Frankford Hospital v. Blue Cross

67 F.R.D. 643, 20 Fed. R. Serv. 2d 1005, 1975 U.S. Dist. LEXIS 11990
CourtDistrict Court, E.D. Pennsylvania
DecidedJune 9, 1975
DocketCiv. A. No. 74-2281
StatusPublished
Cited by5 cases

This text of 67 F.R.D. 643 (Frankford Hospital v. Blue Cross) is published on Counsel Stack Legal Research, covering District Court, E.D. Pennsylvania primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Frankford Hospital v. Blue Cross, 67 F.R.D. 643, 20 Fed. R. Serv. 2d 1005, 1975 U.S. Dist. LEXIS 11990 (E.D. Pa. 1975).

Opinion

MEMORANDUM AND ORDER

NEWCOMER, District Judge.

Plaintiff, a non-profit hospital located in Philadelphia, has brought suit against Blue Cross of Greater Philadelphia (hereinafter “Blue Cross”), alleging that Blue Cross has monopolized the health insurance industry in the greater Philadelphia area in violation of Section 2 of the Sherman Act1 and that it has organized group boycotts against hospitals that refuse to accede to certain of its contract terms, in violation of Section 1 of the Sherman Act2. Plaintiff has also alleged that these contract terms constitute unreasonable restraints of trade, in violation of Section 1 of the Sherman Act. Plaintiff has moved for certification under Federal Rule 23(a) and 23(b)(3) as class representative of a class of all non-profit hospitals, clinics, or medical centers that have had a hospital contract with defendant in force at any time during the period September 4th, 1970 to September 4th, 1974. For the reasons discussed below, we decline to certify plaintiff as representative of this or any other class under Rule 23(b)(3), and will therefore deny plaintiff’s motion for class certification.

DISCUSSION

Some of the details of Blue Cross’ contractual relations with its member hospitals are necessary for an understanding of the issues presented in this case. The defendant, Blue Cross of Greater Philadelphia, is not an insurance company in the classic sense. Blue Cross does not agree to repay its subscribers’ health care bills. Instead, it agrees that its subscribers may be treated at a Blue Cross “member hospital” without cost of the subscriber. Blue Cross then enters into separate contracts with hospitals under which the hospitals agree to provide services to the subscribers and look to Blue Cross for payment. Blue Cross agrees to pay a sum to the hospital based upon the hospital’s costs and the portion of those costs attributable to Blue Cross subscribers.

The subject matter of this suit is Blue Cross’ refusal to reimburse its member hospitals for certain costs. The most notable of these excluded costs are “free care” and “bad debt”. These are costs ordinarily incurred in treating charity patients or other persons who are unable to pay. Plaintiff alleges that Blue Cross has a monopoly of health and hospital insurance in the greater Philadelphia area and has used this monopoly power to force hospitals to enter into contracts which prohibit the recovery of these costs. Plaintiff also alleges that Blue Cross has achieved, and continues to maintain, its monopoly position by shifting the burden of paying these costs to competing health insurance carriers.3

Plaintiff claims that by refusing to reimburse its subscribers for treatment [646]*646at hospitals which are not Blue Cross member hospitals, defendant has engaged in a group boycott against hospitals that refuse to agree to the complained of contract terms. Plaintiff also alleges that these contract terms constitute an unreasonable restraint of trade.

Plaintiff seeks to represent a class consisting of all non-profit hospitals, clinics, or medical centers that have had a hospital contract with defendant in force at any time during the period September 4th, 1970 to September 4th, 1974, a period corresponding to that for which the statute of limitations 4 in the antitrust laws limits recovery of treble damages. This period covers two contracts entered into between the area hospitals and Blue Cross, the first in 1967 and a second in 1971. Both of these contracts include the exclusion of certain costs as recoverable costs, which is the nub of plaintiff’s complaint.

We are persuaded that plaintiff has met Rule 23(a)’s numerosity, common question, and adequate representation prerequisites. Even when the member hospitals that are located in New Jersey are excluded from the potential class5, the number of hospitals which contracted with defendant during the period in question approximates 100, which is sufficient to make the class so numerous that joinder of all members is impracticable. 23(a)(1). Whether the defendant possesses monopoly power in a relevant market, whether it uses its monopoly power to coerce the member hospitals into accepting unfavorable contract terms, and whether these terms unreasonably restrain trade, all constitute questions of law and fact common to the class. 23(a)(2). Likewise, there is no question that the plaintiff is sufficiently motivated and its counsel sufficiently competent to fairly and adequately protect the interests of the class. 23(a)(4).

However, whether the claims (or defenses) of the plaintiff are typical of those of the class is more problematic. Defendant argues that plaintiff’s claims are not typical of those of the member hospitals located in New Jersey, since those hospitals are incorporated and operate under New Jersey law and their contracts with Blue Cross are governed by the provisions of the different set of statutes. Defendant also argues that plaintiff may not represent those hospitals who currently have a contract in force with defendant, and that since only plaintiff and twenty-five of the remaining hospitals do not currently have contracts, the class in this case numbers no more than twenty-six and joinder of such a number is practicable. While we accept defendant’s contention that plaintiff has failed to show its claims to be typical of those of the New Jersey hospitals, we believe that no typicality problem is created by the fact that some of the hospitals currently have contracts and some do not. While such a distinction may have merit in class action litigation involving franchising, Seligson v. Plum Tree, Inc., 61 F.R.D. 343 (E.D.Pa.1973), we are not persuaded that it should bar a plaintiff who sues concerning contract terms which all the putative class members have at one time or another agreed to.

A more serious typicality problem is posed by plaintiff’s use of an accounting and cost reporting method different from the method used by nearly every other member hospital. Discovery in this case shows that while almost all of the putative class members use the “step-down” method of accounting and report their costs to Blue Cross for reimbursement on standard Medicare forms, Frankford employs the “double apportionment” method of accounting and reports its costs on its own forms. In addition, while the vast majority of potential class members apportion costs [647]*647between in-patients and out-patients on a “charge data” basis, Frankford apportions these costs on a “statistical data” basis. Plaintiff’s accountant testified at a hearing upon this matter that both the double apportionment and the step-down accounting methods were approved by the Social Security Administration (Medicare), that both were acceptable to Blue Cross as means of cost reporting, and that the methods did not vary in their ultimate results. Furthermore, plaintiff’s accountant testified that apportioning in-and out-patient costs on a statistical data rather than a charge data basis did not vary the results to a significant degree. By computing Frankford’s costs on the forms used by the other hospitals, plaintiff’s accountant showed that both the ultimate and the ingredient cost figures did not very more than a slight percentage. We are convinced from this evidence that plaintiff’s use of a nearly unique accounting and reporting method does not make its claims or defenses atypical of those of the class it seeks to represent.

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Bluebook (online)
67 F.R.D. 643, 20 Fed. R. Serv. 2d 1005, 1975 U.S. Dist. LEXIS 11990, Counsel Stack Legal Research, https://law.counselstack.com/opinion/frankford-hospital-v-blue-cross-paed-1975.