PONTIAC, Mich. As health care costs soared nationally, a small Michigan
. a proposal to cut its physical therapy costs. The automaker
signed up for an in-state pilot program, which was so successful Ford
expanded it last year to cover about 390,000 employees, retirees and their
Yet the cost-saving program created by Pontiac-based TheraMatrix has come
under attack from Blue
Cross Blue Shield of Michigan.
Court records allege Blue Cross used its position as the state's dominant
insurer to try to crush TheraMatrix as it worked to also sign up Chryslerand General
Motors. A USA TODAY review of hundreds of pages of e-mails and internal
documents that are part of a lawsuit TheraMatrix filed against Blue Cross
indicates that TheraMatrix's efforts to carve out a niche market in managing
outpatient physical therapy costs was seen as a threat by officials at Blue
Cross and by some Michigan hospitals.
"They tried to destroy us," says Robert Whitton, a physical therapist who
founded TheraMatrix in 1981. TheraMatrix has cut Ford's physical therapy
costs by about half, Whitton says, saving millions of dollars annually.
Under Blue Cross, Ford's costs averaged $745,000 a month just in Michigan,
he says. "We shouldn't have been in this position for creating a program
that helped save health care costs."
Blue Cross denies trying to hurt TheraMatrix's business.
"The picture that they're trying to paint is the big whatever giant with a
chainsaw in his hand coming down on the little guy," Jeffrey Rumley, Blue
Cross' general counsel, told USA TODAY. "I just don't buy into that too
The dispute provides a window into some of the factors that make overhauling
the nation's health care system so difficult. The aggressive tactics
employed against TheraMatrix raise questions about whether relationships
between hospitals and insurers are inflating medical prices and stifling
competition needed to control costs.
Court records depict Blue Cross a non-profit created under Michigan law to
provide affordable health care as working with a major hospital to stop
expansion of TheraMatrix's program. They also reveal that Blue Cross barred
TheraMatrix from the insurer's medical provider network, which covers most
A Detroit-area jury awarded TheraMatrix $4.5 million in July, finding that
Blue Cross breached an agreement with TheraMatrix to process claims for its
Ford program, then wrongfully interfered with TheraMatrix's efforts to
launch a Chrysler program. Blue Cross has appealed.
Last month, the U.S.
Justice Department sued
Michigan's Blue Cross, accusing the insurer of a different kind of
anticompetitive behavior: paying hospitals higher prices for medical care in
exchange for a promise they would charge competing insurers as much as 40%
more than they charge Blue Cross. Blue Cross says the suit is without merit.
Amid growing consumer fury over double-digit insurance rate hikes, the power
wielded by huge insurance companies is under increasing scrutiny:
The Massachusetts Attorney
General's Office has been investigating whether relationships between
insurers and hospital networks in that state have driven up health costs for
Pennsylvania's insurance department is investigating whether Blue Cross
plans in that state are engaged in anticompetitive practices. Blue Cross is
a national brand, but its companies are independently operated.
In 24 states, two or fewer health insurers control 70% or more of the
market, a study this year by the American
Medical Association found.
Effective antitrust regulation is critical to lowering health care costs, Christine
Varney, the assistant attorney general who heads the Justice
Department's antitrust division, told lawyers at a health care conference in
May. "The goals of health care reform cannot be achieved," she said, "if
dominant insurers use exclusionary practices to blockade entry or expansion
by alternative insurers."
A battle over business
TheraMatrix's battles with Blue Cross go back to 2005. That's when Ford
Motor Co. decided to try to save money by carving out physical therapy
benefits from an employee health plan administered by Blue Cross. That
February, Ford hired TheraMatrix to manage that aspect for its Michigan
At the time, physical therapy spending for all Michigan Blue Cross customers
was increasing by almost 17% a year, an internal Blue Cross report shows.
Like many major employers, Ford has a "self-funded" health plan. That means
Ford pays Blue Cross an administrative fee to handle paper work and maintain
a provider network, but Ford not the insurer is responsible for the
medical bills. In 2003-04, Ford paid Blue Cross a $54 million administrative
fee, plus other costs, a Blue Cross memo says.
TheraMatrix saved Ford money by creating a network of physical therapists
willing to accept $68 per visit significantly less than what Ford had been
paying under Blue Cross. TheraMatrix also reviews treatment plans so
patients don't get too many or too few visits.
But the project was nearly derailed when Blue Cross said it couldn't process
claims for TheraMatrix, records show. About the same time, TheraMatrix
alleges, Blue Cross decided to create its own discount physical therapy
Ford kept TheraMatrix; the program began in August 2005.
Michigan hospitals, which provide outpatient physical therapy, weren't happy
about the lost business, records indicate. They could have joined the
TheraMatrix provider network, but most wouldn't agree to the lower rate,
says Whitton, TheraMatrix's CEO.
The state hospital association gave its members an option if they wanted to
take action. In an Aug. 1, 2005, letter about TheraMatrix, the group
highlighted a provision in Blue Cross' hospital contracts: If an employer
such as Ford carves away categories of care, hospitals can revoke Blue Cross
discounts for any other services used by patients on the employer's plan.
Association spokesman Kevin Downey says the group never suggested its
members "should" revoke discounts.
None ended Ford's discounts.
By early 2006, Chrysler, which also used Blue Cross to administer its health
plan, was looking to hire TheraMatrix. This set off a series of urgent
e-mails among top Blue Cross executives, court records show.
David Kee, head of Blue Cross' Chrysler account, warned: "We need to do
something fast and dramatic." His strategy included showing that Chrysler
could lose its hospital discounts if it went with TheraMatrix. "I think a
carefully worded document, perhaps from the hospitals themselves could be
About a week later, e-mails show, such a letter was being offered by
Beaumont Hospitals Vice President Mark Johnson who had been a Blue Cross
vice president before joining the suburban Detroit hospital system in 2004.
Blue Cross Vice President Kim Sorget said
in reply that Kee could "use
the letter as leverage with his customer to not proceed with the carve out."
In August, after the TheraMatrix trial, Blue Cross re-hired Johnson as a
vice president. Blue Cross said Johnson, Kee and Sorget were unavailable for
Beaumont spokesman Mike Killian says the hospital system had a financial
duty as a non-profit to stop honoring the discounts if necessary. When Ford
went with TheraMatrix, it cost Beaumont $400,000 a year, Johnson testified
at trial. Beaumont facilities would have lost $2 million a year if Chrysler
and GM had followed suit, he said.
In spring 2006, Chrysler and the auto union UAW agreed
TheraMatrix would start managing physical therapy for the automaker around
July 1.Two weeks later, Blue Cross kicked TheraMatrix out of the insurer's
provider network, which meant a huge loss of patients and doctor
referrals."It was devastating," says TheraMatrix President Bob Read. Blue
Cross controls more than 60% of Michigan's insurance market, covering nine
times as many people as its closest competitor.
Blue Cross took the action because TheraMatrix's relationship with the
insurer is "competitive and damaging not only to BCBSM's financial
interests, but also to its business relationships," Sorget wrote
TheraMatrix.The move outraged Ford officials.
"This is clearly a retaliatory action against Theramatrix," Ford's employee
benefits director Lee Mezza wrote to Sorget. Mezza said TheraMatrix had cut
Ford's costs by 40%, and he accused Blue Cross of caring more about hospital
revenue than saving customers money, according to a redacted letter in court
records and a full version Mezza e-mailed TheraMatrix.
Ford spokeswoman Kimberly Harry said the company has no comment. Mezza, who
has retired, is on Blue Cross' board of directors and didn't respond to an
Blue Cross refused for more than a year to let TheraMatrix back into its
provider network, and the Chrysler program became critical to TheraMatrix's
survival, Whitton says.Within the UAW, Blue Cross board member Chuck Gayney
a top UAW benefits official continued to raise the specter of hospitals
revoking discounts for Chrysler's union employees, union memos show. UAW
spokesman Michele Martin had no comment.
Beaumont Hospitals gave Blue Cross the letter about potentially canceling
discounts for Chrysler and Ford on June 26, 2006.The next month, Chrysler
decided not to go forward with the program. Chrysler spokesman Michael
Palese said the company had no comment. Blue Cross, in court records,
contends TheraMatrix hasn't proven the insurer's actions influenced
Blue Cross let TheraMatrix back into its provider network in August 2007,
but a year later was
again threatening to kick it out. The offense: TheraMatrix was
discussing a potential program with General Motors, a letter sent to
TheraMatrix shows. Whitton says that's when TheraMatrix sued
'You get the care that you need'
Neither Chrysler nor General Motors went ahead with a TheraMatrix program.
In 2009, Ford expanded its Michigan contract with TheraMatrix to employees
and retirees nationwide. The program has a 98% satisfaction rate,
TheraMatrix says.Ford retiree Mike
Harris, 57, praises TheraMatrix. "You get the care that you need," says
Harris, who undergoes treatments for neck and back problems at a
Detroit-area TheraMatrix clinic.
Butch Stokes, a UAW-Ford benefits representative at Local 737 in Nashville,
says he initially was skeptical of the TheraMatrix carve out. "It's worked
great," he says, because members have a good choice of providers and fewer
hassles than with Blue Cross.David Balto, policy director of the Federal
Trade Commission's competition bureau from 1995-2001, says Blue Cross'
conduct "clearly crosses the line." The case shows the dangers of the lack
of insurance competition nationally: "Ultimately it's the consumer who is
harmed," he says.
Blue Cross general counsel, Jeffrey Rumley, says he's not aware of anything
in the TheraMatrix case "that would have a nexis to antitrust activity."The
Michigan Attorney General's Office asked TheraMatrix in September to produce
documents about Blue Cross' "competitive conduct."he U.S. Justice Department
also is reviewing records, a June e-mail to TheraMatrix shows.
Both agencies said they can neither confirm nor deny any possible
TheraMatrix's Whitton says his company is struggling to rebuild: "We are
still in jeopardy."