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Borland v. Bayonne Hospital

Decided: January 22, 1973.

JOHN BORLAND, JR., ET AL., PLAINTIFFS,
v.
BAYONNE HOSPITAL, ET AL., DEFENDANTS



Fink, J.s.c.

Fink

Plaintiffs, Trustees of the Welfare Fund of Local 464, Amalgamated Meat Cutters and Food Store Employees Union, AFL-CIO (hereinafter "union"), and Howard Marks, a union member and eligible beneficiary of the union welfare plan, have instituted the within action against 22 New Jersey hospitals, the Hospital Service Plan of New Jersey (herein impleaded as "The Blue Cross-Blue Shield Plan of New Jersey"), the New Jersey Commissioner of Insurance and the New Jersey Commissioner of Health.

The suit is filed as a class action on behalf of labor union welfare funds in the state providing medical service benefits not funded through Blue Cross and members of labor unions providing such plans. Plaintiffs seek injunctive relief and damages for alleged discrimination by defendant hospitals

in charging plaintiffs higher rates for hospital services than are charged to Blue Cross subscribers for identical service.

The complaint asserts that the differential in rates is illegal and improper in that:

1. It deprives plaintiffs of due process under Article I, paragraph 1 of the 1947 New Jersey Constitution;

2. It deprives plaintiffs of equal protection of the laws under the United States and State Constitutions;

3. It constitutes an infringement of the right to bargain collectively, contrary to Article I, paragraph XIX of the State Constitution;

4. It is the end result of a conspiracy between the hospitals and Blue Cross in furtherance of a common plan and mutual scheme in violation of the New Jersey Anti-Trust Act (N.J.S.A. 56:9-1 et seq.)

Defendant hospitals moved to dismiss the complaint as it applies to them on the ground that the complaint fails to state a cause of action against them. This motion, under R. 4:6-2, will be treated as a motion for summary judgment.

Defendant Hospital Service Plan of New Jersey (hereinafter "Blue Cross" moved for summary judgment on the ground that there exists no genuine issue as to any material fact and that Blue Cross is entitled to a judgment in its favor as a matter of law.

The Commissioner of Insurance and the Commissioner of Health have filed an answer but do not join in these motions.

The right to proceed with this litigation as a class action under R. 4:32-1 has not yet been established. The parties have stipulated that the proceedings necessary to establish this litigation as a class action should be held in abeyance until the determination of the pending motions.

The threshold question is whether the matter is ripe for summary judgment as between plaintiffs, the hospitals and the Hospital Plan of New Jersey.

For the reasons that follow, it is my judgment that the issues involved are legal in nature only.

All of the parties admit that there is such a differential -- that is, plaintiffs, commercial insurance companies, individuals, labor unions and all others, pay for hospital services at higher rates than are prescribed by the Commissioner of Insurance and the Commissioner of Health for reimbursement for services rendered Blue Cross subscribers. At this point it must be noted that federal agencies under the Medicare program also pay less by reason of applicable statutory law. N.J.S.A. 26:2H-18(b); 42 U.S.C.A. , § 1395f(b); 20 CFR , § 405.401(a).

Plaintiffs assert that there are fact issues that preclude disposition of the case as to the hospitals and Blue Cross on a summary judgment basis. In their brief they state:

The unknown factual questions which necessitate and warrant discovery stem from the first negotiations between N.J. Hospitals and Blue Cross, whereby a formula is determined and agreed upon between the parties, which is then used to calculate the per diem rate to be charged Blue Cross subscribers after approval by the Commissioners of Insurance and Health. The secrecy of these negotiations, and the defendants refusal to stipulate as to these matters has created a factual question which must be exposed by discovery. This factual question is: what specific cost and expense items are excluded or included from the total costs (as required by NJRS. 26:2H-4) in arriving at the formula which is used as basis for calculation of the per diem rate charged Blue Cross subscribers, and as a result thereof, fixes the discriminatory rate charged non-Blue Cross subscribers.

Plaintiffs' contention overlooks the fact, however, that neither Blue Cross nor the hospitals control how much Blue Cross reimburses the hospitals for services rendered to Blue Cross subscribers. That function is vested in the Commissioner of Insurance of the State of New Jersey with the approval of the Commissioner of Health of the State of New Jersey by virtue of the Health Care Facilities Planning Act, N.J.S.A. 26:2H-18(d). On the other hand, the power and duty to determine charges made to the general public remain

vested in the governing bodies of defendant hospitals. The rate-making process under the above act requires the rate of payment by Blue Cross to participating hospitals to be approved annually. The actual procedure is that in October or November of the preceding year each hospital prepares and submits its proposed operating budget for the coming calendar year to the Budget and Advisory Committee appointed by the Commissioner of Insurance. The Advisory Committee consists of three physicians, five hospital administrators, and four hospital trustees. The Committee is assisted in its review by the Budget Review Staff, a division of the Hospital Research and Educational Trust of New Jersey. The Health Care Facilities Planning Act requires the Commissioner of Health, in consultation with the Commissioner of Insurance, to determine and certify the costs of providing health care services based on reports prepared by the hospitals in accordance with a uniform system of cost accounting. N.J.S.A. 26:2H-18(c).

The Committee recommends to the Commissioner for his approval a tentative per diem reimbursement rate for the operating year for admissions to each hospital.

It is conceded by the hospitals and Blue Cross that in computing reimbursement rates by Blue Cross the Commissioners of Insurance and Health omit from consideration some of the costs necessary to the operation of hospitals (e.g. , the cost of providing indigent care). As a result the rates hospitals charge others, including plaintiffs, is computed to permit the hospitals to recapture their omitted costs. The difference in rates is said to approximate 20%.

Thus, the alleged questions of fact are not questions of fact at all. The hospitals and Blue Cross concede that the reimbursement rate paid by Blue Cross for services rendered to subscribers is less than the rates paid by plaintiffs and others, and they also concede the method by which those different rates are established. Their response, however, is that they do not control the ultimate reimbursement rate paid by Blue Cross; that this is the sole function of the Commissioners

of Insurance and Health, and that plaintiffs' complaints against them are misdirected.

In the face of the admission by the hospitals and Blue Cross that some items of cost are omitted by the Commissioners of Insurance and Health in calculating the reimbursement rate, I see no necessity for a plenary hearing to determine the precise item or items of cost that are omitted from consideration by the Commissioners of Insurance and Health. That may become necessary in the remaining part of the action against the Commissioners of Insurance and Health. N.J.S.A. 26:2H-18(d) provides that in establishing such rates the Commissioners shall take into consideration the total costs of the hospitals. In actual practice, the form on which each hospital must submit its budget is provided by the Commissioner of Health. Such forms exclude certain items of nonreimbursible costs based on policy decisions made by the Commissioners of Health and Insurance, and this generally accounts for the difference between the reimbursement rates paid by Blue Cross and the hospital-established rates to non-hospital service corporations. Whether such omissions are in violation of the provisions of N.J.S.A. 26:2H-18(d) is, however, not an issue as between plaintiffs and the hospitals and Blue Cross. In fact, it is an issue which the hospitals themselves, in their brief, have reserved the right to raise at an appropriate time and in an appropriate proceeding. Insofar as the present litigation is concerned, the omission of costs is an issue as between plaintiffs and the Commissioners of Health and Insurance.

Based upon the assumption that under the Health Care Facilities Act, N.J.S.A. 26:2H-1 et seq. , reimbursement rates to Blue Cross for services to its subscribers may be at a rate which is less than that charged to others, the hospitals and Blue Cross take the position that that is constitutionally permissible. Plaintiffs take the position that this is constitutionally impermissible. It is that issue, among others, that will occupy the attention of this Court in this opinion.

As to the allegations levelled by plaintiffs at the hospitals and Blue Cross involving "secret negotiations," "mutual schemes" and "conspiracy" to fix the rates Blue Cross pays, they are just that, namely, bare allegations. There is not a single pleaded fact to support them. In my opinion they are spurious and warrant no consideration.

The constitutional issues arising under the Due Process Clause of the New Jersey Constitution and the Equal Protection ...


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