Potters Medical Center, Inc. v. Ratchford

480 N.E.2d 789, 18 Ohio St. 3d 253, 18 Ohio B. 309, 1985 Ohio LEXIS 412

• Court: Ohio Supreme Court
• Decided: July 24, 1985
• Docket: No. 84-986
• Status: Published

Opinions

Wright, J.

Blue Cross may elect not to contract with Potters if it is found that Potters has not complied with the cost control objectives set forth in R.C. 1739.01(H),¹ or if it is ultimately determined that Potters did not comply with the much broader quality of care standards contained in R.C. 1739.01. This legislative mandate is evidenced by R.C. 1739.06 which provides, in part: “* * * A hospital service association may elect not to contract * * * with a hospital, * * * if that hospital, * * * fails to comply with the quality of care standards contained in the appropriate definition of such hospital, * * * 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.” It would appear from a careful reading of Blue Cross v. Jump (1980), 61 Ohio St. 2d 246 [15 O.O.3d 257], that the Superintendent has been empowered by R.C. 1739.051² to pass reasonable regulations implementing these standards.

These legislative and administrative grants of power are not, however, left to the unfettered discretion of Blue Cross and the Superintendent. Ohio’s Valentine Act, as contained in R.C. Chapter 1331, and federal antitrust laws require freedom from unreasonable restraint of trade. We have consistently declared invalid transactions whose purpose was to eliminate competition. See List v. Burley Tobacco Growers’ Co-op. Assn. (1926), 114 Ohio St. 361; Lufkin Rule Co. v. Fringeli (1898), 57 Ohio St. 596; Central Ohio Salt Co. v. Guthrie (1880), 35 Ohio St. 666. Thus, precise compliance with the regulatory scheme as noted above is required before there can be judicial approval of Blue Cross’ refusal to contract with Potters.

A careful review of the record reveals that the sole reason posited by the Superintendent in approving the action by Blue Cross was the fact that HSAEO decided not to approve Potters’ Section 1122 application. In approving Blue Cross’ action, the Superintendent made no independent determination of any of the criteria set forth in R.C. 1739.01(M), but instead adopted the recommendation of the hearing officer which states, in part:

“* * * The addition of any new unnecessary or duplicative facility and service necessarily increases the cost of care because it adds additional fixed costs to the health care system.

“Additional facilities may increase the competition among the hospitals in the Eastern Ohio area but such competition is likely to increase, not decrease, hospital costs to the community as a whole. * * * Any gain by one facility will be at the expense of another facility * *

The record is almost devoid of evidence to support this finding.³ However, more importantly, neither Blue Cross nor the Superintendent independently dealt with the criteria set forth in R.C. 1739.01(M). The misplaced reliance on HSAEO’s report was exacerbated by the fact that even the HSAEO report did not give definitive reasons for its decision to not endorse Potters’ application for reimbursement of certain of its capital improvements expenditures. Thus, we fa,ce a situation where both Blue Cross and the Superintendent failed to examine the appropriate statutory criteria and instead relied on the report of an agency which had a mission unrelated to the responsibilities placed on the Superintendent and Blue Cross by law. Although we quite agree that medical costs in our state should and must be contained, we cannot condone this type of review.

Blue Cross and the Superintendent appear to be preoccupied with the number of beds in the greater Eastern Ohio area instead of the containment of hospital care costs. We recognize that a plethora of hospital beds may well lead to higher costs due to the fact that hospitals with a low census have a tendency to raise their per diem rates to meet their overhead costs. It would appear that this phenomenon is at war with generally accepted laws of the market-place. It is also in conflict with the underlying premise of the legislative and administrative scheme discussed above. Moreover, it must be noted from the record before us that, at the time of the hearing herein, Potters had an above-average occupancy rate, lower rates than its competition, and every expectation of continuing a successful and highly competitive operation. Thus, Blue Cross’ denial of Potters’ participation achieved a result that is exactly opposite the goal of the regulatory scheme which, of course, is the encouragement of efficient, highly-utilized facilities.⁴

R.C. 1739.051 requires that Blue Cross make a “good faith effort” to control costs. The posture adopted by Blue Cross is not that Potters take steps to eliminate duplicative unnecessary services and the like, but rather that Potters should pass from the scene. Assuring Potters’ competitors that they will not be subject to the rigorous competition of a new facility does not constitute a “good faith effort” to control costs. Thus, we hold that, in a proceeding pursuant to R.C. 1739.06, a hospital service association must enter into a participating hospital contract absent a showing that an otherwise qualified hospital fails to meet the criteria set forth in R.C. 1739.01(B) and (M). Accordingly, the order of the Superintendent being unsupported by reliable, probative, and substantial evidence and not in accordance with law, we must reverse the judgment of the court of appeals and remand the cause to the Superintendent for further proceedings consistent with this opinion.

Judgment reversed.

Celebrezze, C.J., Sweeney, Locher and C. Brown, JJ., concur. Holmes and Douglas, JJ., dissent.

1 R.C. 1739.01(M) provides the following cost control objectives:

“(1) Elimination of duplicative or unnecessary services and facilities;

“(2) Nonprovider participation in plan affairs;

“(3) Subscriber support of cost containment activities;

“(4) Promotion of sound management practices in member health care facilities;

“(5) Implementation of sound plan management practices;

“(6) Promotion of alternative forms of care;

“(7) Engagement in, and evaluation of, cost control experiments, including incentive reimbursement and utilization review programs;

“(8) Adoption of other cost containment policies as determined by the superintendent of insurance.”

2 R.C. 1739.051(D) provides in part: “The superintendent shall develop rules and reporting requirements to indicate activities necessary to establish a good faith effort to control costs.”

3 The evidence indicates that Potters’ average cost per bed is $216 per day while other hospitals in Potters’ area average a cost of $380 per day. Other hospitals outside Potters’ area charge as much as $467 per day for the same services provided by Potters. Further, the evidence indicates that Potters provides special medical services that are not available at other hospitals in Potters’ area and, therefore, residents of Potters’ area must travel to large metropolitan areas to receive these services.

4 The report of the Oversight Subcommittee on Am. H.B. No. 448, which amended R.C. 1739.06 effective June 18, 1976 to allow hospital service associations to contract with for-profit hospitals, states that “the sponsors of House Bill 448 * * * [hoped to encourage] greater competition in the health care sector by allowing proprietary institutions access to Blue Cross reimbursement.”