Tennessee Supreme Court upholds $58 million verdict against Ballad Health predecessor Wellmont Health System

KNOXVILLE, Tenn. (WJHL) — The Tennessee Supreme Court has denied Wellmont Health System’s appeal of a $58 million judgment against it in a breach of contract case first brought against Wellmont several years ago.

The court was the last level of appeal for Wellmont, which is now part of Ballad Health System. The decision, issued Wednesday, means Ballad must now pay the $58 million plus accrued interest to the plaintiff, Highlands Physicians Inc., and its affiliated practitioners.

The court’s ruling ran to just 22 words: “Upon consideration of the application for permission to appeal of Wellmont Health System and the record before us, the application is denied.”

When Ballad was asked for comment, spokeswoman Ashlea Ramey had an even shorter response: “Wellmont has no comment.”

The suit was initially filed in 2016 and claimed that around 2011, Wellmont executives had begun to “take an adversarial position to HPI” despite a joint organization designed to benefit both parties in negotiations with payors.

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.”

The result, HPI’s lawyers alleged, was “a detrimental effect on the Network’s ability to maintain a high level of clinical integration” and Wellmont’s “unlawfully divert(ing) two major insurance contracts from the Network to Wellmont individually.”

Wellmont filed several appeals, including one trying to prevent more than 1,000 practitioners in HPI from being added as a separate class to the suit.

Appeals Court Judge Thomas Frierson did rule in September that HPI wasn’t eligible for $5.6 million in attorney’s fees, but upheld the majority of HPI’s claims.

On the primary one, breach of contract, the appeals court ruling noted that insuror Cigna terminated a 16-year existing payor relationship with the Wellmont-HPI partnership, called a Physician-Hospital Organization, or PHO.

The ruling cited a Cigna representative who said that Mountain States Health Alliance, Ballad’s other predecessor system, had not reached an agreement with Cigna back in 2013.

So Cigna went to Wellmont, but looked to “contract directly with Wellmont and HPI Physicians rather than with the PHO for beneficial cost reasons.”

The arrangement would also benefit Wellmont by approximately $1.4 million annually, former Wellmont Chief Financial Officer and then interim director of the PHO testified in court.

“Ms. DeNarvaez, by negotiating and signing the letter of agreement with Cigna, ultimately pitted Wellmont against the PHO in competition for a contract with Cigna,” Frierson wrote.

“Material evidence therefore supported the jury’s verdict that Wellmont breached the SA by competing with the PHO for an existing payor.”

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.”