HCA HEALTH SERVICES v. Metropolitan Life Ins. Co.
| Decision Date | 07 December 1990 |
| Docket Number | Civ. A. No. 90-00285-R. |
| Citation | 752 F. Supp. 202 |
| Parties | HCA HEALTH SERVICES OF VA, INC., a Virginia Corporation, t/a Henrico Doctors Hospital, Richmond Community Hospital, Inc., a Virginia non-stock Corporation, and Richmond Eye and Ear Hospital, a Virginia non-stock Corporation, Plaintiffs, v. METROPOLITAN LIFE INSURANCE CO., a New York Corporation, and Met-Life Healthcare Management Corp., a Delaware Corporation, Defendants. |
| Court | U.S. District Court — Eastern District of Virginia |
Gregory Joseph Haley, William Raymond Rakes, Gentry, Locke, Rakes & Moore, Roanoke, Va., for plaintiffs.
Laura Graham Fox, John Bowers McCammon, Wright, Robinson, McCammon, Osthimer & Tatum, Richmond, Va., for defendants.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
Plaintiffs, who are institutional health care providers in the Richmond area, have sued for declaratory and injunctive relief. Plaintiffs contend that their exclusion from participation in Metropolitan's preferred provider organization violates Virginia Code § 38.2-3407. Specifically, they claim that the defendants violated the statutory provision by failing to establish nondiscriminatory terms and conditions for the qualification of the Hospitals as preferred providers and refusing to negotiate with the Hospitals regarding their inclusion in Met-Elect on nondiscriminatory terms and conditions. Plaintiffs ask the Court to enjoin the Defendants from implementing and operating Met-Elect or any other preferred provider subscription program in the Richmond area until they establish and offer reasonable, nondiscriminatory terms and conditions for qualification as preferred providers.
This case came before the Court for a bench trial on the merits on November 29, 1990. As detailed below, the Court finds that the selection procedures implemented and employed by Metropolitan in establishing its PPO do not unreasonably discriminate against or among preferred providers. To the contrary, they reflect sound business determinations about the type and number of health care providers to include in a limited network designed to reduce the astronomical costs of health care for its customers' employees. Pursuant to Rule 52(b) of the Federal Rules of Civil Procedure, the Court makes the following findings of fact and conclusions of law. The parties' stipulations are incorporated by reference.
1. Plaintiff HCA Health Services of Virginia, Inc., a wholly owned subsidiary of Hospital Corporation of America, operates Henrico Doctors' Hospital. At the time of Metropolitan's PPO negotiations, plaintiffs Richmond Community Hospital, Inc. and Richmond Eye and Ear Hospital were managed by a subsidiary of HCA. Stipulations 6, 7, 8.
2. Defendant MetLife Healthcare Management Corp., a subsidiary stock corporation of Metropolitan Life Insurance Company, owns and operates Met-Elect, the Preferred Provider Organization that is the subject of this lawsuit. The defendants will be collectively referred to as "Metropolitan". Stipulations 10, 11, 13.
3. A Preferred Provider Organization (PPO) is a health care system that operates by inducing institutional and other providers to provide services at reduced cost in exchange for membership in a limited provider network. Membership in such a network results in increased patient volume, stimulated in turn by the provision of lower-cost services for plan participants at the institutions that constitute the network of preferred providers. Stipulation 12.
4. The exclusion of some providers is a necessary prerequisite of a limited provider network. It is by limiting the number and types of providers included in a PPO that an insurer is able to implement cost reductions in services for health beneficiaries.
5. The establishment of PPO's has helped to stem the tide of steadily increasing health care costs in this country.
6. In March, 1988 Metropolitan conducted a feasibility study to determine whether the Richmond area would be a suitable environment for the establishment of Met-Elect. Trial Exhibit 1; Stipulation 21.
7. During the summer of 1988, Metropolitan initiated the development of a hospital provider network to support Met-Elect in Richmond. Program Manager Laura Ostroff was primarily responsible for this effort. Stipulation 23.
8. Met-Elect's major prospective customers in Richmond were Reynolds Metals Company and Sovran Financial Corporation. Stipulation 24.
9. Initially, Metropolitan reviewed the Richmond area and identified four "Service Areas": 1) Fan/Downtown/East End, 2) Northside, 3) West End, and 4) Southside. A Service area is a discrete geographic area in which one or more general acute care hospitals are located which are reasonably accessible to residents of that area. Generally, two or more hospitals compete for the same patient population within that area. Trial Exhibit 3; Stipulations 14, 15, 16, 31.
10. Metropolitan customarily limits its network to one provider per service area. Stipulation 17.
11. Metropolitan anticipates that a hospital will increase its market share if it is selected as the only provider in the service area for participation in Met-Elect. The opportunity to increase its market share provides a hospital with an incentive to discount its services. Stipulation 18.
12. Metropolitan then instituted a two-phased selection process to determine which hospitals to include in its limited network. Both phases involved a comparative evaluation of hospitals by "Service Area" according to Metropolitan's "Selection Criteria". Stipulation 26.
13. Metropolitan's Selection Criteria are: geographic location relative to the prospective employee population; range of services; cost efficiency; historical utilization; willingness to comply with medical management and utilization review; anticipated level of medical staff's interest in the PPO; strength of staff; and price. Accreditation is an absolute criterion. Stipulation 27.
14. Phase One, also known as "short listing", consisted of a comparative evaluation of Richmond hospitals on the bases of geographic convenience, range of services, cost-efficiency, and historic utilization. Specifically, the compilation of a short list involved the following steps: a) identifying all accredited hospitals in the targeted geographic area that provide general acute care services; b) identifying the service area of each hospital; c) identifying the number of individuals covered by Metropolitan that were admitted to each hospital the previous year and the total benefits paid for patients; d) calculating each hospital's cost-efficiency based on a case mix adjusted analysis of the cost of care for inpatients covered by Metropolitan at each hospital; e) identifying the number of patients admitted to each hospital who were covered by Metropolitan or were employees of prospective customers Reynolds Metals and Sovran. Trial Exhibits 2, 3; Stipulations 29, 30 15. Short-listing does not require interaction with the hospitals; it is accomplished by analyzing available data. Trial Exhibits 2, 3; Stipulation 37.
16. Phase One of Metropolitan's selection process resulted in the following list of Richmond hospitals that were eligible for further consideration:
MCV (Service Area 1)
Retreat Hospital (Service Area 1)
Richmond Memorial Hospital (Service Area 2)
Henrico Doctors' Hospital (Service Area 3)
St. Mary's Hospital (Service Area 3)
Chippenham Hospital (Service Area 4)
Johnston-Willis Hospital (Service Area 4)
Trial Exhibit 3; Stipulation 35.
17. With the exception of Service Area 2, each service area was represented on the short list by two hospitals. Trial Exhibit 3; Stipulation 35. Although the Medical College of Virginia serves the residents of Service Area 1, it was also regarded as a region-wide facility because of its reputation as a teaching hospital and because it provides tertiary care for most services. Stipulation 35.
18. Metropolitan derived the following cost efficiency factors for each hospital on the short list through a case-mix analysis of claims data:
MCV 1.00 (Service Area 1)
Retreat Hospital .86 (Service Area 1)
Richmond Memorial Hospital .90 (Service Area 2)
Henrico Doctors' Hospital 1.13 (Service Area 3)
St. Mary's Hospital .93 (Service Area 3)
Chippenham Hospital .83 (Service Area 4)
Johnston-Willis Hospital 1.13 (Service Area 4)
The average cost efficiency factor is 1.0. According to Metropolitan's methodology, the higher the cost-efficiency factor, the less cost-efficient the hospital. Trial Exhibit 2, 3; Stipulation 36.
19. The plaintiff Richmond Eye and Ear Hospital was excluded from the short list because it did not provide the required range of services. Richmond Eye and Ear is a specialty hospital rather than a general acute care hospital. Stipulation 33.
20. The plaintiff Richmond Community Hospital was excluded from the short list because it failed to satisfy the historical utilization criterion. The Hospital has, in the past, admitted an insufficient number of patients covered by Metropolitan or employed by Reynolds and Sovran. Stipulation 34.
21. Phase Two of Metropolitan's selection process consisted of price negotiations with individual hospitals on the short list. In August of 1988, Metropolitan extended written invitations to each of the eligible hospitals to negotiate on the basis of price for participation in the network. The letters explained the structure and purpose of Met-Elect and described its selection criteria. Trial Exhibit 5; Stipulation 40.
22. Metropolitan held preliminary negotiation meetings with each of the seven hospitals in September, 1988. Program Manager Laura Ostroff served as the Metropolitan negotiator at most of these meetings. The meetings were conducted in accordance with a...
To continue reading
Request your trial
-
HCA Health Services of Virginia v. Metropolitan Life Ins. Co.
...customers in Richmond, Virginia did not violate a portion of Virginia's Insurance Code regulating insurance company-established PPO's. 752 F.Supp. 202. The Hospitals, three hospitals excluded from the PPO, appealed that ruling, alleging that Metropolitan's actions violated the statute. Metr......
-
Stuart Circle Hosp. Corp. v. Aetna Health Mgt.
...of providers included in a PPO that an insurer is able to implement cost reductions in services for health beneficiaries." 752 F.Supp. 202, 204 (E.D.Va.1990). 5 In Metropolitan Life, the Supreme Court recognized that the ERISA savings clause and the McCarran-Ferguson Act "serve the same fed......
-
Dominion Pathology Labs., P.C. v. Anthem Health Plans of Va., Inc.
...policy to which Dominion refers is that favoring non-discrimination in provider networks. In support of its argument, Dominion relies on HCA Health Servs. v. Aetna Life Ins. Co., in which the Eastern District of Virginia held that the insurance provider "violated the Virginia Preferred Prov......
-
Richter v. Capp Care, Inc.
...for payment as a preferred provider...." Va.Code § 38.2-3407B. The Fourth Circuit held in HCA Health Services of VA, Inc. v. Metropolitan Life Insurance Co., 752 F.Supp. 202, 207 (E.D.Va.1990), that under the terms of the statute an insurer has considerable latitude in determining the manne......