Capital Bluecross v. Pa Ins. Dept., 1238 C.D. 2006.
| Court | Commonwealth Court of Pennsylvania |
| Writing for the Court | Simpson |
| Citation | 937 A.2d 552 |
| Parties | CAPITAL BLUECROSS, Capital Advantage Insurance Company, Petitioners v. PENNSYLVANIA INSURANCE DEPARTMENT, Respondent. Robert B. Sklaroff, M.D., Petitioner v. Insurance Department, Respondent. |
| Docket Number | No. 1238 C.D. 2006.,1238 C.D. 2006. |
| Decision Date | 14 November 2007 |
v.
PENNSYLVANIA INSURANCE DEPARTMENT, Respondent.
Robert B. Sklaroff, M.D., Petitioner
v.
Insurance Department, Respondent.
[937 A.2d 557]
Timothy W. Callahan, II, Philadelphia, for petitioners.
Amy G. Daubert, Harrisburg, for respondent.
Jack M. Stover, Harrisburg, for intervenor, Highmark Inc.
Tyler E. Wren, Philadelphia, for intervenor, Robert B. Sklaroff, MD.
BEFORE: LEADBETTER, President Judge, and McGINLEY, SMITHRIBNER, PELLEGRINI, FRIEDMAN and SIMPSON, JJ.
Table of Contents
I. Background 559
A. Statutory Background 559
B. Proposed Consolidation 559
C. 1996 Approval Order 560
1. Extent of Authority: Subsidiaries and Consolidation 560
2. Competition 560
3. Bylaws 561
4. Certificates of Authority 561
D. First Appeal: Kaiser 561
II. Post-Approval Adjudicatory Hearing 561
A. Notice 561
B. Petitions to Intervene 562
C. Parties 562
D. Hearing 562
E. 2006 Koken Order 563
1. Subsidiaries/Competition 563
2. Bylaws 563
3. Certificates of Authority 563
III. Collateral Action 563
IV. Dr. Sklaroff's Appeal 564
A. Application to Quash 566
1. Standing Requirements 566
2. Zone of Interests Analysis Inapplicable 567
3. Substantial, Direct and Immediate Interest 567
B. Jurisdiction over Highmark Consolidation 568
1. Contentions 568
[937 A.2d 558]
2. Nonprofit Law 569
3. Blue Plans Excluded From Department's Review of
Corporate Transactions of Licensed Insurers 569
4. GAA Amendments 570
5. Insurance Holding Companies Act 570
6. Other Arguments 571
C. Dual Certification 572
1. Contentions 572
2. Nonprofit Law 572
3. Blue Plans Act 573
a. Consolidation 573
b. Certificates of Authority 573
D. Highmark's Operation under Certificates Issued to Others 574
1. Contentions 574
2. Property Rights 575
3. Passing of Property Rights to Highmark 575
4. Operation under Existing Certificates 575
E. Highmark Bylaws 576
1. Contentions 576
2. Blue Plans Act 576
3. Discussion 577
F. Competitive Analysis for Subsidiaries 578
1. Contentions 578
2. Insurance Holding Companies Act 579
3. Discussion 579
G. Other Challenges to 2006 Koken Order 580
H. Errors by Hearing Officer 580
1. July 5, 2000 Order: Anti-Competitive Effect 581
2. July 5, 2000 Order: Burden of Proof 581
3. November 2, 2001 and March 25, 2002 Discovery Orders 582
4. November 27, 2002 Order: Social Mission 582
5. November 27, 2002 Order: "Already Affiliated Person" 583
a. Background 583
b. Definitions 583
c. Contentions 584
d. Discussion 584
6. Hearing: Refusal of Continuance 584
7. Hearing: Preclusion of Testimony by Dr. Sklaroff 585
a. Contentions 585
b. Discussion 586
8. Hearing: Limits on Use of Notes, Optimization of Testimony 586
9. Hearing: Hearing Officer Bias 587
I. Other Issues 587
V. Capital's Appeal 587
A. Pre-Argument Order 588
B. 2 Pa.C.S. § 702 588
C. Case Law: Non-Participation at Agency Level 588
D. Case Law: Competitor Standing 589
E. Discussion 591
1. Petitions to Intervene 591
2. Contentions 592
3. Analysis: Proof of Harm 593
4. Analysis: Statutory Basis for Standing 593
a. Blue Plans Act 593
b. Insurance Holding Companies Act 593
F. Conclusion 594
OPINION BY Judge SIMPSON.
These most recent administrative agency appeals involving the consolidation of two "blue plans" are the culmination of 12 years of litigation. Most at issue are orders issued by two Insurance Commissioners essentially permitting the 1996 consolidation to the extent reviewable under the Insurance Department's jurisdiction. Numerous
evidentiary and procedural rulings by a hearing examiner are also contested.
In his appeal, Robert B. Sklaroff, M.D. (Dr. Sklaroff), who ostensibly represents himself in written argument but who was represented by counsel at oral argument, petitions for review of a 2006 final order of former Insurance Commissioner M. Diane Koken (2006 Koken Order) that dismissed his challenge to former Commissioner Linda S. Kaiser's November 1996 decision and order (1996 Approval Order) approving Highmark Inc.'s (Highmark) proposed bylaws and authorizing the change of control of six domestic insurance company subsidiaries (Subsidiaries).
In their appeal, Capital BlueCross and Capital Advantage Insurance Company (collectively, Capital), which did not participate in the administrative proceedings, petition for review of the 2006 Koken Order.
Highmark is the consolidated corporate successor of the former Blue Cross of Western Pennsylvania (Western Blue Cross) and former Pennsylvania Blue Shield (Blue Shield). Highmark intervened in the appeals, and it seeks to quash both appeals.
For the reasons that follow, we deny Highmark's application to quash Dr. Sklaroff's appeal, but we affirm the 2006 Koken Order on its merits. Because Capital did not seek to participate in the adjudicatory hearing before Commissioner Koken, it waived its opportunity to establish the requisite standing. Therefore, we quash Capital's appeal.
Several statutes are relevant to these appeals. First is the Nonprofit Corporation Law of 1988, 15 Pa.C.S. §§ 5101-5997 (Nonprofit Law), which governs domestic not-for-profit corporations, and assigns administration to the Department of State.
Next is the Health Plan Corporations Act (Blue Plans Act), 40 Pa.C.S. §§ 6101-27, 6301-35, which authorizes the certification and operation of both nonprofit hospital plans (Blue Cross plans) and nonprofit professional health services plans (Blue Shield plans). Among other things, the Blue Plans Act addresses bylaws and the structure of boards of directors of professional health service corporations and general medical service corporations operating Blue Shield plans. Some administration is assigned to the Department of Insurance, and some regulation is assigned to the Department of Health.
Also relevant is the Insurance Holding Companies Act1, which generally addresses change of ownership interests of domestic insurers. Significantly, the definition of "Insurer" in Section 1401 of the Insurance Holding Companies Act, 40 P.S. § 991.1401, excludes nonprofit medical and hospital service organizations. Administration resides with the Department of Insurance (Department).
Prior to their consolidation, Western Blue Cross and Blue Shield, organized under the Nonprofit Law, operated as separate nonprofit health plan corporations or "blue plans" as authorized by the Blue Plans Act. Western Blue Cross operated a nonprofit hospital plan. Its plan provided hospitalization coverage in 29 western Pennsylvania counties. Blue Shield operated a nonprofit professional health services plan. Blue Shield's health services
plan provided general medical, dental and optometric coverage statewide.
In 1995, Western Blue Cross and Blue Shield decided to consolidate into a single new corporate entity, "New Blue Cross/ Blue Shield," later renamed Highmark. To that end, they submitted a proposed consolidation plan to the Department for approval. The consolidation plan included Highmark's proposed bylaws. A question arose as to which statutes governed different aspects of the consolidation.
The proposed consolidation also resulted in Highmark's acquisition of control of all or part of Subsidiaries. Pursuant to the Insurance Holding Companies Act, the Department must approve a proposed change in control of domestic insurers.2
In March 1996, Western Blue Cross and Blue Shield submitted two Form A filings3 seeking approval for a change in control of Subsidiaries. Thereafter, Commissioner Kaiser held a pre-approval "public informational hearing" on the proposed consolidation.4 In addition, the Commissioner received written comments from individuals and organizations supporting and opposing the consolidation. At the pre-approval hearing, representatives from Western Blue Cross and Blue Shield spoke regarding the consolidation and change in control of Subsidiaries. The Commissioner then held the record open for additional written comments.
Ultimately, Commissioner Kaiser approved the Form A filings, thereby approving the change in control of Subsidiaries. However, because the Insurance Holding Companies Act excludes "blue plans" from the definition of insurers regulated by that Act, Commissioner Kaiser determined she lacked subject matter jurisdiction under that Act over the consolidation of Western Blue Cross and Blue Shield. She determined the consolidation was instead controlled by the Nonprofit Law, administered by the Department of State.
This was a central decision which was confirmed multiple times throughout these proceedings. Several issues in the current appeal are based on this decision.
Consistent with her decision regarding lack of authority over the consolidation, Commissioner Kaiser determined the competitive standards in Section 1403(d) of the Insurance Holding Companies Act do not apply to the Highmark consolidation.
Even assuming they did, the consolidation met those standards.
Also, she determined the Highmark consolidation fulfills the charitable and benevolent purposes of Western Blue Cross and Blue Shield. Highmark, successor to those companies, remains bound by the same Blue Plans Act requirements.
Commissioner Kaiser approved Highmark's bylaws. The Commissioner determined the proposed bylaws complied with the Blue Plans Act provisions regulating a general medical service corporation's board of directors. See 40 Pa.C.S. § 6328(b).
Additionally, Commissioner Kaiser made the following determinations. First, Highmark, operating as both a hospital plan and health services plan,...
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