Taking sides in a longstanding contract dispute, Governor Carcieri has accused Blue Cross & Blue Shield of Rhode Island of unfair negotiations with Landmark Medical Center and urged the insurer to pay more money to the Woonsocket hospital.

The governor's involvement in insurer-hospital negotiations -- typically a private, if contentious, matter -- is unusual and probably unprecedented. Carcieri's criticisms came in a letter to Blue Cross on Thursday, which he made public along with a press release yesterday.

Carcieri said in an interview yesterday that he stepped in to encourage more cooperation from Blue Cross in what the governor described as a Davidand-Goliath battle between a struggling community hospital and a wealthy insurer that dominates the market.

Blue Cross replied, in a letter yesterday, that it had made a fair offer to Landmark, but the hospital wants the insurer to cover $5.6 million in losses from the hospital's new cardiac-surgery program, which Blue Cross said has not attracted as many patients as expected.

Hospital president Gary Gaube called that assertion "absolutely false." He said he didn't know where the $5.6-million figure came from. The heart program, Gaube said, had met every volume target and has not lost any more money than would be expected from a start-up.

Landmark and Blue Cross have been in negotiations since February over the rates that Blue Cross will pay the hospital for services provided to its members. All Blue Cross contracts with Landmark expire at the end of this month.

It remains unclear how Blue Cross subscribers in northern Rhode Island will be affected if the dispute isn't resolved. Blue Cross said it was willing to extend its contracts under the current terms while negotiations continue. Landmark pledged to continue to care for all patients who come to its door.

Saying the hospital could get nowhere at the bargaining table, Landmark took the unusual step of going public with the disagreement, organizing a rally outside Blue Cross headquarters in July and, more recently, asking the governor's help.

Carcieri's letter accused the insurer of being "unwilling to provide Landmark with a fair contract" and urged Blue Cross to "immediately resolve" the dispute.

"Fair reimbursement for Landmark," he wrote, "does not mean using all of Blue Cross' negotiating leverage to wring every last concession out of a small community hospital."

"I'm not trying to negotiate the deal," Carcieri said in the interview. "All I'm saying is that Blue Cross has an extra-special obligation. They're not-for-profit. They're the dominant insurer in the market. This is a small community hospital in a very vulnerable area . . . and Blue Cross has a little extra responsibility to work with them and keep them healthy."

James E. Purcell, Blue Cross president and chief executive officer, declined The Journal's request for an interview, but released a copy of his letter to the governor, delivered yesterday. Purcell asserted that Blue Cross had already "offered Landmark a healthy fee increase for 2007 and 2008" -- and one that, according to Purcell, Landmark officials considered acceptable.

But the hospital, he wrote, wants additional money to cover losses "resulting from business decisions they have made," and it is not fair to raise premiums to pay for that.

"Blue Cross accounts for only 30 percent of Landmark's revenues," Purcell wrote. "We are not responsible for ensuring the financial success of Landmark's cardiac unit."

Purcell also said that he had stayed in touch with two members of the Carcieri administration -- Health Director David R. Gifford and Health Insurance Commissioner Christopher F. Koller -- and they had offered "no criticism of the positions we have taken in negotiations with Landmark."

Gaube, the Landmark president, said Blue Cross pays less than any of the other health insurers the hospital deals with, and insures the highest percentage of the hospital's customers, 35 percent. He denied that hospital officials found Blue Cross' fee offer acceptable, and said Blue Cross had used its market dominance to maintain a "take-it-or-leave-it" stance.

"We've moved considerably in our position," Gaube said. "They have not. . . . What are we talking about here? A few million dollars. What does that mean in the scheme of the health-care delivery system?"

U.S. Rep. Patrick J. Kennedy also entered the fray on Landmark's behalf, issuing a statement yesterday in which he raised concerns about the 4,000 Medicare beneficiaries in northern Rhode Island who obtain their coverage through a Blue Cross managed-care plan. If the contract expires, these people might have to go to hospitals outside their community, and many do not have easy access to transportation.

Kennedy has written to Dr. Mark McClellan, administrator of the U.S. Centers for Medicare & Medicaid Services, asking his input on what would happen to those subscribers.

Purcell's letter said that Landmark had to give a 90-day notice to terminate its Medicare contract, and that Blue Cross was willing to extend all its contracts under the current terms.

ffreyer@projo.com / (401) 277-7397