Doe v. Devine

• Decision Date: 05 May 1982
• Docket Number: Civ. A. No. 81-2878,81-2927.
• Parties: John and Joan DOE, et al., and Richard Roe, et al., Plaintiffs, v. Donald J. DEVINE, Director, Office of Personnel Management, et al., Defendants, and Blue Cross Association and Blue Shield Association and Aetna Life Insurance Company, Defendants-Intervenors.
• Court: U.S. District Court — District of Columbia

545 F. Supp. 576

John and Joan DOE, et al., and Richard Roe, et al., Plaintiffs, v. Donald J. DEVINE, Director, Office of Personnel Management, et al., Defendants, and Blue Cross Association and Blue Shield Association and Aetna Life Insurance Company, Defendants-Intervenors.

Civ. A. Nos. 81-2878, 81-2927.

United States District Court, District of Columbia.

May 5, 1982.

Joseph Onek, Joel I. Klein, Peter E. Scheer, Onek, Klein & Farr, Martin J. Gaynes, Bonner, Thompson, O'Connell, Gaynes & Middlekauff, Washington, D. C., for Doe.

Margaret F. Ewing, Donald N. Bersoff, Ennis, Friedman, Bersoff & Ewing, Washington, D. C., for Roe.

Asst. U. S. Atty. R. Craig Lawrence, Civ. Div., Washington, D. C., for Federal defendants.

Philip S. Neal, Washington, D. C., for Blue Cross/Blue Shield.

Leonard W. Belter, Washington, D. C., for Aetna.

MEMORANDUM OPINION

FLANNERY, District Judge.

These consolidated cases come before the court on cross-motions for summary judgment. Defendants seek summary judgment on the grounds that the Office of Personnel Management (OPM) has, pursuant to the Court of Appeals' mandate, furnished a complete, reasonable explanation for its decision to accept mental health benefit cutbacks in the Blue Cross/Blue Shield (BC) federal health insurance plan. This explanation, according to defendants, lays to rest any contention that OPM's decision was arbitrary or capricious. Plaintiffs seek summary judgment on the grounds that the affidavit furnished by OPM is legally deficient in several critical respects. In the alternative, plaintiffs contend that defendants' summary judgment motions cannot be granted because there are genuine issues of material fact with respect to certain claims proffered by plaintiffs.

I. Background

OPM has negotiated a contract for the provision of government-wide health insurance benefits with BC, pursuant to the provisions of the Federal Employees Health Benefit Act (FEHBA), 5 U.S.C. §§ 8901 et seq. (1976 & Supp. III 1979). The contract announced reduces both inpatient and outpatient mental health benefits below 1981 levels and below the benefit levels provided for physical illness. The high option plan reduces mental health outpatient payments from 70% of an unlimited number of visits to 70% of an annual total of 50 visits with a lifetime maximum of $50,000. The agreed to high option plan also reduces inpatient hospitalization benefits for mental illness from 365 days per year to 60 days per year. For physical illness, outpatient visits were similarly reduced. Payment will be made for 80% of charges for a maximum of 50 visits. Coverage for inpatient hospitalization for physical illness will extend for unlimited days.

Plaintiffs' motions for preliminary injunction, denied by this court on December 2, 1981, challenged the mental health benefit cuts in the BC plan on four independent bases: (1) as violative of the equal protection component of the Due Process Clause of the Fifth Amendment; (2) as violative of section 504 of the Rehabilitation Act, 29 U.S.C. § 794 (1978); (3) as contrary to section 8904 of the Federal Employees Health Benefit Act, 5 U.S.C. § 8904; and (4) as arbitrary and capricious and an abuse of discretion within the meaning of section 706(2)(A) of the Administrative Procedure Act, 5 U.S.C. § 706(2)(A) (1976). The Court of Appeals, in affirming the denial of preliminary injunctive relief, agreed with this court that there was little likelihood that plaintiffs would succeed on the merits of their Rehabilitation Act and substantive FEHBA claims. Doe, Roe v. Devine, Nos. 81-2378, 81-2400, slip op. at 2 (D.C.Cir. Feb. 23, 1982).¹

The Court of Appeals was "less confident" about plaintiffs' claim that OPM acted arbitrarily or capriciously by approving the cutbacks at issue. Id., slip op. at 2, 4. The Court expressed concern that the agency had not provided a particularized explanation of its decision-making process, focusing upon how the cutbacks in mental health benefits could be harmonized with the policies embodied in section 8904. Id., slip op. at 4. The Court indicated that such a "reasoned explanation" should explicate why OPM accepted "the particular package of benefits proposed by Blue Cross/Blue Shield rather than requiring a package of benefits with the same overall financial cost but with less serious consequences on one category of `catastrophic' coverage." Id., slip op. at 4. The Court recognized that OPM's September 11, 1981, Preliminary Analysis was too "unfocused" and ambiguous to provide a concrete foundation for judicial review of OPM's decision-making process. Accordingly, the Court concluded that it would be essential for OPM, "if it wishes to prevail on the merits" to provide a "more adequate explanation for its decisions." Id., slip op. at 5.

OPM provided that explanation on March 5, 1982, in the form of an affidavit by Kevin J. Burns, Assistant Director for Insurance Programs at OPM. Mr. Burns' affidavit indicates that a number of factors motivated OPM's decision to accept the levels of mental health benefits proposed by BC. First, OPM found it "significant" that the "vast majority" of persons using mental health benefits would require less coverage than that provided for by BC, and therefore, the BC proposal would achieve the FEHBA policy of insuring against catastrophic illness. Burns Aff. at ¶ 10. Second, Mr. Burns indicates that OPM was concerned with the high cost of mental health benefits relative to the cost of other types of services; such costly coverage was seen as conflicting with OPM's statutory goal of attaining the maximum health benefits at the lowest possible cost to federal employees. Id., at ¶ 11. Third, and related to the preceding rationale, OPM felt that the disparity in payments made and benefits received by mental health users amounted to a partial subsidy by physical benefit users of mental benefit users. Id., at ¶ 13. The level of mental health benefits suggested by BC would render premiums paid for those benefits roughly equal to claims paid for them, and, therefore, would bring physical and mental benefit users into rough parity. Id.

Fourth, OPM found it material that, according to representations made by BC and independently corroborated by OPM staff, the levels of benefits proposed by BC were generally superior to those offered by private sector employers. Id., at ¶ 11. Finally, OPM was "well aware" of BC's concerns that unlimited coverage for mental illness caused adverse selection, and agreed on a 1982 contract that could "avoid, to the extent possible, the loss of subscribers who are good risks." Id. at ¶ 15.

Defendants' motions contend that the only challenge of any force to the mental health benefit reductions, that OPM abused its discretion, has been completely devitalized by the Burns affidavit. In the precise format envisioned by the Court of Appeals, OPM has explained the reasoning process which underlay its decision to accept the mental benefit levels at issue. Since that reasoning process was fully consistent with the policy goals embodied in the FEHBA, including those specific to section 8904, this court has no choice but to uphold the legality of the cutbacks.

Plaintiffs' motions also focus upon whether OPM was arbitrary or capricious but plaintiffs vigorously dispute defendants' characterization of the Burns affidavit. Plaintiffs and amicus curiae American Federation of Government Employees² contemplated more than a conclusory statement of justifications for OPM's decision. Rather, the Court instructed OPM to provide a highly specific description of the alternatives OPM considered before singling out mental health benefits as the only element of catastrophic coverage to be significantly devalued. Since the Burns affidavit was deficient in this and other respects, OPM has failed to demonstrate its decision was rationally based; plaintiffs are, therefore, presently entitled to judgment.

In the alternative, plaintiffs maintain that there are genuine issues of material fact precluding the court from granting defendants' motions for summary judgment. The Burns affidavit is based upon numerous factual assumptions which are contradicted by plaintiffs or will be if discovery is permitted to proceed.

Finally, while plaintiffs do not seek judgment with respect to certain other claims in their complaints, they argue that judgment for defendants as to these claims would be premature. Specifically, plaintiffs maintain that discovery with regard to OPM's intent in accepting the cutbacks is crucial to a resolution of plaintiffs' Rehabilitation Act and equal protection claims.³

II. Discussion

A. Section 706(2)(A) of the Administrative Procedure Act

In the wake of the Court of Appeals' decision rejecting plaintiffs' request for preliminary relief, the principal substantive question before this court is whether OPM was arbitrary or capricious, or abused its discretion, in agreeing to the mental health benefit reductions proposed by BC. More precisely stated, the issue is whether OPM has, in a manner consistent with the Court of Appeals' directives and prevailing legal principles, demonstrated that the level of mental health benefits in the 1982 BC plan was reasonably based upon policy considerations permeating the FEHBA.

OPM's decision to accept the benefit reductions in controversy is undoubtedly subject to review for whether it was arbitrary or capricious or constituted an abuse of discretion. See National Treasury Employees Union (NTEU) v. Campbell, 589 F.2d 669 (D.C.Cir.1978); American Federation of Government Employees (AFGE) v. Devine, 525 F.Supp. 250, 252 (D.D.C.1981). No "statutes preclude judicial review," and, since there is law to apply under sections 8902 and 8904 of the FEHBA, OPM's action is not "wholly committed to agency discretion. ..." 5 U.S.C. § 701(a).

In order to determine whether an agency has acted in an arbitrary or capricious fashion, a reviewing court must consider...