Associated Hospital Service, Inc. v. City of Milwaukee

Decision Date02 May 1961
Citation13 Wis.2d 447,109 N.W.2d 271
Parties, 88 A.L.R.2d 1395 ASSOCIATED HOSPITAL SERVICE, INC., a nonprofit Wis. corporation, Appellant, v. CITY OF MILWAUKEE, a municipal corporation, Respondent.
CourtWisconsin Supreme Court

Foley, Capwell, Duersten & Foley, Racine, Walter H. Bender, Milwaukee, of counsel, for appellant.

John J. Fleming, City Atty., Ewald L. Moerke, Jr., and Harvey G. Odenbrett, Asst. City Attys., Milwaukee, for respondent.

CURRIE, Justice.

We deem that the issues presented by this appeal are:

(1) Does sec. 182.032(8), Stats., exempt from taxation by the city the real and personal property of a hospital service corporation operating on the Blue Cross plan which has been organized under sec. 182.032(2)(a), Stats., 1955 and 1957?

(2) If the preceding question is answered in the affirmative, does the plaintiff corporation qualify for such exemption?

(3) May the city, as a creature of the legislature, properly raise the issue of the constitutionality of sec. 182.032(8), Stats., 1955 and 1957?

(4) If the city may properly raise the issue of constitutionality, does the exemption granted by such sec. 182.032(8) result in an unreasonable classification which violates the uniformity of taxation provision of the Wisconsin constitution or the equal-protection-of-the-laws clause of the Fourteenth Amendment?

(5) Should a trial be had in order to bring additional facts before the circuit court on the issue of constitutionality?

In order to view these issues in their proper perspective we consider it to be desirable that we review the history of the Blue Cross hospital service movement and its objectives and method of operation, and also the history of the enactment of sec. 182.032, Stats., 1955 and 1957, and of the incorporation of the plaintiff.

As a source of much of such background information we have drawn upon facts set forth in a special report by the Wisconsin Insurance Department entitled, 'Blue Cross and Blue Shield in Wisconsin' issued in January 1959; and article entitled, 'Enabling Legislation for Non-Profit Hospital Service Plans' by C. Rufus Borem, 6 Law and Contemporary Problems (1939), 528, which is referred to in such special report; and the transcript of testimony given by directors and representatives of the plaintiff corporation before the Insurance and Banking Committee of the Wisconsin Assembly on April 1, 1959. Copies of such special report and transcript of testimony are on file in the Legislative Reference Library. For the convenience of this court in taking judicial notice thereof, counsel for the plaintiff have filed certified copies of such report and transcript of testimony with this court.

Counsel for the city objects to this court taking judicial notice of such insurance department report and transcript of testimony before the assembly committee. However, counsel raise no question but that such certified copies are true copies of the original materials on file in the Legislative Reference Library under the heading 'Group Hospitalization.' We are of the opinion that it is proper for us to take judicial notice of facts stated in such materials, and also of those set forth in the aforesaid article 6 Law and Contemporary Problems, in passing upon the construction to be placed on the exemption statute, sec. 182.032(8), Stats., 1955 and 1957, and upon the constitutional issue raised with respect to unreasonable classification. 1 However, we deem it would be improper for us to take judicial notice thereof in passing on the contested issue of fact of whether the plaintiff corporation meets the requirement of sec. 182.032 so as to be entitled to any exemption extended by such statute. With respect to such latter adjudicative issue we confine ourselves to the facts stated in the affidavits filed in support of, and in opposition to, the motion for summary judgment.

The generally recognized beginning of the Blue Cross movement was the plan established by Baylor University Hospital in Dallas, Texas, in 1929. A hospital service agreement was entered into between a group of school teachers and such hospital. Each teacher paid $6 annually to the hospital, which made the subscriber eligible for three weeks' hospitalization. The experiment was successful and similar one-hospital plans were initiated with reasonable success in New Orleans, Fort Worth, Memphis, and other cities. The resulting competition among hospitals and the desire of many subscribers to be able to choose among several hospitals at time of illness led to the establishment of free-choice hospital service plans.

In order to put such a free-choice hospital service plan into operation it was found desirable that there be enabling legislation. In the state of New York civic leaders, hospital administrators and trustees, and physicians cooperated in drafting and sponsoring such an enabling act which became a law in 1934. 2 Many other states soon enacted similar enabling acts between 1934 and 1939 including Wisconsin. 3

The American Hospital Association was active in promoting such Blue Cross enabling acts. Its Commission on Hospital Service and its Council on Hospital Service Plans drafted a model enabling act for distribution in 1938 and this influenced the legislation which was adopted in a number of the states. 4 While the hospital service corporations authorized by the Wisconsin statute, now sec. 182.032, Stats., function on the same basis as those authorized by the model enabling act, the Wisconsin statute, with certain exceptions, bears very little resemblance in wording to the model act. One of the exceptions in which there is striking similarity is the provision providing for tax exempt status. Such provision in the model act, sec. XIV, provides:

'Every corporation subject to the provisions of this act is hereby declared to be a charitable and benevolent institution, and its funds, operations and properties shall be exempt from taxation.' (Italics supplied.)

The original New York enabling act also had declared that any hospital service corporation incorporated pursuant thereto was declared 'to be a charitable and benevolent institution' (sec. 461, article 14, New York Insurance Law). 5

The plaintiff corporation was incorporated in 1939 under the enabling act enacted by the Wisconsin legislature, ch. 118, Laws of 1939, now sec. 182.032, Stats. The articles of incorporation state that the plaintiff is a 'non-profit hospital service corporation without capital stock', and, 'No part of its net earnings shall inure to the benefit of any private shareholder or individual.' Such articles further provide that in event of dissolution, after payment of debts and obligations, its remaining assets shall be disbursed pro rata to the 'participating hospitals' with whom it has service contracts according to a formula set forth.

Subd. (2)(d), sec. 182.032, Stats., 1955 and 1957, restricts the type of hospitals with which the plaintiff is permitted to enter into service contracts to two classes, viz., 'participating hospitals' and 'service hospitals.' Such section provides as follows:

'Such hospitals shall be participating hospitals or service hospitals. The term 'participating hospital' as used in this section, is defined to mean a voluntary nonprofit hospital, acceptable to the corporation, and accepted by action of its board of directors, which may contract with the corporation under the terms, conditions, provisions and regulations as the board of directors may prescribe, qualifying it to designate members of the corporation as hereinafter provided. The term 'service hospital' as used in this section, is defined to mean a voluntary nonprofit hospital, or a hospital owned, operated and maintained by the state or any political subdivision thereof, acceptable to the corporation and accepted by action of its board of directors, which may contract with it under the terms, conditions, provisions and regulations that the board of directors may prescribe, but which will grant no right to such service hospital to designate members of the corporation as aforesaid. * * *' (Italics supplied.)

The articles of incorporation restrict the members of the corporation to persons designated by the participating hospitals. As previously noted, upon dissolution only the participating hospitals share in the distribution of assets. At the time of hearing of the motion for summary judgment the plaintiff had service contracts with 56 participating hospitals and 86 service hospitals. The present board of directors consists of 28 directors chosen by the members from their own membership. Of these 28, fourteen represent participating hospitals, seven are physicians, and seven represent the public. Subd. (2)(a), sec. 182.032, Stats., 1955 and 1957, requires that all directors and officers of the plaintiff shall receive no salary, pecuniary profit, or compensation.

The growth of Blue Cross in Wisconsin is evidenced by the fact that although its hospital service contracts covered but 26,248 participants in 1940, by 1957 there were 974,477 participants covered by such contracts.

Such hospital service contracts are entered into both with groups and individuals. The subscribers for such service pay a fixed fee in instalments, usually monthly, to the plaintiff. The plaintiff in turn enters into contracts with its participating and service hospitals whereby these hospitals agree to provide hospital service directly to the subscribers, or their dependents, subject to the limitations and conditions of the contracts existing between the plaintiff and the subscribers.

The objectives of Blue Cross plans for providing hospital service, such as that under which the plaintiff operates, are well summarized in the Wisconsin Insurance Department's 1959 report as follows (pp. 10, 12):

'These objectives--maximum coverage and protection for the public and adequate financing for the hospital--realized in the most...

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