Boone County By and Through Butcher v. Blue Cross Hospital Service, Inc. of Missouri, KCD

• Decision Date: 07 July 1975
• Docket Number: No. KCD,KCD
• Parties: BOONE COUNTY, Missouri, By and Through James BUTCHER, et al., Respondents, v. BLUE CROSS HOSPITAL SERVICE, INC., OF MISSOURI, Appellant. 27062.
• Court: Missouri Court of Appeals

Page 853

526 S.W.2d 853

BOONE COUNTY, Missouri, By and Through James BUTCHER, et al., Respondents, v. BLUE CROSS HOSPITAL SERVICE, INC., OF MISSOURI, Appellant.

No. KCD 27062.

Missouri Court of Appeals, Kansas City District.

July 7, 1975.

Motion for Rehearing and/or Transfer Denied Aug. 5, 1975.

Application to Transfer Denied Oct. 13, 1975.

Robert F. Schlafly, Fortis M. Lawder, St. Louis; Keefe, Schlafly, Griesedieck & Ferrell, St. Louis, of counsel, and B. Daniel Simon, Columbia; Welliver & Simon, Columbia, of counsel, for appellant.

Robert C. Smith, Jr., David B. Rogers, Columbia, for respondents; Smith, Lewis & Rogers, Columbia, of counsel.

Before SOMERVILLE, P.J., PRITCHARD, C.J., and SWOFFORD, J.

PRITCHARD, Chief Judge.

The dispute is whether Boone County Hospital (BCH) is entitled to charge nonresidents of Boone County, Missouri, who are members of appellant Blue Cross, a 'surcharge' or 'pre-admission charge' of $5.20 per day in view of a provision in the agreement between BCH and Blue Cross, paragraph 3, that 'Hospital agrees not to charge or collect from any Blue Cross participant any amount whatsoever for any hospital care included in certificates offered by Blue Cross except such payments, if any, as provided in the membership certificates. Hospital may charge directly to patients for hospital care not included in certificates offered by Blue Cross.'

The parties stipulated these pertinent facts: BCH is a public hospital established by Boone County, Missouri (at Columbia) under the provisions of §§ 205.160 to 205.370 and § 205.378, RSMo 1969, V.A.M.S.; it is a general hospital of about 251 beds for patients, with operating rooms and all necessary or required supportive facilities such as X-ray equipment and laboratories; BCH is regularly used by both residents of Boone County as well as persons residing outside of Boone County; Blue Cross is a not-for-profit corporation under Missouri laws, having a corporate board of 204 persons as representatives of the public, hospitals and medical societies. Those persons elect a present 25 member board of trustees who are empowered to manage and direct the affairs of the corporation; Blue Cross, since 1936, has operated a hospital service plan for members who pay dues for benefits, with a total enrollment of members as of April 30, 1972, of 1,250,232, including members of group programs and direct pay members, to whom certificates and membership cards are issued which specify the terms and conditions of membership; Blue Cross solicits members and operates its hospital service plan in 84 counties and the City of St. Louis, and included in Boone County; member hospitals are 112 in number and the form of hospital service contract is uniform for each; BCH has been a member hospital since 1939, and subsequently 7 different contracts were made culminating in the current contract of July 1, 1968, under which Blue Cross pays BCH for standard benefits on a cost reimbursement basis, expressed as a per diem amount or on a basis of BCH's billed charges, whichever is the lesser on an annual basis; ancillary benefits (those other than standard) are paid BCH on the basis of its charges to patients, subject to Blue Cross' variations in different plans; on or about December 30, 1968, BCH's board unanimously passed a resolution effective January 1, 1969: "That the out of county charges be increased to $5.20 per day effective January 1, 1969, and that this charge be reviewed annually"; BCH after January 1, 1969, began to collect the $5.20 per day charge directly from out-of-county Blue Cross member patients; about May 27, 1969, Blue Cross began to withhold from its payments $5.20 per day for each member who was not a resident of Boone County; upon contracting each such member Blue Cross made a refund totalling $85,746.60 in 1,958 cases involving 16,483 hospital days as of January 9, 1973, and Blue Cross has withheld a like amount from payments due BCH under the service contract in order to make the refunds; (it was further stipulated that an additional amount, $19,630.10, was so withheld through August 31, 1973, to make a grand total of $105,334, which with interest added makes the amount of the judgment entered for BCH, $114,726.67).

At trial Mr. James L. Dack, BCH's administrator, testified that BCH has had a constantly increasing percentage of its patients from outside Boone County because of a large number of medical specialists practicing at BCH. The out-of-county patient percentages were these: 1972, 46%; 1971, 42%; 1970, 40%; and 1969, 34%. The census figures of BCH (97% occupancy in 1972) created problems, and it had to reduce pre-scheduled patients to 12 per day, other than emergency patients. At the time of trial, without the patients from outside the county, there would not be any pressure for additional space, but since out-of-county patients are admitted, 100 additional beds are needed. The voters approved a bond issue for 64 beds, and the total bonded indebtedness is $4,430,000, for the present hospital facilities it is $1,240,000. The debt, interest and principal, is paid by a present special real estate tax of 13 cents per $100.00 valuation levied on Boone County real property; and for maintenance, another 20 cents tax is likewise levied for the budgeted $5,855,000 annual maintenance cost (spent to within 1%), of which about 1/3 is used for the care of indigent patients. No out-of-county charge is made to medicare patients because the medicare formula for reimbursement covers that charge. According to Mr. Dack, a nonresident of Boone County would not be getting anything separate or different than a resident for the same illness or condition for the $5.20 extra daily charge. That charge is not additional for room, board and general nursing, '(T)his is a surcharge which has no relationship to any specific services rendered which is a part and parcel of the admission policies of the hospital and stands in the place of the local residents' participation through property taxes.'

In 1972, pre-admission total charges for out-of-county patients was in the range of $150,000. These fees are separately funded and made available for hospital expansion, development of new equipment 'and this type of thing.' No portion is used for maintenance of the hospital.

Mr. Jack Estes, BCH's trustee since 1970, and its board chairman, made investigations concerning the hospital's general admission policy in regard to out-of-county charges and found that they are uniformly applied to all out-of-county patients. These charges are funded for future expansion and improvement of the facilities. No hospital service whatsoever is rendered to an out-of-county patient for the $5.20 a day charge. 'Q As a matter of fact isn't it an additional charge for room, board and general nursing services? A No, it is a condition of his being able to be admitted to the hospital.' According to Mr. Howard B. Lang, Jr., who was BCH's trustee from 1958 to 1970, and its chairman from 1960 to 1970, 30% of admissions to BCH were nonresidents, and the Board thought (and the people thought) that they should bear their proportionate parts of the costs.

Mr. James E. Baker, Blue Cross' vice president in charge of hospital, felt that Article 3 of the agreement controlled the matter of out-of-county charges in its language, 'Hospital agrees not to charge or collect from any Blue Cross participant any amount whatsoever for any hospital care included in certificates offered by Blue Cross * * *.' After much correspondence with BCH prior to January 1, 1969, repeatedly enunciating Blue Cross' position on BCH's right to charge the out-of-county fees, the dispute culminated in Blue Cross' deduction of those fees charged its members (as noticed in its letter to BCH of May 27, 1969) which continued deduction resulted in this suit being filed. During 1965, 1966, 1967 and 1968, no out-of-county charges were imposed on Blue Cross members by BCH.

BCH bases its claim that it is entitled to make an 'out-of-county' charge under the provisions of § 205.270, RSMo 1969, relating to County Hospitals, and providing in part, 'And said board (of hospital trustees) May extend the privileges and use of such hospital to persons residing outside of such county, upon such terms and conditions as said board may from time to time by its rules and regulations prescribe.' (Emphasis and brackets added.) BCH also contends that the out-of-county charge is a part of its general admission policy, permitted by paragraph 1 of the agreement, which it says is an exception to the provisions of paragraph 3, supra. Paragraph 1 of the agreement is: 'Hospital agrees (subject to its general admission policy) to render hospital care in its hospital, as provided in the membership certificates held by, or hereafter offered to, participants, to all Blue Cross participants who apply to the Hospital in the manner specified in the Plan. * * *.' It is also argued by BCH that paragraph 3 does not apply to out-of-county charges because the nonresident is getting nothing more for the $5.20 per day than the Boone County resident, i.e., that the out-of-county charges are not for 'hospital care.'

The dispositive issue is whether BCH, in 1964, adopted Blue Cross' construction of the contract that out-of-county charges are for 'hospital care' so as to bar BCH from making that charge to nonresident Blue Cross members. Certain other matters must first be noticed. BCH claims that the contract is not ambiguous; that judicial construction of it is not therefore necessary; and that absent ambiguity parol evidence (evidence of surrounding facts and circumstances) is not admissible to aid its construction. The provision of paragraph 3 of the contract, supra, is not on its face ambiguous. A latent ambiguity does, however, appear when it is sought to apply the words of the contract that no charges or collections shall be made to Blue Cross members except as provided in their...