448 F.3d 573 (2nd Cir. 2006), 04-5783, Beth Israel Medical Center v. Horizon Blue Cross and Blue Shield of New Jersey, Inc.

• Citation: 448 F.3d 573
• Party Name: BETH ISRAEL MEDICAL CENTER, Lenox Hill Hospital, Montefiore Medical Center, NYU Hospitals Center, The New York and Presbyterian Hospital, The New York Eye and Ear Infirmary, New York Society for the Relief of the Ruptured and Crippled, Maintaining the Hospital for Special Surgery, St. Luke's-Roosevelt Hospital Center, Saint Vincent's Hospital of Ne
• Case Date: May 19, 2006
• Court: United States Courts of Appeals, U.S. Court of Appeals — Second Circuit

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448 F.3d 573 (2nd Cir. 2006)

BETH ISRAEL MEDICAL CENTER, Lenox Hill Hospital, Montefiore Medical Center, NYU Hospitals Center, The New York and Presbyterian Hospital, The New York Eye and Ear Infirmary, New York Society for the Relief of the Ruptured and Crippled, Maintaining the Hospital for Special Surgery, St. Luke's-Roosevelt Hospital Center, Saint Vincent's Hospital of New York, and Staten Island University Hospital Plaintiffs-Appellants,

v.

HORIZON BLUE CROSS AND BLUE SHIELD OF NEW JERSEY, Inc., Defendant-Appellee.

No. 04-5783-CV.

United States Court of Appeals, Second Circuit.

May 19, 2006

Argued: October 19, 2005

Appeal from a summary judgment entered October 20, 2004, in the United States District Court for the Eastern District of New York (Amon, J.) dismissing claims of breach of contract, breach of third-party contract, unjust enrichment, and engaging in a pattern of deceptive practices in an action brought to secure reimbursement for hospital services rendered.

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[Copyrighted Material Omitted]

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Roy W. Breitenbach (Fredrick I. Miller, Andrew Zwerling, of counsel), Garfunkel, Wild & Travis, P.C., Great Neck, NY, for Plaintiffs-Appellants.

Kimberly C. Lawrence, Hinman Straub P.C., Albany, NY, for Defendant-Appellee.

Before: KEARSE, MINER, and HALL, Circuit Judges.

MINER, Circuit Judge.

Plaintiffs-appellants appeal from a summary judgment entered October 20, 2004, in the United States District Court for the

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Eastern District of New York (Amon, J.) dismissing their claims for breach of contract, breach of a third-party contract, unjust enrichment, and engaging in a pattern of deceptive practices in an action brought to secure reimbursement for hospital services rendered. The District Court dismissed plaintiffs' claims for breach of contract after determining that (i) New York Public Health Law § 2807-c completely abrogated the parties' pre-existing written contracts; (ii) all parties were performing under implied-in-fact contracts; (iii) those implied-in-fact contracts were illegal under § 2807-c; (iv) all parties were equally at fault for non-compliance with § 2807-c; and (v) it would not invoke its equitable powers to apply the rates set by § 2807-c to the implied-in-fact contracts. The District Court dismissed plaintiffs' claims for unjust enrichment on the ground that it was "not against 'equity and good conscience' " for plaintiffs to have been paid as they were. The District Court also determined that plaintiffs could not establish claims for breach of a third-party contract or for engaging in a pattern of deceptive practices.

BACKGROUND

I. Factual History

Defendant-appellee Horizon Blue Cross Blue Shield of New Jersey ("Horizon") is a non-profit health services insurance plan based in New Jersey and is affiliated with numerous Blue Cross Blue Shield Plans around the country ("Blue Cross Plans"). Because of this affiliation, Horizon has paid for treatments that its subscribers receive from hospitals associated with Blue Cross Plans in other states pursuant to an agreement called the Blue Cross Inter-Plan Bank Agreement (the "Inter-Plan Agreement"). Since the 1950s, by virtue of the Inter-Plan Agreement, subscribers of Horizon and its predecessor have received treatment from various hospitals in the New York City area that were under contract with the New York Blue Cross Plan, which is now known as Empire Blue Cross and Blue Shield ("Empire").

In addition, since the 1950s, Horizon has had Contracting Hospital Agreements ("CHAs") directly with some New York Hospitals. During the 1960s and 1970s, Horizon entered into CHAs with eight of the plaintiff-appellant hospitals: Beth Israel Medical Center, Lenox Hill Hospital, New York Eye and Ear Infirmary, New York Presbyterian Hospital, NYU Hospitals Center, St. Luke's-Roosevelt Hospital, St. Vincent's Hospital of New York, and Staten Island University Hospital. Plaintiffs-appellants The Hospital for Special Surgery and Montefiore Medical Center never entered into CHAs with Horizon. Lenox Hill terminated its CHA with Horizon on June 8, 1995. All other CHAs were terminated on December 31, 1996. Pursuant to the CHAs, the hospitals rendered services to subscribers of Horizon and the hospitals were reimbursed by Horizon.

The CHAs used by Horizon are standard forms drafted by employees of Horizon. The CHAs governed the relationship between Horizon and the hospitals as to many specific topics: types of services to be rendered by the hospitals, rate of payment, limitations of actions, notices of hospital admissions and eligibility for services, disposition of charges for ineligible services, effect of prior agreements, termination, availability of medical and financial records, confidentiality, and choice of governing law. The choice-of-law provision specified that the agreements would "be deemed made in and shall be construed according to the Laws of the State of New Jersey." The limitation of actions provision recited that "[n]o action at law or in equity shall be maintainable for any claim arising out of this Agreement unless

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brought within one year from the date when the cause of action accrued." As to the rate of payment, the CHAs provided that payment by Horizon to the party-hospital would be according to "the formula entitled 'Basis of Payment.' " The "Basis of Payment" formula provided for a per diem payment rate "equal to the finally established per diem rate payable to Hospital by the Associated Hospital Service of New York ...." Thus, the CHAs permitted Horizon to reimburse the party-hospital at the same rate that the Associated Hospital Service, and later Empire, reimbursed the party-hospital.¹

In 1988, the New York legislature amended the hospital rates legislation popularly known as the New York Prospective Hospital Reimbursement Methodology (the "NYPHRM"). As amended, the NYPHRM mandated that "[p]ayments to general hospitals for inpatient hospital services provided to persons who are not eligible for payments as beneficiaries of . . . (medicare) shall be determined pursuant to this section." N.Y. Pub. Health Law § 2807-c(1) (1988).² The NYPHRM also provided that "[s]pecial payment rate methodology agreements other than those permitted in accordance with the provisions of paragraphs (a) and (b) of this subdivision shall not be authorized ...." Id. § 2807-c(2)(c). The NYPHRM established a mandatory system of reimbursement with three tiers. The first tier rate was established for payments made by state governmental agencies or by "article forty-three corporations,"³ including Empire, and was designated the "Standard Rate." Id. § 2807-c(1)(a). The Second tier related to payments made for hospital services pursuant to the workers' compensation law, volunteer firefighters' benefit law, the comprehensive motor vehicle insurance reparations act, or by certain self-insured funds. Id. § 2807-c(1)(b). In this tier, the rate was set at the Standard Rate plus thirteen percent and was designated the "Commercial Rate." See id. The rate for the third tier, governing all other payments, was set at the lower of the hospitals' actual charges or 120% of the Commercial Rate. Id. § 2807-c(1)(c). The third tier rate was known as the "Self-Pay Rate." Payments made by out-of-state health plans were subject to the Self-Pay Rate.

The NYPHRM also contained a "Foreign Blue Cross Exception." The Foreign Blue Cross Exception permitted out-of-state non-profit health plans, like Horizon, to pay at the Standard Rate rather than the Self-Pay Rate. N.Y. Pub. Health Law § 2807-c(1)(a) (including in the Standard Rate tier those payments by "article forty-three corporations" "on behalf of subscribers of a foreign corporation as described in paragraph (d) of subdivision twelve of this section"). To be eligible for the Foreign Blue Cross Exception, the out-of-state health plan had to meet three conditions: First, the out-of-state health plan had to

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be a member of the Blue Cross Blue Shield Association. Id. § 2807-c(12)(d). Second, the law of the state where the out-of-state Blue Cross member was formed had to permit a New York Blue Cross member to pay for services to its subscribers at hospitals in that state at the same rate as the out-of-state Blue Cross member paid to those hospitals. Id. Third, an article forty-three corporation had to act as payment agent. Id. § 2807-c(1)(a).

It is undisputed that from the amendment of the NYPHRM in 1988 until December 31, 1996, the latest date relevant to this action, Horizon reimbursed the plaintiff-appellant hospitals at a rate equal to the Standard Rate, rather than the Self-Pay Rate.

II. Procedural History

This action was commenced by the filing of a Complaint on July 7, 1998. At some later date not clear in the Record, an Amended Complaint was filed dismissing two of the original plaintiff hospitals, The New York Methodist Hospital and Westchester Square Medical Center, and adding two of the plaintiff-appellant hospitals, The New York Eye and Ear Infirmary and The New York Society for the Relief of the Ruptured and Crippled, Maintaining the Hospital for Special Surgery. A Second Amended Complaint also was filed. The Second Amended Complaint, like the initial Complaint, sought damages equal to the difference between the amounts the plaintiff-appellant hospitals (the "Hospitals") contended that Horizon should have paid under the Self-Pay Rate and the amounts that Horizon did pay under the Standard Rate for the period from January 1, 1991 through December 31, 1996. The Hospitals did not sue under the NYPHRM; they conceded in the District Court that "they have no private right of action under the statute." Instead, the Hospitals asserted claims sounding in (i) breach of contract; (ii) breach of third-party contract; (iii) unjust enrichment; and (iv) engaging in a pattern of deceptive practices. After discovery,...