Group Health Inc. v. Blue Cross Ass'n, s. 703

• Decision Date: 20 June 1986
• Docket Number: Nos. 703,D,704,s. 703
• Citation: 793 F.2d 491
• Parties: GROUP HEALTH INCORPORATED, Plaintiff-Appellee, v. BLUE CROSS ASSOCIATION and Blue Shield of Greater New York, Defendants-Appellants, United States Department of Health and Human Services, Intervenor-Defendant-Appellant. ockets 85-6314, 85-6324.
• Court: U.S. Court of Appeals — Second Circuit

Page 491

793 F.2d 491

6 Fed.R.Serv.3d 77

GROUP HEALTH INCORPORATED, Plaintiff-Appellee, v. BLUE CROSS ASSOCIATION and Blue Shield of Greater New York,

Defendants-Appellants,

United States Department of Health and Human Services,

Intervenor-Defendant-Appellant.

Nos. 703, 704, Dockets 85-6314, 85-6324.

United States Court of Appeals, Second Circuit.

Argued Feb. 3, 1986.

Decided June 20, 1986.

Susan E. Harkins, Asst. U.S. Atty., for S.D.N.Y., New York City (Rudolph W. Giuliani, U.S. Atty., Jane E. Booth, Asst. U.S. Atty., New York City, of counsel), for intervenor-defendant-appellant.

Robert A. Bicks, New York City (Alan C. Drewsen, David H. Kagan, Breed, Abbott & Morgan, New York City, of counsel), for defendants-appellants.

John M. O'Connor, New York City (Mark Weldon, DeForest & Duer, New York City, of counsel), for plaintiff-appellee.

Before FEINBERG, Chief Judge, and VanGRAAFEILAND and CARDAMONE, Circuit Judges.

CARDAMONE, Circuit Judge:

This appeal concerns the relationship between a provider of insurance for medical and health services under Medicare and the fiscal intermediaries through which this provider elected to receive reimbursement from the federal government. One issue is whether or not the fiscal intermediaries were government agents acting within the scope of their authority. The government urges us to find that these intermediaries acted as government agents and are therefore entitled to absolute official immunity. Lurking in the background of this appeal are collateral questions regarding the viability of a Federal Torts Claims Act (FTCA) action begun by the provider in which it seeks to hold the government liable for the actions of the fiscal intermediaries, as government agents. Yet, in the FTCA suit, the government claims, interestingly enough, that the intermediaries are not its agents. Burrowing to the root of this tangle, it becomes clear that these contradictory claims are interrelated. Moreover, in their present posture the cases are too inchoate and tentative for us to undertake appellate jurisdiction.

Blue Cross Association (Association), Blue Cross/Blue Shield of Greater New

York (Blue Cross), and the United States Department of Health and Human Services (HHS) appeal from an August 12, 1985 decision and order of the United States District Court for the Southern District of New York (Leisure, J.) denying their motion for summary judgment, 69 F.Supp. 625. The Association, Blue Cross and HHS (collectively, the defendants) argue that they are entitled to an immediate appeal from the denial of their claim of absolute immunity pursuant to the collateral order doctrine, Cohen v. Beneficial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949), and that this Court has pendent appellate jurisdiction to review the other arguments advanced on appeal. For reasons to be discussed shortly, we do not believe the decision appealed from falls within that small class of cases encompassed by the collateral order doctrine and therefore dismiss this appeal.

I. FACTUAL BACKGROUND

A. Proceedings

Group Health Incorporated (GHI) seeks damages from the Association and Blue Cross on causes of action sounding in negligence, misrepresentation and breach of the warranty of authority. GHI alleges it suffered a monetary loss as a result of Blue Cross' disallowance of Medicare reimbursement for interest incurred by Hillcrest General Hospital (Hillcrest), a private hospital which GHI owned from 1974-1980.

GHI commenced the instant action in New York State Supreme Court, New York County. After the Association and Blue Cross removed the action to the Southern District pursuant to 28 U.S.C. Sec. 1442(a)(1) (1982), GHI moved to remand the case to state court. HHS then filed a motion to intervene as a defendant in the action. On June 13, 1984 the district court (Sweet, J.) denied GHI's motion to remand finding that Blue Cross' actions in denying the reimbursement for interest were taken under color of governmental authority. Group Health Inc. v. Blue Cross Ass'n, 587 F.Supp. 887, 889-91 (S.D.N.Y.1984). Since Blue Cross acted as a fiscal intermediary on HHS' behalf, GHI's claim could be removed to federal court. It also granted HHS' motion for permissive intervention under Fed.R.Civ.P. 24(b)(2) and consolidated plaintiff GHI's separate proceeding against the United States. Id. at 891-93. In that action GHI alleges that the United States is liable under the FTCA for the negligent and wrongful acts of Blue Cross, the Association and HHS.

Following limited discovery, defendants moved on November 5, 1984 for summary judgment. Judge Leisure denied the motion and defendants appealed. GHI has moved to dismiss this appeal for lack of appellate jurisdiction.

B. The Parties

GHI is a not-for-profit health service corporation organized and operating pursuant to Article 43 of the New York Insurance Law, N.Y.Ins.L. Secs. 4301 et seq. (McKinney 1985). Blue Cross also is a not-for-profit corporation organized under the New York Insurance Law providing health insurance coverage to subscribers in the greater New York area. The Association is incorporated under the Illinois General Not-For-Profit Corporation Act and has a membership that includes Blue Cross as well as 67 other Blue Cross Plans operating throughout the country.

The Medicare program is a federally funded health insurance program for the aged and the disabled. 42 U.S.C. Secs. 1395 et seq. (1982). It consists of two parts--A and B. Part A provides insurance coverage for hospital, related post-hospital, home health and hospice care. 42 U.S.C. Sec. 1395c. The cost of providing Part A services is principally assumed by the Federal Hospital Insurance Trust Fund, which is funded by Social Security taxes. 42 U.S.C. Sec. 1395i. Part A benefits may only be paid to providers of Medicare services. 42 U.S.C. Sec. 1395f(a). Providers participating in Part A are prohibited from charging eligible patients for services covered by Medicare. 42 U.S.C. Sec. 1395cc(a)(1)(A). Part B is an optional supplementary insurance program that covers payment of medical and health services not covered under Part A, for example, physicians' services. It is financed by payments from enrollees as well as funds provided by the federal government. 42 U.S.C. Sec. 1395j.

GHI functioned as a carrier under Part B of the Medicare program and Hillcrest was a provider of Medicare services. Under 42 U.S.C. Sec. 1395h(a) providers of inpatient services must choose to be reimbursed either by HHS or by a fiscal intermediary, a private organization under contract with HHS to serve as a conduit for reimbursement. The fiscal intermediary determines the amount of reimbursement due the provider and makes the reimbursement. It also resolves disputes concerning reimbursement decisions, 42 C.F.R. Secs. 421.100(e) & (f) (1985), and "serve[s] as a center for, and communicate[s] to providers, any information or instructions furnished to it by the Secretary, and serve[s] as a channel of communication from providers to the Secretary...." 42 U.S.C. Sec. 1395h(a). HHS may review the fiscal intermediaries' initial reimbursement determinations. See 42 C.F.R. Sec. 405.1885(b) (1985).

In this case the Association and Blue Cross served as fiscal intermediaries under Part A. With HHS' approval, the Association entered into a subcontract with Blue Cross, under the terms of which the Association delegated some of its assignments to Blue Cross. Pursuant to this subcontract and to Hillcrest's election, Blue Cross acted as Hillcrest's fiscal intermediary. The subject matter of this appeal involves reimbursement of Hillcrest under Part A during the six years it was owned by GHI.

C. The Events

In January 1973 GHI began exploring the possibility of acquiring a private hospital. GHI proposed to use its subscriber funds to acquire Hillcrest, and to accomplish this it was necessary to obtain the New York State Insurance Department's (Insurance Department) approval. In a letter dated June 22, 1973 GHI formally requested approval of the Insurance Department. On September 5, 1973 representatives of GHI and Blue Cross met to discuss the plans then underway to purchase Hillcrest. The following January GHI submitted to the Insurance Department an amended application to purchase Hillcrest which was approved on February 15, 1974.

Before GHI purchased Hillcrest, it requested Blue Cross' advice as to whether an interest return on the mortgage funds used to make the purchase would be included in the calculation of Hillcrest's Medicare and Blue Cross reimbursement rates. In a telephone conference on February 4, 1974, Mr. Ingram of Blue Cross informed Dr. Yaegar of GHI that "the Blue Cross Board of Directors did approve the interest return on investment." Blue Cross did not consult the Secretary or the Association at any time prior to ruling that this interest would be reimbursable for Medicaid purposes. On February 28, 1974 GHI purchased Hillcrest.

In a letter dated March 26, 1974 from William F. McMann, Assistant Commissioner of the New York State Health Department, the Department rejected the proposed change in Blue Cross reimbursement because under Health Department Regulations, only proprietary organizations, and not Article 43 not-for-profit corporations, were entitled to a return on equity. The Department did conclude that, were GHI to make a loan from restricted funds to Hillcrest, interest paid on such loans would be a reimbursable cost. GHI informed Blue Cross by letter dated May 21, 1974 that it would give a $6 million mortgage to Hillcrest payable over 30 years at a nine percent rate to be repaid through constant monthly payments, with a standard annual repayment of $579,600. Blue Cross confirmed in a letter dated June 11, 1974, that these terms were acceptable for Medicare and Blue Cross reimbursement and that the interest on the loan, if paid according to schedule, would be included in calculating Blue Cross and...