LITTLE RIVER HEALTHCARE AWARDED $108-MILLION BY ARBITRATOR
By MIKE BROWN
© 2020 The Rockdale Reporter
A couple of years too late.
Little River Healthcare—which closed its Rockdale hospital and clinics, along with those in Cameron, on Dec. 5, 2018—has been awarded a gargantuan $108,341,934 arbitration judgment in a successful court encounter with Blue Cross/Blue Shield.
Former Texas Supreme Court Associate Justice Harriet O’Neill, acting as sole arbitrator of the dispute, issued the final award earlier this month.
Does it mean Rockdale’s hospital will re-open? Will the bankrupt health care company spring back to life?
No, and no. That ship has sailed. It’s certain Little River’s creditors will get the lion’s share of the money.
LRHC attorneys declined to comment on the situation, but the final award is public record and The Reporter obtained a copy of the 95-page document.
O’Neill’s decision casts a new light on the circumstances leading up to the devastating closing of Rockdale’s hospital, which existed for 44 years on the support, effort and prayers of the community.
PERSPECTIVE—The arbitration award provides a different perspective on the final years and months of the facilities. LRHC had received negative press in national publications for its billing of insurance claims related to lab work, much of which was eventually sent to out-of-county, out-of-state facilities, commonly referred to as “reference labs.”
But Arbitrator O’Neill’s award found: “The evidence demonstrated that hospitals routinely use reference (off-site) labs and insurers generally pay for those services.”
She also noted: “Little River was directly damaged by Blue Cross/Blue Shield of Texas’s (BCBSTX) failure to pay for laboratory claims that were appropriately billed by Little River, pursuant to the contracts (between the two entities) and applicable law.”
She also found that Little River complied with its contractual terms (with BCBSTX) and that the health care company did not commit fraud or fraudulent inducement.
The justice stopped short of endorsing LRHC’s assertion that BCBSTX’s “arbitrary and inconsistent adjudication of Little River’s claims in 2016 and 2017 caused a severe liquidity crisis from which it could not recover,” forcing it into bankruptcy.
She denied LRHC’s request for “consequential damages” over that allegation.
However, O’Neill wrote she agreed with LRHC that BCBSTX’s attitude toward the problems Little River was experiencing in that area was “unsympathetic at best.”
MORE RULINGS—The arbitrator also ruled the insurance company improperly recouped funds previously paid to Little River and failed to timely and appropriately adjudicate laboratory claims submitted for LRHC.
O’Neill also found BCBSTX’s adjudication of Little River’s claims violated the Texas Prompt Payment Laws.
BCBSTX had filed counterclaims alleging Little River breached and violated its contracts with the insurance company and conducted a fraudulent billing scheme.
O’Neill ruled BCBSTX “shall take nothing on its counterclaims and is entitled to no damage award in its favor.”
BACKGROUND—LRHC had attempted to get some relief from the situation well before the Rockdale hospital closed, filing pre-dispute resolutions on April 13, 2017.
After a period of pre-dispute resolution requirements, the formal arbitration was filed March 5, 2018, exactly 10 months before LRHC-Rockdale Hospital closed.
BCBSTX submitted a counterclaim on June 29, 2018.
Prior to its bankruptcy, LRHC Rockdale hospital was the only Critical Access Hospital in Milam County. Little River also operated other rural hospitals, surgery centers, medical clinics and diagnostic imaging centers.
It also had a substantial network of physicians and had purchased additional land in Georgetown on which it intended to construct a surgery center.
ENTER BC/BS—O’Neill said, for purposes of the arbitration, the relationship between Little River and BCBSTX began in 2003 and 2004 with contracts at which LRHC was to be reimbursed a “percentage-of-charge” (POC) rather than a fixed fee.
She noted, as typically low-volume providers, rural hospitals are often contracted under the POC favorable rate structure.
But, the document notes, between 2013 and 2016, to offset the high costs of running a rural hospital, LRHC embarked on an “aggressive growth” strategy, expanding its provider network by adding surgery centers, diagnostic imaging centers and over 50 physician practice locations.
The expansion, not only improved the hospital’s financial situation, it also allowed the provision of services to patients “which would not have been available in a rural hospital, including cardiology and orthopedics.
THIRD-PARTY LABS—The document notes “hospitals often utilize third-party laboratories, to perform laboratory tests that the hospital itself was unable or unequipped to perform.”
“In 2014, Little River created a way for physicians, who were ordering testing from out-of-network laboratories and facing resistance from commercial payors, to provide those services in-network through Little River’s hospital contract. It began reaching out to physician offices and offering various types of testing...as an in-network provider.”
Little River’s laboratory volume “grew dramatically” and LRHC began to invest in its own hospital laboratory.
In 2016 LRHC built a metal structure on its Rockdale campus for additional on-site lab testing and by summer, 2016, was performing most of its testing on-site.
BCBSTX, after receiving complaints about LRHC’s billing practices, began an investigation focused on lab services and placed Little River on a “pre-payment” review, scrutinizing 122 “codes.”
The document states BCBSTX investigated specific patient complaints regarding LRHC’s laboratory services, determined Little River’s claims were valid and paid then.
BCBSTX also terminated its old contract with LRHC—which either party could do—and the entities renegotiated a new contract, but based on a “substantially reduced fixed fee schedule for diagnostic services.
LRHC, stating it faced severe cash flow problems, filed for Chapter 11 (essentially protection) bankruptcy on July 24, 2018, which was converted to Chapter 7 (essentially liquidation) on Dec. 7 of that year.
CLAIMS—Little River claimed it was entitled to payment for laboratory services provided to its BCBSTX-insured patients because its contracts provided coverage for the provided services and it complied with all contractual requirements for payment.
A key comment by O’Neill:
• “While the contract renegotiations were underway, BCBSTX alluded to Little River’s use of reference (third-party) labs not as illegal, fraudulent, or a contractual breach, but as a ‘loophole’ that the new contracts plugged’.”
Other findings included:
• Little River’s expansion is not viewed as a “change” in specialty or location, but as an increase in the volume of patients it intended to serve.
• Little River met its initial burden to demonstrate that the underlying (insurance) claims were payable.
• Coding errors (alleged by BCBSTX) do not alleviate its contractual payment obligations.
• BCBSTX improperly recouped payments that were made to Little River.
• Little River’s reference labs did not violate the contractual prohibition against assignment or subcontracting.
• BCBSTX failed to timely or appropriately adjudicate Little River’s claims, adding its adjudication was inconsistent and, at times, inscrutable.
• BCBSTX added codes without notifying Little River that further payment locks had been implemented. The locks were ultimately expanded to include all laboratory billing, which Little River did not learn until nearly a year later.
JUDGMENT—Attorneys have filed in federal Western District Bankruptcy Court, Waco, citing the Arbitrator Award, and seeking the judgment of $108,341,934.
Little River Healthcare didn’t fail
Rockdale hospital, but somebody did
When Rockdale’s hospital shut its doors on Dec. 5, 2018—along with its other facilities in Milam County—a fair number of people blamed Little River Healthcare for, well, something.
It was difficult to know exactly what. Health care finances, especially with respect to rural hospitals, are only slightly less complex than thermonuclear physics.
But stories began to appear in purported medical news publications tracing the problems which eventually shut down Little River to its practice of utilizing “third-party laboratories,” most making it appear LRHC was somewhere between incompetent and negligent in its business practices.
Turns out nothing could be further from the truth.
And that’s not just our opinion. It’s also former Texas Supreme Court Justice Harriet O’Neill’s. She was sole arbitrator in a legal case which finally worked its way to a final award this month.
You can read the details in a story on Page 1A but here’s the crux of Justice’s O’Neill’s opinion.
Hospitals often use third-party laboratories. Instead of honoring the terms of its contract with LRHC, Blue Cross/Blue Shield terminated the old contract and renegotiated a new one, which eliminated the critical percentage of charge pricing structure Little River had been receiving and replaced it with a substantially reduced fee-structure.
Little River claimed that situation—and a $9.1-million “recoup” by Blue Cross/Blue Shield—ultimately caused a severe liquidity crisis from which it could not recover, forcing it into bankruptcy and eventually closing.
While denying Little River’s request for “consequential damages,” on that one point of law, O’Neill sided with LRHC on many others and offered the comment that the insurance company’s attitude toward the problems Little River experienced was “unsympathetic at best.”
Speaking of money, overall Justice O’Neill awarded LRHC $108,341,934 in the arbitration.
Common sense will tell you the bankrupt health care company’s numerous creditors will get almost all of that. That’s a major purpose of a bankruptcy, after all.
So what? So this.
Little River’s actions were not the key problem. The key problem was an insurance company that, in the arbitrator’s words, failed to pay for laboratory services provided to its members, improperly recouped funds previously paid to Little River for provided services and failed to timely and appropriately adjudicate laboratory claims submitted by Little River.
It’s bittersweet. It’s always preferable to finally get the right perspective, but this particular one comes a couple of years too late for the patrons of our late, and much needed, hospital.—M.B.