Westland Convalescent Center v. Blue Cross & Blue Shield

324 N.W.2d 851, 414 Mich. 247
CourtMichigan Supreme Court
DecidedSeptember 28, 1982
DocketDocket Nos. 64172-64178, 64286. (Calendar No. 8)
StatusPublished
Cited by22 cases

This text of 324 N.W.2d 851 (Westland Convalescent Center v. Blue Cross & Blue Shield) is published on Counsel Stack Legal Research, covering Michigan Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Westland Convalescent Center v. Blue Cross & Blue Shield, 324 N.W.2d 851, 414 Mich. 247 (Mich. 1982).

Opinions

Fitzgerald, J.

We are asked to determine whether health care providers have the right to an evidentiary hearing either as a matter of fundamental due process or as a contested case under the Administrative Procedures Act of 1969, MCL 24.201 et seq.; MSA 3.560(101) et seq., before the Insurance Commissioner approves a change by Blue Cross and Blue Shield of Michigan in their rates of payment.

I

Plaintiffs are skilled nursing care facilities. All are proprietary institutions rendering high-quality, frequently specialized care. They trace the origin of these specialized services to 1966 when Blue Cross and Blue Shield of Michigan (BCBSM) began a convalescent and long-term illness care program (CLTC). The program was designed to provide skilled nursing care away from the hospital to patients suffering chronic illnesses. By reducing the number of hospital beds occupied by chronically ill, terminally ill or recuperating patients, it was hoped that the program would help to reduce and contain costs of care for covered subscribers.

Participation in the CLTC program required [259]*259nursing homes to be accredited by the Joint Commission on Accreditation of Hospitals. When the program was introduced, few nursing homes met these standards; only about 7% of the nation’s nursing homes were approved by the Joint Commission. Thus, to qualify for inclusion in the program, nursing homes that had previously provided merely custodial care spent considerable funds to upgrade their facilities. Capital improvements were made and equipment purchased, and skilled professional personnel were hired and trained.

The original contracts between BCBSM and the nursing facilities established a rate of reimbursement at the lesser of the provider’s billed charges or one-half the average per diem benefit payment made for acute general care at a participating hospital in the same geographic area. This formula was used routinely from the inception of the CLTC program in 1966 until 1977. The contracts also provided that either party could terminate the arrangement without cause upon 15 days’ notice.

In early September 1977, BCBSM mailed notices to the participating nursing facilities informing them that, at the end of the month, existing contracts would be terminated and the method of reimbursement modified. The notice stated that the changes were being made in an effort to more closely relate approved rates of payment to the providers’ operating costs and, in addition, to help assure that BCBSM payments are not made when a subscriber has primary coverage under the Medicare program. The new rates were to be effective October 1, 1977. On September 30, 1977, plaintiffs were sent a rate schedule indicating that from October 1, skilled nursing facilities would be reimbursed for billed charges limited to a per diem [260]*260amount based on the 80th percentile of Medicare rates of payment on a regional basis.

It is alleged by plaintiffs that the new rates would not cover their costs and that services to BCBSM subscribers would have to be discontinued. Unable to retain skilled professionals for only private-pay patients, the nursing homes would be forced to revert to simple custodial care institutions.

Various suits were brought in circuit court and temporary restraining orders were issued preventing implementation of the new rate formula.

On November 8, the nursing homes were notified that a public hearing would be held before the Insurance Commissioner concerning the proposed rates. By subsequent letter to the Insurance Commissioner, plaintiffs objected to the informal nature of the proceeding and requested that a contested-case hearing pursuant to the Administrative Procedures Act be held. This request was denied.

The public hearing took place on November 21. One month later, the commissioner, having reviewed the testimony presented at the hearing and the memoranda filed in support of plaintiffs’ positions, issued an order denying that the nursing homes had a right to a contested-case hearing and approving the proposed reimbursement formula. This decision was appealed to the Wayne Circuit Court. That court reversed the declaratory ruling and remanded the case to the Insurance Commission so that a contested-case hearing could be held. The injunctions prohibiting the implementation of the new rate structure were continued. The com[261]*261missioner appealed this decision and order to the Court of Appeals.

The Court of Appeals reversed the lower court, holding that plaintiffs did not demonstrate the deprivation of any property interest which would entitle them to a contested-case hearing either as a matter of procedural due process or as mandated by the Administrative Procedures Act.

II

"The heart of the matter is that democracy implies respect for the elementary rights of men, however suspect or unworthy; a democratic government must therefore practice fairness; and fairness can rarely be obtained by secret, one-sided determination of facts decisive of rights.”1

Notice and the opportunity to be heard are fundamental concepts in the jurisprudence of our state and federal courts. No rigid rule determines which interests will be protected or unprotected; the conclusion to be drawn is that what is procedurally fair in one situation to protect the rights of individuals may be unfair in another.

In 1971, Justice Stewart announced that the United States Supreme Court "has fully and finally rejected the wooden distinction between 'rights’ and 'privileges’ that once seemed to govern the applicability of procedural due process rights.”2 In Board of Regents of State Colleges v Roth, 408 US 564; 92 S Ct 2701; 33 L Ed 2d 548 (1972), the Court held that a teacher hired for one year [262]*262without tenure had no constitutional right to a hearing when his contract was not renewed. Looking not to the weight but to the nature of the interest asserted, the Court held that the guarantee of procedural due process attached only to secure those interests already acquired in specific benefits. The terms of Mr. Roth’s appointment which served to create and define his assertedly protected interest did not support his claimed right to a hearing before termination.

In Perry v Sindermann, 408 US 593; 92 S Ct 2694; 33 L Ed 2d 570 (1972), a teacher, hired by a state college system under a series of one-year contracts, also faced termination due to allegations of insubordination. Sindermann’s claims regarding the circumstances of his employment, the college’s de facto tenure program, and his reliance thereon were sufficient to require the opportunity for him to be heard before the decision regarding his termination was made. As Professor Davis has noted, however:

"In the very case in which the Court announced that it had 'finally’ rejected the distinction between rights and privileges, the Court held that the teacher lacked a 'right’ to renewal of the contract.

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Westland Convalescent Center v. Blue Cross & Blue Shield
324 N.W.2d 851 (Michigan Supreme Court, 1982)

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Bluebook (online)
324 N.W.2d 851, 414 Mich. 247, Counsel Stack Legal Research, https://law.counselstack.com/opinion/westland-convalescent-center-v-blue-cross-blue-shield-mich-1982.