McConocha v. Blue Cross and Blue Shield of Ohio

• Citation: 898 F. Supp. 545
• Decision Date: 29 August 1995
• Docket Number: No. 3:93CV7534.,3:93CV7534.
• Court: U.S. District Court — Northern District of West Virginia
• Parties: Jeffrey McCONOCHA, et al., Plaintiffs, v. BLUE CROSS AND BLUE SHIELD OF OHIO, Defendant.

898 F. Supp. 545

Jeffrey McCONOCHA, et al., Plaintiffs, v. BLUE CROSS AND BLUE SHIELD OF OHIO, Defendant.

No. 3:93CV7534.

United States District Court, N.D. Ohio, Western Division.

August 29, 1995.

Dennis E. Murray, Sr. and Kirk J. Delli Bovi, Murray & Murray, Sandusky, OH, and Marvin L. Karp, Ulmer & Berne, Cleveland, OH, for plaintiffs.

Paul S. Lefkowitz, Climaco, Climaco, Seminatore, Lefkowitz & Garofoli, Cleveland, OH, Fritz Byers, Toledo, OH, and Troy L. Moore, Scott, Ballinger & Moore, Toledo, OH, for defendant.

MEMORANDUM & ORDER

CARR, District Judge.

This is a case under the Employee Retirement Income Security Act of 1974 as amended (ERISA). Plaintiffs assert claims for benefits under 29 U.S.C. § 1132(a)(1)(B) and breach of fiduciary duties under 29 U.S.C. §§ 1109(a) and 1106(b). Pending are defendant's motion to strike and cross-motions for summary judgment.

For the following reasons, the motion to strike shall be overruled as moot, plaintiffs' motion for summary judgment shall be granted, and defendant's motion for summary judgment shall be denied.

A status conference to set a timetable for further proceedings and to discuss such other matters as the parties may desire shall be held on Monday, September 18, 1995, at 1:30 p.m. The parties shall submit, and do so jointly if possible, an agenda two days prior to that conference.

A. Factual Background

In July, 1988, plaintiff McConocha, president and 80% shareholder of plaintiff ISDN, purchased group health insurance from the defendant Blue Cross and Blue Shield of Ohio (BCBSO). As described in the Subscriber Certificates (Doc. 81, exh. 8), BCBSO sends the beneficiary an "Explanation of Benefits" (EOB) after the beneficiary has received hospital services. In this case, plaintiffs received EOBs after they had obtained hospital services (Docs. 65, 64; exhs. JJ, GG). The EOBs informed plaintiffs that they were obligated for 20% of the hospitals' charges.

That obligation derived from the Schedule of Benefits in the Certificate (Doc. 81, Exh. 8, p. 2). Pursuant to that schedule, BCBSO agreed to pay "80% of the Provider's Reasonable Charge" and plaintiffs were to copay the remaining 20%.

Unbeknownst to plaintiffs, BCBSO negotiates with the hospitals which provide services to the beneficiaries of its insurance programs to pay less than 80% of the total amount of the charges. The percentage of the charges ultimately paid by BCBSO varies from hospital to hospital and from service to service.¹ As a result of the discount given to BCBSO, plaintiffs paid more than 20% of the amounts actually received by the hospitals for the services provided to plaintiffs.

For example, Engel incurred a $4,764.34 bill at Marymount Hospital in 1990 (Doc. 65, exh. JJ). After deducting $1.50 for a phone call, which is not a charge covered by defendant, Engel's allowed charges were $4762.84; he paid 20% of this amount, or $952.57, to Marymount.

Pursuant to its discount agreement with Marymount, BCBSO paid Marymount $1,100.84. No one paid, or, as a result of the discount agreement, was obligated to pay Marymount the remainder ($2,709.43).² Engel, consequently, paid 46.4% of the total amount received by Marymount.

BCBSO points out that the premiums paid by the purchasers of its insurance may be lowered as a result of the reduction in the amounts which it pays to the hospitals. If, as with McConocha, the beneficiary is also the purchaser of the insurance, he or she may also benefit from any premium reduction flowing from BCBSO's discounted payments. In most instances, however, an employer pays most or all the premium, and the individual employee benefits not at all, or only to a very modest extent, from any premium reduction.

The ability to charge a lower premium benefits BCBSO: the lower its premiums, the greater its competitiveness in the market place, and the more insurance it is able to sell. To the extent that the discount program leads to lower premiums, beneficiaries who pay more than 20% of the total amount received by the hospitals unknowingly subsidize BCBSO's competitiveness.

B. Defendant's Motion to Strike

BCBSO seeks to strike some of the exhibits attached to plaintiffs' motion for summary judgment on the basis that they are either unauthenticated, hearsay, or irrelevant. Plaintiffs state that the challenged materials were provided merely as "context," not as evidence, and that they should have the chance to authenticate the public records.

Rather than undertake the time consuming project of ruling on each of the challenged items one-by-one, I have simply disregarded them during the course of adjudicating the pending motions. Because I have disregarded the challenged materials, defendant's motion to strike shall be overruled as moot.

C. Plaintiffs' Claim for Unpaid Benefits

1. Standing

BCBSO argues that McConocha does not have standing to assert an ERISA claim because he is not an "employee" of an employer with an ERISA plan. That argument was answered to my satisfaction in Madonia v. Blue Cross & Blue Shield of Virginia, 11 F.3d 444, 445 (4th Cir.1993), in which the Fourth Circuit held that a sole shareholder, insured under a health policy purchased by his corporation, was a "participant" in the company's ERISA plan. Because BCBSO does not dispute that McConocha is covered under the group health insurance plan maintained by ISDN, he has standing to assert an ERISA claim.

BCBSO also alleges that McConocha and Engel cannot prove a necessary predicate to their claim, namely that they paid their copayments. Defendant bases this argument on plaintiffs' desire to be refunded the difference between copayments paid at 20% of the `provider's actual bill' and 20% of the `charges after the discount.' According to BCBSO, there is no recoverable `difference' in the absence of actual payment. Because McConocha and Engel have submitted affidavits stating that they paid copayments, I conclude that they satisfy the requirements for bringing their claims.

2. Merits

At the heart of this case are two competing constructions of the Certificate, which is the contract between plaintiffs and BCBSO. BCBSO contends that the Certificate's language allows it to negotiate discounts without disclosing to plaintiffs that it is doing so; plaintiffs argue the opposite. In my Memorandum & Order of June 15, 1994 (Doc. 46), I concluded that, due to its ambiguity, the Certificate is susceptible to either party's construction:

In a section entitled "How Claims Are Paid," the Certificate states that the "amount of copayment ... is specified in the Schedule of Benefits" emphasis added. However the Schedule of Benefits states only the percentage of charges which BCBSO will pay. When these provisions are read in conjunction with each other, it is not unreasonable to conclude that if BCBSO will pay eighty percent of the provider's reasonable charge, then the insured's copayment will be twenty percent of that same charge. Nor is it unreasonable to conclude that the agreement referred to in the definition of the "provider's reasonable charge" includes the discount agreements at issue. Under this interpretation, the copayment would be based upon charges after the discount.

Defendant, on the other hand, argues that "copayment," as referred to in the Certificate, can only be interpreted as being based upon the provider's actual bill and that the "provider's reasonable charge" does not include any agreed upon discounts. Defendant makes this argument despite the fact that the Certificate contains no language informing the insured of discounts BCBSO may negotiate nor any explanation that benefits and copayments will be based on charges without regard to any discounts. This Court finds that the Certificate read alone is fairly susceptible to both plaintiffs' and defendant's interpretations.

BCBSO contends that this ambiguity should be resolved to correspond to the parties' original intentions. According to BCBSO, the method of copayment calculation conforms to the contract's language and parties' expectations.

This argument rests to a considerable extent on brief and conclusory statements by each plaintiff during his deposition. McConocha stated that, "it was my understanding ... that I was responsible for twenty percent of the bill ... that I received" and "my copayment was 20% of the bill, of at least 20% of what was at least covered." (McConocha Dep. at 56-7, 81). Engel likewise answered affirmatively ("Sure") when asked if he "expected that his co-payment was going to be 20% of allowed charges." (Engel Dep. at 36).

These statements, according to defendant, constitute "extrinsic evidence that discloses that the plaintiffs always intended, expected and understood that their copayments would be calculated in the precise fashion that BCBSO actually calculated them"—i.e., "`upon the provider's actual bill' and not `upon charges after the discount.'" (Doc. 81 at 10).

I do not find that these conclusory statements express such understanding or assent that plaintiffs can be viewed as having contemplated or concurred in the consequences of the discount program: namely, that they would pay more than 20% of the money paid to the hospital for its services. Defendant's argument presumes a degree of comprehension about the operation of the Plan that cannot, in view of plaintiffs' ignorance of the discounts, be ascribed to them. Accordingly, I reject defendant's argument that the contract's ambiguities can be resolved through reference to the parties' shared expectations: because the defendant alone was aware of the Plan's operation and practical consequence, it alone was able to formulate an accurate expectation about how it would be implemented.

Because the Certificate cannot be construed on the basis of the parties mutual expectations, two doctrines of contract construction may be applied to resolve its ambiguous nature. The ambiguity can be resolved either by applying the rule of contra...