
Steward and its predecessor, Caritas Christi, pursued Landmark for more than three years, planning to integrate it into a system with a significant presence in southeastern Massachusetts. But last September, Steward said it was backing out of the agreement because unnamed “private health care entities” and the special master who had run the bankrupt hospital had failed to meet conditions specified in the proposed deal.
Landmark has since been negotiating to be acquired by another for-profit system, Prime Healthcare Services based in Ontario, Calif.
Steward spokesman Chris Murphy said he couldn’t speculate on whether Steward still would be interested in Landmark if it reaches a settlement with Blue Cross Blue Shield.