Capital Bluecross v. Pa Ins. Dept.

• Decision Date: 14 November 2007
• Docket Number: No. 1238 C.D. 2006.,1238 C.D. 2006.
• 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.
• Court: Pennsylvania Commonwealth Court

937 A.2d 552

CAPITAL BLUECROSS, Capital Advantage Insurance Company, Petitioners v. PENNSYLVANIA INSURANCE DEPARTMENT, Respondent.

Robert B. Sklaroff, M.D., Petitioner v. Insurance Department, Respondent.

No. 1238 C.D. 2006.

Commonwealth Court of Pennsylvania.

Argued April 11, 2007.

Decided November 14, 2007.

Reargument Denied December 28, 2007.

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
                

                        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.

I. Background

A. Statutory Background

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).

B. Proposed...