DocketNumber: C.A. No. PC 10-6984
Judges: SILVERSTEIN, J.
Filed Date: 9/28/2011
Status: Precedential
Modified Date: 7/6/2016
Blue Cross is a nonprofit hospital and medical service corporation incorporated pursuant to title 27, chapters 19, 19.2, and 20 of our General Laws. See Blue Cross/Blue Shield of R.I. v. State Dep'tof Bus. Regulation, No. 04-5769,
In 2004, following a public controversy over the management of Blue Cross, the General Assembly enacted The Rhode Island Health Care Reform Act of 2004 — Health Insurance Oversight (the Act), G.L. 1956 §§
In connection therewith, the General Assembly made the following legislative findings:
"(1) A substantial amount of health care services in this state are purchased for the benefit of patients by health care insurers engaged in the provision of health care financing services or is otherwise delivered subject to the terms of agreements between health care insurers and providers of the services.
"(2) Health care insurers are able to control the flow of patients to providers of health care services through compelling financial incentives for patients in their plans to utilize only the services of providers with whom the insurers have contracted.
"(3) Health care insurers also control the health care services rendered to patients through utilization review programs and other managed care tools and associated coverage and payment policies.
"(4) By incorporation or merger the power of health care insurers in markets of this state for health care services has become great enough to create a competitive imbalance, reducing levels of competition and threatening the availability of high quality, cost-effective health care.
"(5) The power of health care insurers to unilaterally impose provider contract terms may jeopardize the ability of physicians and other health care providers to deliver the superior quality health care services that have been traditionally available in this state.
"(6) It is the intention of the [G]eneral [A]ssembly to authorize health care providers to jointly discuss with health care insurers topics of concern regarding the provision of quality health care through a committee established by an advisory to the health insurance commissioner." Sec.
42-14.5-1.1 .
The General Assembly endowed the health insurance commissioner with the following powers and duties:
*Page 4"(a) To conduct quarterly public meetings throughout the state . . . regarding the rates, services and operations of insurers licensed to provide health insurance in the state[,] the effects of such rates, services and operations on consumers, medical care providers, patients, and the market environment in which such insurers operate and efforts to bring new health insurers into the Rhode Island market. . . .
"(b) To make recommendations to the governor and the house of representatives and senate finance committees regarding health care insurance and the regulations, rates, services, administrative expenses, reserve requirements, and operations of insurers providing health insurance in the state, and to prepare or comment on, upon the request of the governor, or chairpersons of the house or senate finance committees, draft legislation to improve the regulation of health insurance. . . . The commissioner shall also make recommendations on the levels of reserves including consideration of: targeted reserve levels; trends in the increase or decrease of reserve levels; and insurer plans for distributing excess reserves.
"(c) To establish a consumer/business/labor/medical advisory council to obtain information and present concerns of consumers, business and medical providers affected by health insurance decisions. The council shall develop proposals to allow the market for small business health insurance to be affordable and fairer. . . .
"(d) To establish and provide guidance and assistance to a subcommittee (`The Professional Provider-Health Plan Work Group') of the advisory council created pursuant to subsection (c) above, composed of health care providers and Rhode Island licensed health plans. . . .
"(e) To enforce the provisions of [t]itle 27 and [t]itle 42 as set forth in §
42-14-5 (d)."(f) To provide analysis of the Rhode Island Affordable Health Plan Reinsurance Fund. . . .
"(g) To analyze the impact of changing the rating guidelines and/or merging the individual health insurance market as defined in chapter 27-18.5 and the small employer health insurance market as defined in chapter 27-50 . . ." Sec.
42-14.5-3 .
The health insurance commissioner was authorized to discharge these powers and duties in order to:
"(a) Guard the solvency of health insurers; (b) Protect the interests of consumers; (c) Encourage fair treatment of health care providers; (d) Encourage policies and developments that improve the quality and efficiency of health care service delivery and outcomes; and (e) View the health care system as a comprehensive *Page 5 entity and encourage and direct insurers towards policies that advance the welfare of the public through overall efficiency, improved health care quality, and appropriate access." Sec.
42-14.5-2 .
Also in 2004, the General Assembly enacted chapter 19.2 of title 27, entitled Nonprofit Hospital and Medical Corporations, which specifically addressed the administration of Blue Cross. In drafting the legislation, the General Assembly expressly found that it was in the best interest of the residents of Rhode Island:
"(1) To strengthen and reform the governance structure of nonprofit hospital service and/or medical service corporations;
"(2) To ensure a diverse, independent and publicly accountable board of directors;
"(3) To prohibit certain activities which may allow self-interest to compromise undivided loyalty to the public interest mission for which such corporations were established; and
"(4) To require adoption of principles and procedures to keep such corporations aligned with their public interest mission." Sec.
27-19.2-1 .
For that reason, the General Assembly charged Blue Cross with the following mission statement:
*Page 6"(1) To provide affordable and accessible health insurance to insureds, including those persons insured by an affiliate or subsidiary of said plan;
"(2) To assist and support public and private health care initiatives for individuals without health care insurance;
"(3) To promote integration, efficiency and coherence of a statewide health care system that meets the needs of all Rhode Island residents;
"(4) To contribute through its operations, procedures and investments to the improvement of medical and prevention services delivered in Rhode Island; and
"(5) To provide affordable and accessible health insurance to a comprehensive range of consumers, including business owners, employees and unemployed individuals." Sec.
27-19.2-3 .
In accordance with that mission, the General Assembly required Blue Cross to:
"(1) Offer products in the small group;
"(2) Offer products in the individual market, with at least one 30-day open enrollment period every twelve (12) months;
"(3) Employ pricing strategies that enhance the affordability of health care coverage; and
"(4) Protect the financial condition of the nonprofit hospital and/or medical service plan." Sec.
27-19.2-10 .
In mid-2008, Blue Cross and CNE began renegotiating the terms of their 2004 participation agreements (2004 Agreements). See Torti Aff. Ex. F, Rector Associates Report. Under the 2004 Agreements, Blue Cross was required to pay CNE "base rates for covered services related to commercial business, Medicare Advantage business, and Rite Care. The basis rates for those lines of business increased at various rates from January 1, 2005 through December 31, 2008." See id. CNE, however, dissatisfied with its level of reimbursement under the 2004 Agreements, entered the negotiations seeking a 30% increase of its reimbursement rate. See Delmonico Aff. ¶ 28. *Page 7
On December 22, 2008, Blue Cross and CNE entered into contracts — effective as of January 1, 2009 and expiring December 31, 2013 — establishing the amended reimbursement rates payable by Blue Cross to CNE for services provided by CNE to Blue Cross's subscribers (Blue Cross Agreements).Id. ¶ 21. The Blue Cross Agreements renewed the 2004 Agreements for an additional five-year term, and while they left most of the substantive provisions intact, the parties included material changes to the calculation and amount of compensation to be received by CNE. See Torti Aff. Ex. F, Rector Associates Report.
Specifically, in lieu of the 30% rate increase originally sought, the parties compromised and agreed to a lower rate increase and a cash payment to CNE in exchange for the inclusion of a major adverse event provision (Challenged Provision). See Delmonico Aff. ¶¶ 23, 28. Under the Challenged Provision, three separate calculations are conducted annually for CNE — one for Medicare, one for Medicaid, and one for "other state/federal program."See Torti Aff. Ex. F, Examination Report ¶ 5. As to each of the three categories of government payors, CNE separately calculates "positive events," events that increase CNE's revenues or lower its costs, and then offsets the calculation with "adverse events," or events that decrease CNE's revenues or increase its costs.2Id. If any of these independent government payor calculations results in a negative result or shortfall — regardless of whether the calculations for the other two government payors result in positive events — Blue Cross is liable for a percentage of the shortfall for that payor. Id. Put another way, under this methodology, an "adverse event" for one government payor cannot be netted-out by "positive events" for the other two government payors.Id. *Page 8
The Challenged Provision further provides that Blue Cross's liability shall vary depending on the magnitude of the shortfall up to $10,000,000. See Delmonico Aff. ¶¶ 25-26; see also Supplemental Delmonico Aff. ¶¶ 5-9. And as to a shortfall in excess of $10,000,000, Blue Cross's liability is determined by a binding mediation.3 Id.
On or about January 16, 2009, following concerns over the effect of the Blue Cross Agreements on Blue Cross's financial condition, OHIC issued an exam warrant to Blue Cross pursuant to the Examinations Statute. See Torti Aff. ¶¶ 2-4. The objective of OHIC's examination was two-fold: (1) to determine whether Blue Cross's actions were in compliance with applicable statutes and regulations; and (2) to evaluate the financial and market impact of the Blue Cross Agreements on Blue Cross. Id. ¶ 6.
Thereafter, Blue Cross notified CNE of the warrant and CNE subsequently contacted OHIC officials. On January 28, 2009, a meeting was held between CNE, Blue Cross, and OHIC to explain the purpose of the examination, describe the examination process, and to address CNE's concerns. Id. ¶¶ 5, 7-9. On February 9, 2009, CNE, Blue Cross, and Commissioner Koller executed a letter agreement (Letter Agreement) providing, interalia, that: (1) a new warrant addressing CNE's concerns over the original warrant would be issued pursuant to the Examinations Statute; (2) all papers obtained from Blue Cross during the examination would be treated as work papers and afforded confidentiality as provided by the Examinations Statute; (3) CNE would be invited and entitled to attend and participate in any public hearings relating to the Blue Cross Agreements; (4) CNE would be granted an opportunity to explain its position before the preparation of any report resulting from the examination; and (5) OHIC would hold the *Page 9 contents of any final report private and confidential for a thirty-day period following the mailing of a copy to CNE.Id. ¶¶ 10-11; see also Torti Aff. Ex. D, Letter Agreement.
The Blue Cross examination was conducted by Joseph Torti, III, Deputy Director and Superintendent of Insurance for the DBR, and John Aloysius Cogan, Jr., Executive Assistant for Program and Policy Review at OHIC (collectively, Examiners) with assistance from Rector Associates, Inc. See Torti Aff. Ex. G, Final Order (OHIC-2010-5). On April 10, 2009, Laurie Briggs (Briggs), a Rector Associates consultant, emailed CNE's counsel to schedule a conference call on April 15, 2009 "to discuss [CNE's] contracts with Blue Cross[.]" See Torti Aff. Ex. E, April 10, 2009 email. Briggs indicated that the call was intended to be "CNE's opportunity to provide [them] with its perspective on the [Blue Cross] negotiations and the resulting contracts." Id. Additionally, Briggs sought information regarding: (1) the process by which CNE determines payment rates; (2) the factors that led to the inclusion of the Challenged Provision; and (3) how the provisions and rates agreed to by Blue Cross compare to those negotiated by CNE with other insurers. Id.
Over the next eighteen months, the Examiners proceeded with their investigation. See Torti Aff. ¶ 14. On October 12, 2010, the examination report was finalized, and on October 22, 2010, the Examiners made their recommendations and transmitted the verified exam (Examination Report) to Commissioner Koller and Blue Cross.Id. ¶¶ 15-16. As their final recommendations, the Examiners stated:
"Given that Blue Cross is a creation of statute and is only authorized to write lines of insurance with respect to certain types of risk, specifically (1) health insurance; (2) stop-loss and catastrophic insurance; and (3) the types of insurance that may be provided by nonprofit dental service corporations, nonprofit legal service corporations, and nonprofit optometric service corporations, and is not authorized to write any other lines of insurance, it is difficult to see how Blue Cross's obligations under *Page 10 the [Challenged Provision] do not exceed Blue Cross's statutory authority." See Torti Aff. Ex. F, Examination Report ¶ 4.
The Examiners further concluded that by "ceding ultimate control over the rates it pays CNE" and subjecting itself to the "open-ended nature of the [Challenged Provision]," Blue Cross had placed its reserves at risk and potentially jeopardized its solvency in violation of the statutory mandate to protect its financial condition. Id. ¶ 8. For these reasons, the Examiners ultimately recommended that Commissioner Koller order Blue Cross to: (1) disregard the Challenged Provision; (2) use its best efforts to renegotiate the Blue Cross Agreements in a manner consistent with its legal authority; and (3) refrain from agreeing to similar provisions. Id. ¶ 9. Additionally, the Examiners recommended that Commissioner Koller issue an administrative penalty against Blue Cross. Id.
Upon receipt of the Examination Report, Blue Cross was advised of its obligation to prepare and submit to OHIC a written submission or rebuttal with respect to any and all matters contained in the documents. See Torti Aff. Ex. G, Final Order ¶ 6. On November 8, 2010, Blue Cross filed its response. See OHIC'S Summ. J. Mem. Ex. B. Thereafter, Commissioner Koller considered and reviewed the Examination Report and recommendations, together with Blue Cross's written response and the relevant portions of the Blue Cross Agreements. See Torti Aff. Ex. G, Final Order ¶ 6.
On November 16, 2010, OHIC issued the Final Order, adopting the findings and recommendations4 of the Examination Report and imposing an administrative penalty of $5,000. See Torti Aff. ¶ 17. Both the Examination Report and Final Order were sent to Blue Cross and CNE. Id. In his cover letter attaching the documents, Commissioner Koller indicated that (1) *Page 11 the content of the Final Order would remain private and confidential for thirty days; (2) the Final Order was a final administrative decision appealable pursuant to Administrative Procedures Act, chapter 35, title 42; and (3) CNE should contact him with any questions regarding the documents or anything else addressed in the letter. See Torti Aff. Ex. G. Subsequently, Blue Cross informed CNE that it would no longer abide by the Challenged Provision. See Delmonico Aff. ¶ 37. Despite Commissioner Koller's request that CNE contact him to discuss any questions, OHIC was never contacted to discuss the matter or to resolve the issues raised in the Examination Report and Final Order. See Torti Aff. ¶ 18.
It is black-letter law that "[a]n administrative agency is a product of the legislation that creates it, and it follows that `[a]gency action is only valid, therefore, when the agency acts within the parameters of the statutes that define [its] powers.'"Iselin v. Ret. Bd. of Emps.' Ret. Sys. of R.I.,
In Rhode Island, the General Assembly specifically conferred upon the health insurance commissioner the "sole and exclusive jurisdiction over enforcement" of matters relating to health insurance. See §
Although CNE would limit OHIC's authority under the Examinations Statute to merely a determination of whether a company is in compliance with applicable laws and regulations, the plain language grants the health insurance commissioner broad enforcement and regulatory authority.6 See,e.g., §
Furthermore, our General Laws, similarly authorized Commissioner Koller's levy of an administrative penalty. Pursuant to §
"(1) Revoke or suspend a license; (2) Levy an administrative penalty in an amount not less than one hundred dollars ($100) nor more than fifty thousand dollars ($50,000); (3) Order the violator to cease such actions; (4) Require the licensee or person or entity conducting any activities requiring licensure under title 27 to take such actions as are necessary to comply with title 27 and/or chapters 14, 14.5, 62, or 128.1 of title 42, or the regulations thereunder; or (5) Any combination of the above penalties." Sec.42-14-16 (a).
Therefore, under the current statutory scheme, Commissioner Koller had a statutory duty to examine Blue Cross's financial condition and methods of doing business and to protect its solvency. Moreover, titles 27 and 42 undoubtedly provided Commissioner Koller with the statutory authority to not only impose an administrative penalty, but also to issue an order requiring Blue Cross to take those actions he deemed necessary and appropriate.
Consequently, based on the plain and unambiguous language of titles 27 and 42, as well as Regulation 2, the Court finds no basis for CNE's assertion that Commissioner Koller did not have the statutory authority to conduct an examination or issue an order nullifying the Challenged Provision and ordering the parties to renegotiate. OHIC conducted an examination *Page 16 to address concerns over the Challenged Provision's effect on Blue Cross's financial condition and the potential impact on health insurance affordability, accessibility, provider fairness, and other regulatory objectives; thus, it was free to order Blue Cross, based on its findings, to undertake those actions deemed necessary and appropriate to remedy the violation. For that reason, the Court: (1) finds that OHIC's actions were not in excess of its statutory authority; (2) rejects CNE's attempt to read the language of OHIC's enabling statute and the Examinations Statute in a manner nullifying the Final Order; and (3) grants OHIC's motion for summary judgment as to this claim.7
The protections of procedural due process, however, are not triggered unless a party can show that it has been deprived of a protectable liberty or property interest as defined by an independent source such as state law. See Moreau,
It is well settled that "[p]rotected interests in property are normally `not created by the Constitution. Rather, they are created and their dimensions are defined' by an independent source such as state statutes or rules entitling the citizen to certain benefits."Goss v. Lopez,
Here, however, CNE's claim of entitlement arising under the APA fails for two reasons. First, in order to implicate the procedural protections of §
Second, CNE's claim of entitlement under the APA is simply inconsistent with the plain language of the Examinations Statute. Indeed, when conducting an examination, adopting an examination report, or issuing a final order, the Examinations Statute itself — not the APA — dictates the requisite procedural safeguards owed to a party.10 Seegenerally, §§ 27.13.1-4,-5. It is only upon the issuance of a final order by the health insurance commissioner, that a party's right to invoke the APA is even implicated.See §
It is axiomatic that the "liberty" or "property" interests protected by due process need not always flow from state law or the Constitution. Roth,
OHIC, however, has previously determined that the Challenged Provision was an illegal insurance obligation and that Blue Cross exceeded its statutory authority by entering into the Blue Cross Agreements.11 In view of those determinations, the Court finds that the Blue Cross Agreements are ultra vires
contracts — having been made in violation of Blue Cross's well-defined and limited statutory powers — and therefore, are voidab initio. See Resolution Oversight Corp. v. Kansas HealthCare Stabilization Fund,
Moreover, CNE can point to no other legitimate claims of entitlement or protectable interests that were deprived by the Final Order. Rather, without the benefit of the Blue Cross Agreements to serve as the basis of its due process claim, the terms of the Letter Agreement must consequently govern CNE's entitlement, if any, to notice and an opportunity to be heard. Under the Letter Agreement, CNE had a legitimate expectation that it would be provided with: (1) an opportunity to address the Blue Cross Agreements before the preparation of any report resulting from the examination; (2) a copy of any portion of the examination report to be made public following the entry of an order adopting the report; and (3) the right to attend any public hearing related to the examination and to participate in any portion of the hearing related to the Blue Cross Agreements.12 See Torti Aff. Ex. D, Letter Agreement. A review of the evidence, however, indicates that CNE was afforded all the procedural protections previously agreed to and more.
Indeed, on January 28, 2009, CNE was initially invited to a meeting with Blue Cross and OHIC to explain the purpose of the examination, describe the examination process, and to address CNE's concerns. See Torti Aff. ¶¶ 5, 7-9. During the examination, OHIC organized a teleconference with CNE to discuss the Blue Cross Agreements and obtain information and CNE's perspective on: (1) the process by which CNE determines payment rates; (2) the factors that led to the inclusion of the Challenged Provision; and (3) how the provisions and rates agreed *Page 23 to by Blue Cross compared to those negotiated by CNE with other insurers. See Torti Aff. Ex. E, April 10, 2009 email; seealso Briggs Aff. ¶¶ 4-5. Finally, at the conclusion of the examination, both the Examination Report and Final Order were sent to CNE, and Commissioner Koller instructed CNE to contact him with any questions regarding the documents or anything else addressed in his cover letter. See Torti Aff. Ex. G, Final Order. Therefore, having been afforded all the procedural protections agreed to, the Court finds as a matter of law that CNE was not been divested of any contractual rights, and accordingly, due process was not implicated.
In light of the foregoing, the Court finds as a matter of law that CNE did not possess a protected interest under the APA or the Blue Cross Agreements, and for that reason, the entry of the Final Order was not a violation of its due process rights. Moreover, the Court is of the opinion that any obligation to provide CNE with notice and an opportunity to be heard arose solely from the Letter Agreement; and based on the proffered evidence, the Court finds those obligations to have been adequately satisfied.
"Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory or the District of Columbia, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress. . . ."*Page 24
The purpose of § 1983 is to "`interpose the courts between the [s]tates and the people, as guardians of the people's federal rights.'" Jolicoeur Furniture Co., Inc. v. Baldelli,
In practice, § 1983 creates "`a species of tort liability'" in favor of persons who are deprived of `rights, privileges, or immunities secured' to them by the Constitution." See Carey v.Piphus,
To prevail on a claim of tortious interference with contractual relations, a plaintiff must establish "(1) the existence of a contract; (2) the alleged wrongdoer's knowledge of the contract; (3) his [or her] intentional interference; and (4) damages resulting therefrom." Tidewater Realty, LLC v. State,
While a determination of improper interference is undoubtedly a question of fact not ordinarily ripe for determination on a motion for summary judgment, in light of the Court's prior determination that the Blue Cross Agreements were void ab initio, the Court need not reach such a determination to dispose of CNE's claim. Indeed, without a valid contract, CNE cannot, as a matter of law, satisfy the elements of its tortious interference claim, and therefore, the Court must grant OHIC's motion for summary judgment as to this claim.
Prevailing counsel may present an order consistent herewith which shall be settled after due notice to counsel of record.
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