Final Ballad payout on Wellmont-Highlands Physicians lawsuit: $83 million

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WELLMONT GRANT_168657

Settlement became final early this week

KINGSPORT, Tenn. (WJHL) – Ballad Health will pay a total of $83 million to Highlands Physicians Inc. (HPI) as settlement of a class action lawsuit HPI filed in 2016 against Wellmont Health System.

The suit claimed Wellmont breached a contract with HPI in which the two parties had a joint organization designed to benefit them both.

The claimed breach had the effect of pitting the joint organization against Wellmont, even though Wellmont was part of it, in competition for an insurance contract.

Though Ballad took over Wellmont when Wellmont and Mountain States Health Alliance merged in 2018, Wellmont still exists as an entity — largely due to this issue — and it appealed the initial $58 million jury award.

Those appeals were exhausted when the Tennessee Supreme Court refused to hear a final appeal in March of this year.

The court appointed an administrator for the class action in May, and Wellmont paid $67 million into an escrow account May 13.

The additional $9 million at that time was “to fully satisfy the Judgment and all secured post-judgment interest,” according to a final judgment entered in Kingsport Law Court Aug. 17. That judgment included a waiting period that ended this week.

The final agreement adds an additional $9 million for the regular settlement fund, and $7 million for HPI to repurchase stock for “capital anticipated to be needed for future operations…following Wellmont’s exit from HWHN (Highlands Wellmont Health Network).”

Ballad and HPI have released a joint statement on the settlement:

The class members — practitioners who worked at HPI between 2012 and 2016 — will receive allocations “based on a reasonable estimate of each member’s actual losses…using objective data that is deemed by the Court to be reasonably reliable.”

If there are residual funds after 18 months, they’ll be donated to area non-profits as agreed to by HPI and Wellmont, including to East Tennessee State University to support the Children and Family Health Institute’s STRONG Accountable Care Community.

Judge E.G. Moody, in explaining his decision to support the settlement, mentioned its approval by both parties’ boards of directors; both parties’ use of a mediator through both the appeals process and after the appeal ended; and the monetary award “providing HPI the means to establish a new network that does not include Wellmont.”

Attorneys’ fees will eat up about $20 million of the $83 million

How it all started

The suit claimed that around 2011, Wellmont executives had begun to “take an adversarial position to HPI.”

The alleged shift occurred when Denny Denarvaez, who was later terminated, was CEO of Wellmont. The initial suit claimed Wellmont leadership began shutting out physicians who weren’t employed by Wellmont.

It said Wellmont “began to deliberately undermine HPI, dismantle the Network, and reduce resources previously devoted to maintaining clinical integration within the Network.”

Ultimately, HPI claimed, Wellmont diverted two major insurance contracts from the shared network to Wellmont individually.

Ballad Health’s audited fiscal 2020 financial report referenced the suit. It noted it had “fully accrued the amount of the judgement, including an estimate for interest and legal fees in other long-term liabilities on the Consolidated Balance sheet…”

Ballad also stated in those financials, which were for the year ended June 30, 2020, that it didn’t agree with the verdict.

“Ballad continues to believe that it acted appropriately regarding the operations of Highlands Wellmont Health Network in serving patients and employers in our communities.”

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