The City of Lakewood, Dba Lakewood Hospital (nos. 50266, 50389) v. Blue Cross & Blue Shield Mutual of Northern Ohio

• Court: Ohio Court of Appeals
• Writing for the Court: STILLMAN,* Judge.
• Decision Date: 10 July 1986
• Docket Number: 50389 and 50482,86-LW-2094,50266
• Citation: The City of Lakewood, Dba Lakewood Hospital (nos. 50266, 50389) v. Blue Cross & Blue Shield Mutual of Northern Ohio, 50266, 50389 and 50482, 86-LW-2094 (Ohio App. Jul 10, 1986)
• Parties: THE CITY OF LAKEWOOD, dba LAKEWOOD HOSPITAL (Nos. 50266, 50389), Plaintiff-Appellee, THE CITY of LAKEWOOD (No. 50482), Plaintiff-Appellant, v. BLUE CROSS & BLUE SHIELD MUTUAL OF NORTHERN OHIO, et al., Defendant-Appellant (Nos. 50266, 50389) and Defendant-Appellee (No. 50482). Nos. 50266, 50389 and 50482.

THE CITY OF LAKEWOOD, dba LAKEWOOD HOSPITAL (Nos 50266, 50389), Plaintiff-Appellee, THE CITY of LAKEWOOD (No. 50482) Plaintiff-Appellant, v. BLUE CROSS & BLUE SHIELD MUTUAL OF NORTHERN OHIO, et al., Defendant-Appellant (Nos. 50266, 50389) and Defendant-Appellee (No. 50482).

Nos. 50266, 50389, 50482.

86-LW-2094 (8th)

Court of Appeals of Ohio, Eighth District Cuyahoga

July 10, 1986

Civil appeal from Common Pleas Court Case No. 083,968

Fred M DeGrandis, Vice-President and Legal Council Lakewood Hospital, Lakewood, for plaintiff-appellee and cross-appellant.

E. John Brzytwa, Ralph E. Cascarilla, Kerin Lyn Kaminski, Cavitch, Familo & Durkin Co., L.P.A., Cleveland, for plaintiff-appellee and cross-appellant.

Benjamin R. Civiletti, J. Phillip Jordan, James A. Dunbar, Venable, Baetjer, Howard & Civiletti, Washington, D.C., for plaintiff-appellee and cross-appellant.

Richard R. Hollington, Jr., Donald A. Burns, Paul P. Eyre, Wayne C. Dabb, Jr., Baker & Hostetler, Cleveland, for defendant-appellant/cross-appellee.

David A. Schaefer, Dennis C. Aster, Margaret Mary Meko, James M. Friedman, Benesch, Friedlander, Coplan & Aronoff, Cleveland, for defendant-appellee/cross-appellant, George Fabe, Superintendent of the Ohio Dept. of Insurance.

Marc A. Kleiman, Barry Moses, Assistant Attorneys General, Columbus, Co-Counsel for cross-appellant/appellee, George Fabe.

JOURNAL ENTRY AND OPINION

STILLMAN,* Judge.

Blue Cross & Blue Shield Mutual of Northern Ohio (BCBS) appeals (50266, 50389) from a judgment and jury verdict in favor of Lakewood Hospital (hospital) for damages sustained from an advertising campaign, and the termination of its provider contract. The insurer (BCBS) claims that:

1. The court lacked jurisdiction and should have forced the hospital to seek administrative remedies;

2. The bidding program did not violate R.C. 1739 et seq.;

3. The administrative appeals were improperly enjoined;

4. Indispensable parties were not joined;

5. The merger stipulation and Amendment "O' to the provider contract were erroneously declared void;

6. Motions for directed verdict were improperly denied;

7. The verdict and judgment were against the manifest weight of the evidence; and,

8. The verdict and judgment violated the insurer's First Amendment rights.

The hospital cross-appeals (50482) from the trial court's decision that the merger of Blue Cross of Northeast Ohio (BCNO) and Medical Mutual Corporation (MMC) was lawful, and a dismissal of its claim for injunctive relief. The Superintendent of Insurance, a named defendant, presents two cross-assignments claiming that R.C. Chapter 1739 did not apply to the insurer, and that the bidding program required no prior review by his office.

We conclude that the merger was lawful, and that the hospital's claim for injunctive relief was properly dismissed. Further, we hold that R.C. 1739 does apply to the insurer and that administrative relief was not required in this case. We reject the contention that the other hospitals potentially affected should have been joined. We find that the court enjoined the insurer to pay more than it was legally obligated to pay, so we modify the order by striking this provision. We find that the first amendment precluded the hospital's claim for reputational harm and that there was no agency relationship between the parties in which the insurer breached a duty of good faith. Moreover, the hospital failed to prove the amount of its damages with reasonable certainty. We therefore affirm the court's declaratory judgment, modify its order for injunctive relief, and reverse and remand the damages claims for a new trial.

FACTUAL BACKGROUND

In 1983, MMC and BCNO finalized negotiations for a merger of the two corporations. BCNO had operated as a nonprofit hospital service association (HSA) under R.C. 1739 et seq. MMC had been a nonprofit mutual insurance corporation as defined in R.C. 3941 et seq. The surviving entity was to be recognized as Blue Cross & Blue Shield Mutual of Northern Ohio (BCBSMNO or BCBS).

The two corporations notified the Ohio Superintendent of Insurance (Superintendent) in November, 1983 of their intent to merge. The Superintendent conducted a detailed investigation of the proposed merger with the assistance of consultants and experts. A hearing concerning the merger was conducted on May 23, 1984, and the report and recommendations of the hearing examiner were filed on May 30, 1984. The examiner determined that the merger was in the best interest of the public, and in accordance with law.

The Superintendent adopted the hearing examiner's report and approved the merger in a June 12, 1984 order and journal entry. As a condition of his approval, the Superintendent caused the two corporations to execute a stipulation to control health service association aspects of the operation of the merged corporation. Provisions of the Stipulation relevant to this action are:

"* * *

"WHEREAS, this Stipulation is intended to apply only to that form of hospitalization insurance presently being offered by BCNO prior to the merger and which may be offered by the merged corporation, as set forth in Section II(A) below.

"* * * "I. General Stipulations

"(D) The Superintendent, BCNO and MMC agree that all of the following terms and conditions hereinafter set forth shall terminate as of June 30, 1987, and that thereafter those terms and conditions will be of no further force and effect. "II. Definitions

"(A) As used herein, the terms "Contract,' "Amendment,' "Formula,' "Rate,' and "Coverage' refer to that form of hospitalization insurance presently being offered by BCNO prior to the merger and which may be offered by the merged corporation.

"* * * "III. Cost Containment Commitment "(A) Rate Review

"(1) Rate review and approval for the merged corporation shall be governed by R.C. [Secs.] 3923.02 and 3923.021. In addition, any Contract, Amendment, Formula or Rate proposed by the merged corporation to the Superintendent (hereinafter "Filing') shall be governed by this Stipulation.

"* * *

"(5) Good-Faith Effort means a conscientious, vigorous and continuing attempt by the merged corporation through a combination of education, persuasion, and financial incentives and disincentives to control costs and encourage hospitals and other health-care facilities to control costs in accordance with the following criteria:

"(a) Elimination of duplicative or unnecessary services and facilities by:

"(i) Refusing to reimburse hospitals and other health-care facilities for any expenses related to a capital expenditure whenever federal reimbursement or certificate of need has been denied for such capital expenditure and consistent with the policy and procedures manual and operating plan of the Ohio Department of Health, the state designated planning agency. This measure shall be effected through the merged corporation's Contracts with hospitals and other health-care facilities and through the participation of its representatives in state and local planning agency activities as an advocate for the distribution of new health-care services in a cost-effective manner, or by such other means as are approved by the Superintendent.

"(ii) Encouraging hospitals and other health care facilities to consolidate, share, convert or phase out inappropriate or unnecessary services or facilities.' V. Contracts With Health Care Facilities

"In order to continue the legislative purpose of R.C Chapter 1739 with respect to the rights of BCNO and health-care facilities in connection with both their contractual relationships set forth in R.C. [Sec.] 1739.06 and the cost-containment responsibilities set forth in Part III of this Stipulation, BCNO, MMC and the Superintendent agree as follows:

"(C) The merged corporation may elect not to contract or elect to terminate a contract with a hospital or other health-care facility if that hospital or health-care facility fails to comply with the quality-of-care standards contained in the appropriate definition of such hospital or health-care facility in section 1739.01 of the Revised Code, or fails to comply with the cost-control standards as set forth in division (M) of section 1739.01 of the Revised Code including, without limitation, elimination of duplicative or unnecessary services and facilities.

"(D) If a hospital or other health-care facility is denied a contract or is terminated from a contract by the merged corporation, it may appeal the decision to the Superintendent within thirty days from the date of the decision.

"* * *

"(F) In the event of any appeal to the Superintendent under Sections (D) and (E) of this Part V of this Stipulation, the Superintendent shall promptly, after hearing held upon proper notice, issue an order approving or disapproving the decision. During the period an appeal is pending before the Superintendent, any existing contracts shall continue to remain in force. All final orders and decisions of the Superintendent are subject to judicial review as provided in Chapter 119 of the Revised Code.'

"* * *'

The Stipulation was subsequently incorporated into the provider contracts between the insurer and its provider hospitals through an amendment recognized as "Amendment "O'.'

The two corporations then filed an agreement of merger after which BCNO ceased to exist, and MMC, as the surviving corporation, changed its name to BCBSMNO. After the consummation of the merger the insurer announced the implementation of a competitive bidding program for the thirty-four hospitals in Cuyahoga, Lake and Lorain counties. The plan was stated to serve the purpose of eliminating duplicative and unnecessary services and to effectuate cost containment measures. The plan required all subject hospitals to respond to a "request for proposal' (RFP...