Opinion ID: 3010816
Heading Depth: 2
Heading Rank: 2

Heading: Gary's Decision to Self-insure

Text: U.S. Healthcare has established a network of health care providers which includes doctors, hospitals, and pharmacies in various geographic regions. Under the U.S. Healthcare prescription purchase program, individuals who enroll as subscribers in U.S. Healthcare's HMOs select one pharmacy from the network of providers at which they will purchase prescription drugs. Subscribers can change their pharmacy designation by filling out a form. Under this program, subscribers can purchase their prescription drugs for a small co-payment (such as $5.00), with the rest of the cost of the prescription reimbursed to the pharmacy by U.S. Healthcare. In addition, U.S. Healthcare pays the pharmacies that serve the prescription purchase plan a set monthly amount based on the number of U.S. Healthcare subscribers designating that pharmacy, without regard to the actual purchases of drugs from that pharmacy. Because subscribers seldom purchase prescription drugs from pharmacies other than those within the network, membership in the U.S. Healthcare network is highly coveted. In 1991, Eagleville Pharmacy, Incorporated, d/b/a/ I Got It At Gary's (Gary's) was a pharmacy chain of four stores in suburban Philadelphia. All four stores served as approved providers in the U.S. Healthcare pharmacy network. At this time, Gary's offered its full-time employees two options for their health insurance coverage: a Blue 12 Cross/Blue Shield plan and a U.S. Healthcare HMO. Approximately 35 Gary's employees enrolled as U.S. Healthcare members. In 1991, to save costs, Gary's decided to terminate its relationship with Blue Cross/Blue Shield and U.S. Healthcare, and to self-insure. In need of a TPA to process its claims, Gary's evaluated several contenders, and then entered a written contract with BCI, terminable upon 30 days prior written notice. Sandra Chen, the benefits manager at Gary's, sent termination letters to Blue Cross/Blue Shield and U.S. Healthcare.1 In response to the letter, Chen testified that she received an angry and verbally abusive phone call from an unidentified U.S. Healthcare marketing executive.2 So began the wrath of U.S. Healthcare. Upon receipt of Gary's letter terminating its insurance contract, David Rocchino, one of U.S. Healthcare's sales vice-presidents, telephoned Wolfson to inform him of the new development and expressed his displeasure. Wolfson became upset that Gary's had decided to self-insure, and knowing that Gary's was approved to serve as a pharmacy for U.S. Healthcare subscribers, promptly ordered an internal quality assurance review of the generic utilization rates of Gary's stores. Wolfson admitted at trial that his only reason for ordering such a review was that Gary's had terminated U.S. Healthcare coverage for its employees, but he testified that ordering a retaliatory review was not inappropriate.3 _________________________________________________________________
Dear Sirs: This letter is to advise U.S. Healthcare that effective June 30th, 1991, . . . Gary's will discontinue its medical insurance coverage with your organization. Please adjust your records to reflect this upcoming change and advise me of any information you may need to finalize our relationship. 2. In contrast, Chen testified to the receipt of a polite and professional phone call from a Blue Cross/Blue Shield representative, inquiring if they could accommodate Gary's needs in anyway and as to the reason behind Gary's decision to cancel their health care contract. 3. When asked by BCI's counsel whether he ordered the review of Gary's in response to Gary's decision to terminate with U.S. Healthcare, Wolfson responded: 13 In August 1993, Gary's opened its fifth store, in Abington, Pennsylvania. Gary's applied for admission of the new store to U.S. Healthcare's pharmacy network. Wolfson, acting as director of U.S. Healthcare's pharmacy program, advised Brownstein not to process the application. U.S. Healthcare's executives acknowledged in their testimony that their motivation in refusing to process Gary's application was retaliatory, based on a belief that Gary's did not deserve U.S. Healthcare's business once Gary's had terminated U.S. Healthcare's contract in a manner that Wolfson and Brownstein found to be offensive. In compliance with Wolfson's instructions, Brownstein did not process the application. However, at this time, no one at U.S. Healthcare told Gary's of the decision to refuse to process the application. Instead, Gary's was informed that the application would be processed in due course. As Wolfson conceded at trial, the plan was to let [Gary's] hang . . . until they did something. At the same time that Gary's Abington store applied for membership in the pharmacy network, U.S. Healthcare, at the instruction of Brownstein, performed a two-day, on-site audit of the utilization of generic drugs at Gary's store in Eagleville, Pennsylvania. The audit measured the pharmacy's compliance with the requirement of U.S. Healthcare's provider agreement that generic drugs be used whenever possible to contain costs. The audit results suggested that Gary's dispensed brand-name drugs instead of generic drugs at a rate higher than the median of the U.S. Healthcare provider, and lacked complete documentation of prescription requests. Brownstein's audit also demonstrated that the average cost-per-prescription to U.S. Healthcare at the Eagleville pharmacy was in line with the network median, so that the store's prescriptions were not costing U.S. Healthcare more on average than other _________________________________________________________________ Well, I didn't think it was appropriate with an account that we had a relationship with just to send a dear sir letter [of termination] to a post office box . . . . I didn't feel that they were giving us due consideration and if they were operating in that fashion, I wanted to look to see if in fact there were any other issues related to the I Got It At Gary's Pharmacies. 14 pharmacies. Brownstein forwarded the audit results to the Quality Assurance Committee, which referred the matter to the Peer Review Committee. The Peer Review Committee, consisting of three outside pharmacists, had the power to recommend sanctions to Wolfson, who would then decide whether or not to impose them. On November 16, 1993, the Peer Review Committee recommended that Gary's Eagleville store be put onfreeze for three-months. The freeze was implemented and, as a result, U.S. Healthcare removed the Eagleville store from the list of approved pharmacies, and new U.S. Healthcare subscribers could not designate that store as their location for purchasing prescription drugs. In contrast to the treatment of Gary's, other pharmacies with generic drug utilization rates lower than the Eagleville pharmacy and less complete documentation of prescription requests, had not been frozen, and instead had received lesser or no sanctions. In fact, the parties stipulated that out of the approximately 1300 pharmacies in the U.S. Healthcare network for southeastern Pennsylvania and southern New Jersey, the freeze sanction had been imposed for generic utilization reasons only four times (including its use against Gary's) in all of 1993 and 1994. Although the extent to which Wolfson and Brownstein were involved in the implementation of the freeze sanction is unclear, both had participated regularly in Quality Assurance and Peer Review Committee meetings. Brownstein later cited the results of the audit on the Eagleville store as the reason for the delay in processing the Abington store's application for membership in the pharmacy network, stating that U.S. Healthcare had concerns about Gary's dispensing too many brand-name drugs at its stores. Faced with a freeze on its Eagleville store and no movement on the Abington store's application for membership in the pharmacy network, Gary's President, Gary Wolf, set up a meeting with U.S. Healthcare officials, including Wolfson and marketing executive Scott Murphy, for December 1, 1993. Among the issues discussed were Gary's generic drug use and the admission of the Abington store to the U.S. Healthcare provider network. 15 U.S. Healthcare expressed its displeasure with Gary's termination of U.S. Healthcare coverage in 1991, and Wolfson commented that we like to do business with people who do business with us. At the same meeting, U.S. Healthcare requested and received permission to bid on Gary's TPA business for the next annual contract period.