Hopkins, Prudential war: high stakes in managed care

April 10, 1994|By Peter H. Frank and David Conn | Peter H. Frank and David Conn,Sun Staff Writers

The lawsuit Johns Hopkins Health System filed against the Prudential Insurance Co. of America last month has all the elements of a classic corporate showdown: clashing industry leaders, high-priced attorneys, influential executives, and large sums of money.

Call it "The Dome vs. The Rock."

But the two companies are not just fighting over $50 million in damages and the fate of one local health maintenance organization, as the suit indicates.

The fight, two years in the making, reaches much further than that. It has severed a number of already strained ties and threatens to tarnish the reputations of some of the best-known executives in Maryland. It has dragged in a White House confidant, one of Baltimore's top women executives, a powerful Baltimore banker, a former U.S. attorney, a former Watergate counsel, Maryland's health secretary and other state regulators.

And the battle, which specifically targets the woman who headed Hopkins' HMO, goes well beyond a set of extraordinary personal allegations and the prominent cast of characters.

Hopkins has suffered millions in losses at the subsidiary that handles the Prudential HMO contract. And it faces little prospect of getting a larger share of the $2 billion in annual HMO revenues generated in Maryland.

But what Hopkins and Prudential are really fighting over, say participants on both sides, is a stake in the future of managed care -- the cornerstone of the proposed Clinton health care reform -- and the uncertain fate of one of the nation's preeminent health care institutions.

"This could get really ugly," said one person, who, like most of those interviewed, spoke only on the condition they not be identified.

On the surface, the lawsuit is remarkable enough. Led by its ambitious president, Dr. James A. Block, Hopkins has accused the former president of its HMO, Barbara B. Hill, 41, of several counts of breach of contract and fiduciary duties during the 1991 sale of the Hopkins HMO to Prudential, the nation's largest insurance company. The terms of the contract have led to millions of dollars in losses for Hopkins, the health system claims.

Suit claims cover-up

Specifically, the lawsuit says, Ms. Hill, now one of Prudential's top health care policy-makers, lied repeatedly to Hopkins, her then-employer, as she negotiated on its behalf. She also covered up crucial details of Prudential's offer for the Johns Hopkins Health Plan to give Prudential an edge in the bidding, the suit claims. Among her alleged motives: several hundred thousand dollars in severance payments for her and her husband, a fellow executive at the Hopkins HMO.

Hopkins is seeking $25 million in compensatory and punitive damages each from Prudential and Ms. Hill, according to the lawsuit, filed March 4 in Baltimore Circuit Court.

But perhaps more importantly, it asks the court to return the HMO to Hopkins, and void a 10-year contract that, in part, prevents the Hopkins health system from either starting its own HMO, or allowing its doctors to see patients of other HMOs.

Ms. Hill "did what was best for herself and Prudential, her future employer," the lawsuit states. "The result for Hopkins . . . after the sale was the loss of millions of dollars per year."

In buying the Hopkins plan three years ago, Prudential was looking to expand its network of HMOs and wanted to move heavily into the Baltimore area. And Hopkins, primarily in the business of providing health care, was at a crossroads.

Hopkins had entered the health insurance business almost by accident. Just over 10 years ago, the hospital agreed to take over the East Baltimore Medical Center, a struggling HMO that owed Hopkins about $3 million. At the time it was renamed, the Johns Hopkins Health Plan served several hundred mostly Medicaid patients in the low-income neighborhoods surrounding the Hopkins complex.

To run the business, Hopkins' former president, Dr. Robert M. Heyssel, appointed Ms. Hill, a feisty, sometimes abrasive former social worker. "Barbara is an extremely talented individual," said Rep. Benjamin L. Cardin, a 3rd District Democrat. She is "very creative, a mover. She knows how to get things done."

By 1990, the Hopkins HMO was no longer just a community service. Ms. Hill had built it into a 100,000-member institution with more than $116 million in annual revenue and $2.6 million in profits.

Competition intense

Faced with intense competition for members, the HMO needed to grow to survive. But expanding the operation, and adding the traditional insurance products large employers demanded, would mean increasing the financial risks to the Hopkins health system.

Further, the HMO was a source of friction between the hospital, owned by the Hopkins health system, and the medical school faculty, part of the university.

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