Blue Cross of Kansas, Inc. v. Bell, 51283
| Decision Date | 01 March 1980 |
| Docket Number | No. 51283,51283 |
| Parties | BLUE CROSS OF KANSAS, INC. and Blue Shield of Kansas, Inc., Appellants, v. Fletcher BELL, as Commissioner of Insurance of Kansas, Appellee. |
| Court | Kansas Supreme Court |
Syllabus by the Court
1. An administrative agency must assume the responsibility of expressing the basic facts on which it relies with sufficient specificity to convey to the parties, as well as to the court, an adequate statement of the facts which persuaded the agency to arrive at its decision. Thus, there must be findings on all applicable standards which govern the agency's determination, and the findings must be expressed in language sufficiently definite and certain to constitute a valid basis for the order, otherwise the order cannot stand.
2. K.S.A.1979 Supp. 40-1811 and 40-1911 of the nonprofit hospital and medical service acts provide for the maximum percentages of subscriber's payments which may be paid during one year for administrative expenses.
3. The Commissioner of Insurance has the duty and obligation in rate filings to restrict Blue Cross and Blue Shield of Kansas so as to enforce those statutory maximums set by the legislature for administrative expenses.
4. In any case where Blue Cross and Blue Shield of Kansas have established that they have remained below the statutory maximums for administrative expenses it is presumed that their administrative expenses are reasonable.
5. In order for the Commissioner of Insurance to overcome this presumption of reasonableness there must be evidence introduced and he must be able to find therefrom that the administrative expenses are unreasonable and excessive in comparison to the expenses of other hospital and medical service corporations of similar size and delivering the same types of service.
6. The Commissioner of Insurance should not substitute his judgment for that of the directors of Blue Cross and Blue Shield of Kansas when it comes to grouping and classifying risks for the purpose of establishing rates on individual policies or on group policies.
7. In establishing rates for individual or group policies under K.S.A. 40-1806 and 40-1906, risks may be grouped by classifications of health care subscribers and in fixing rates for one class or group such class or group should neither be subsidized nor have to bear part of the burden of subsidizing another group or groups.
8. The Commissioner of Insurance should keep in mind that neither the general insurance laws nor the laws governing nonprofit hospital and medical service corporations give him authority to govern the everyday management details of Blue Cross and Blue Shield of Kansas, nor to substitute his judgment for that of the boards of directors of these companies as to either the wisdom and expediency of business policies or the methods of carrying on the business of the companies.
9. The Commissioner of Insurance has a statutory duty and authority under K.S.A. 40-1806 and 40-1906 with regard to rate filings of nonprofit hospital and medical service corporations (1) to determine the accuracy of trend projections and the reasonableness of prospective loss experience used in the filings, (2) to consider past and prospective expenses relevant to the filings, (3) to determine what are adequate contingency reserves for these corporations, (4) to consider the provisions of contracts between such corporations and their participating health care providers, and (5) to consider all other relevant factors bearing on rates, to the end that all rates provided for in the filings be reasonable, not excessive and not unfairly discriminatory.
Gerald L. Goodell of Goodell, Stratton, Edmonds, Palmer, & Wright, Topeka, argued the cause, and Charles R. Hay, Topeka, of the same firm, was with him on the brief for appellants.
Michael S. Mullen, Sp. Asst. Atty. Gen., argued the cause, and Derek J. Shafer, Sp. Asst. Atty. Gen., was with him on the brief for appellee.
Blue Cross and Blue Shield of Kansas (BCBSK) commenced an action in the Shawnee County District Court against Fletcher Bell, Commissioner of Insurance of Kansas (Commissioner), as provided for in K.S.A. 40-1806 and 40-1906 to seek review of an order of the Commissioner denying all requests for an increase in rates for the year 1979 requested by BCBSK. In addition BCBSK sought a declaratory judgment under K.S.A. 60-1701, et seq.
The parties on appeal to this court indicate this action is the first of its kind under K.S.A. 40-1806 and 40-1906. It may be helpful to give some details and background. K.S.A. 40-1801, et seq., provides for the organization of mutual nonprofit hospital service corporations such as Blue Cross of Kansas. K.S.A. 40-1901, [227 Kan. 428] et seq., provides for the organization of mutual nonprofit medical service corporations such as Blue Shield of Kansas. Although these are separate corporations organized under separate statutes, the corresponding sections of the statutes contain almost identical provisions governing the organization and control of each corporation.
Kansas Blue Cross began operations in 1941 and sold its first contract in 1942. Kansas Blue Shield began operations in 1945 and sold its first contract in 1946. Both Blue Cross and Blue Shield belong to a national Blue Cross-Blue Shield organization that establishes standards that all plans must meet to be authorized to use the Blue Cross and Blue Shield names and logo. There are 75 Blue Cross plans and 70 Blue Shield plans across the country.
The business and affairs of Blue Cross of Kansas are conducted and managed by a 37-member board of directors that serves without salary or compensation. Nine members are administrators or trustees of Kansas hospitals, nine are physicians and 19 are members of the public. The business and affairs of Blue Shield of Kansas are managed and conducted by a 50-member board of directors that also serves without salary or compensation. Twenty-four members are physicians, one is a dentist and 25 are members of the public. Although Blue Cross and Blue Shield are separate corporations, the plans are administered by a single staff of approximately 1200 employees.
At the present time Blue Cross and Blue Shield serve approximately 51% of the Kansas population, a percentage figure well above that of most plans across the country. Both Blue Cross and Blue Shield provide service benefits rather than indemnity benefits. In other words, Blue Cross and Blue Shield enter into contracts with health care providers pursuant to specific statutory authority (K.S.A.1979 Supp. 40-1803 and 40-1903). The contracts require that the providers accept payment from Blue Cross or Blue Shield as full payment for services rendered to subscribers. The providers are prohibited from charging additional fees to subscribers for covered services. Nothing in either enabling act requires hospitals or physicians, generally referred to as providers, to contract with Blue Cross or Blue Shield. Therefore, the contracts must contain terms that are mutually acceptable to both sides. The percentage of participation by Kansas providers is among the highest in the country. Ninety-four percent of Kansas physicians are Blue Shield participants. One hundred percent of Kansas hospitals are Blue Cross participants. The high level of provider participation provides protection to subscribers by giving them assurance as to the predictability of health care expenses; subscribers know that they will not receive bills for covered fees over and above the amount Blue Cross-Blue Shield has paid.
When these two nonprofit corporations were first organized the law governing rates to be charged, L.1941, ch. 259, § 6 and L.1945, ch. 216, § 6, placed no control over rates with the Commissioner. In 1970 the legislature changed this and required that rates be filed with and approved by the Commissioner. L.1970, ch. 182, §§ 1, 2. Nothing was said in this law as to the procedure or guidelines to be followed. As to Blue Cross the statute merely provided: "The rates charged by any such corporation shall be filed with and approved by the insurance department." As to Blue Shield, the law provided: "Subscription charges fixed by any such corporation shall be filed with and approved by the insurance department." Under these prior laws rates were set by the boards of directors of the corporations. Approval by the Commissioner came as a matter of course.
Then L.1972, ch. 185, §§ 1, 2 were passed by the Kansas Legislature and became effective. K.S.A. 40-1806 and 40-1906. In summary these statutes require the corporations to file their rates with the Commissioner. These statutes further provide that any filing shall be approved by the Commissioner "unless he finds that such filing does not meet the requirements of this act or establishes an unreasonable, excessive or unfairly discriminatory rate." In the event the Commissioner disapproves a filing, "he shall specify in what respect he finds such filing does not meet the requirements" of K.S.A. 40-1806 or 40-1906.
Corporations have 30 days from the date of any disapproval to request a hearing. Both statutes provide:
"(c ) Rates shall be reasonable, not excessive and not unfairly discriminatory." K.S.A. 40-1806 and 40-1906.
These sections go on to provide that nothing in either act is intended to prohibit or discourage reasonable competition or discourage or prohibit...
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