ST. FRANCIS REGIONAL MEDICAL CENTER, Plaintiff-Appellant, v. BLUE CROSS AND BLUE SHIELD OF KANSAS, INC., Defendant-Appellee.
No. 93-3100.
United States Court of Appeals, Tenth Circuit.
March 6, 1995.
Mr. Elliott also makes a general Fifth and Fourteenth Amendment claim that he has been denied due process, but he has failed to identify any liberty or property interest of which the Appellees have deprived him. He has also attempted to state a RICO claim. As we cannot discern any plausible basis for these claims, we agree that the grant of summary judgment was appropriate.
Because we find that the district court properly granted summary judgment on all of Mr. Elliott‘s claims, we do not need to address the propriety of the grant of the Motion to Dismiss.
The Order of the District Court Granting the Motion for Summary Judgment is AFFIRMED.
Gary D. McCallister of Davis, Unrein, Hummer, McCallister & Buck, Topeka, KS (Mark A. Buck of Davis, Unrein, Hummer, McCallister & Buck, Topeka, KS; and Alan L. Rupe, Steven J. Rupp, and Thomas L. Steele of Rupe & Girard Law Offices, P.A., Wichita, KS, with him on the brief), for defendant-appellee.
Before EBEL, MCKAY, and REAVLEY,* Circuit Judges.
MCKAY, Circuit Judge.
Plaintiff-Appellant, St. Francis Regional Medical Center (“St. Francis“), challenges the use by Defendant-Appellee, Blue Cross Blue Shield of Kansas (“Blue Cross“), of clauses in its health care insurance policies that prohibit policyholders from assigning their right to receive insurance proceeds to health care providers who have not contracted with Blue Cross. Some of the challenged policies are covered by the Employee Retirement Income Security Act of 1974 (“ERISA“), as amended,
I. BACKGROUND
Blue Cross was originally chartered as a nonprofit medical and hospital insurance corporation under
More recently, Blue Cross, at the direction of the Kansas legislature, rechartered itself as a mutual life insurance company under
At about the same time that it changed its corporate status, Blue Cross implemented a new provider contracting strategy in the Wichita market. Departing from its longtime strategy of contracting with every willing health care provider, Blue Cross requested bids from the three largest acute care hospitals in Wichita and indicated that it intended to select only two of the bidders to form a Blue Cross preferred provider organization. St. Francis declined to bid for the contract under the belief that it could continue its existing contractual relationship with Blue Cross.3 Blue Cross subsequently exercised its contractual right to terminate its relationship with St. Francis.
St. Francis then filed suit in Kansas state court seeking (1) an injunction to prevent
The district court granted Blue Cross‘s motion to dismiss the complaint. St. Francis Regional Medical Ctr. v. Blue Cross Blue Shield, 810 F.Supp. 1209, 1220 (D.Kan.1992). The court first held that ERISA preempts state law and that Congress intended the assignability of benefits to be left to the contractual provisions of individual plans without the constrictions of a mandatory rule for or against assignability. Id. at 1213-14. The court next ruled against St. Francis on its state lаw claims. The court held that St. Francis lacked standing to attack Senate Bill 66 because St. Francis had not been directly injured by its enactment. Id. at 1215-16. Alternatively, the court also rejected St. Francis‘s constitutional and public policy challenges on their merits. The court concluded that Kansas public policy supports restrictions on the assignability of benefits because the state‘s interests in the freedom to contract and in the containment of rising health care costs outweigh the importance of free assignability. Id. 1217-20. The court further held that Senate Bill 66 does not improperly create classifications within a similarly situated class of corporations in violation of the Kansas Constitution‘s prohibition against special legislation because it applies uniformly to all former nonprofit insurers. Id. at 1217. The court therefore found that Senate Bill 66 does not grant Blue Cross powers that other insurance companies lack.
St. Francis raises four arguments in its appeal of the district court‘s decision: (1) that Blue Cross‘s restrictions on assignability violate ERISA; (2) that Blue Cross‘s restrictions on assignability violate Kansas‘s public policy; (3) that St. Francis has standing to challenge Senate Bill 66‘s constitutionality under the Kansas Constitution; and (4) that under the Kansas Constitution Senate Bill 66 is unconstitutional because it is special legislation. St. Francis further argues that, contrary to the appropriate standard for ruling on a 12(b)(6) motion, the district court improperly relied on disputed facts outside of St. Franсis‘s pleadings to dismiss its action. In particular, St. Francis contends that the court did not accept its allegations as true that Blue Cross‘s new contracting strategy in Wichita merely shifts costs from the participating to non-participating providers without producing a net decrease in overall health care costs.
II. ERISA
The parties agree that some of the challenged insurance policies are covered by ERISA but that others are exempt from ERISA and, hence, governed by Kansas state law. We address those policies covered by ERISA first. We review de novo the district court‘s dismissal of St. Francis‘s action pursuant to
We conclude that ERISA preempts state law on the issue of the assignability of benefits because material provisions in the employee benefits plans covered by ERISA would bе directly affected if Kansas law were to be interpreted as prohibiting restrictions on assignment. ERISA itself is silent on the issue of the assignability of benefits in insurance plans. By contrast, ERISA specifically bars the assignment of benefits obtained under pension plans.
We interpret ERISA as leaving the assignability of benefits to the free negotiations and agreement of the contracting parties. Davidowitz v. Delta Dental Plan, 946 F.2d 1476, 1480-81 (9th Cir. 1991); Washington Hosp. Ctr. Corp. v. Group Hospitalization and Medical Servs., Inc., 758 F.Supp. 750, 752 n. 2 (D.D.C.1991). It would be contrary to Congress‘s laissez-faire attitude of declining to establish any statutory rule either requiring or prohibiting the assignability of benefits to allow states to intervene with their own policies mandating or forbidding assignability. As Congress has chosen not to interfere with the parties’ own freedom of contract on this matter, so must we insist that the states not interfere with the parties’ freedom of choice. Allowing the states to dictate the assignability of benefits would undoubtedly “relate to” these insurance plans. Any such overriding state policy would therefore “regulate the type of benefits or terms of ERISA plans,” National Elevator, 957 F.2d at 1558-59 (quotations omitted), and thus would constitute an improper interference with an ERISA plan. In so holding, we are in accord with a similar holding in the Eighth Circuit. See Arkansas Blue Cross and Blue Shield v. St. Mary‘s Hosp., Inc., 947 F.2d 1341, 1349-50 (8th Cir. 1991), cert. denied, 504 U.S. 957, 112 S.Ct. 2305, 119 L.Ed.2d 227 (1992).
St. Francis‘s reliance on Misic v. Building Serv. Employees Health and Welfare Trust, 789 F.2d 1374 (9th Cir. 1986), is misplaced. Although Misic overruled a lower court‘s holding that ERISA categorically forbids the assignment of welfare benefits, Misic did not hold that ERISA requires assignment. Id. at 1377. Ultimately, Misic is consistent with our holding in this case that ERISA cannot be read to impose a mandate favoring or opposing assignability.5
III. STATE CONSTITUTIONAL CLAIMS
We now turn to those policies that fall outside the ERISA framework and are therefore governed by state law.7 There is no doubt that the Kansas legislature has attempted to settle this issue: Senate Bill 66 expressly authorizes Blue Cross to limit the assignability of its insurance policies and thus codifies the rule of Augusta (issued when Blue Cross was a non-profit insurer uniquely regulated by Kansas statute). Alas, at the present time, Senate Bill 66, by its terms, empowers only Blue Cross to issue policies containing nonassignability clauses; other health insurers do not have the benefit of such explicit statutory authorization. St. Francis thus contends that the bill runs afoul of Article XII, Section 1, of the Kansas Constitution, which commands that the “legislature shall pass no special act conferring corporate powers.” Senate Bill 66 therefore cannot itself foreclose the outcome of this case.
Before turning to the constitutional question, we must first examine the threshold issue of standing. The district court found that, under Kansas law, St. Francis lacked standing to challenge the constitutionality of Senate Bill 66. We review this conclusion de novo. Board of County Comm‘rs v. W.H.I., Inc., 992 F.2d 1061, 1063 (10th Cir. 1993). Under Kansas law, a person must be directly affected by government action to challenge its constitutionality and may not invoke the rights of others. Manzanares v. Bell, 214 Kan. 589, 522 P.2d 1291, 1312 (1974). The Kansas Supreme Court has adopted the test of Warth v. Seldin to determine standing where an individual has challenged the federal constitutionality of state legislation: a plaintiff must allege a personal injury and a causal connection between that injury and the challenged government action which could be redressed by judicial intervention. Harrison v. Long, 241 Kan. 174, 734 P.2d 1155, 1158 (1987), appeal dismissed, 484 U.S. 804, 108 S.Ct. 50, 98 L.Ed.2d 15 (1987) (quoting Warth v. Seldin, 422 U.S. 490, 498-99, 95 S.Ct. 2197, 2204-05, 45 L.Ed.2d 343 (1975)).
Here St. Francis alleges a concrete personal injury directly caused by the challenged Kansas statute. If upheld, the statute would enable Blue Cross to restrict the assignability of benefits to contracting providers, and St. Francis would then incur the risk of delayed payments or non-payment from individual patients. The invalidation of Senate Bill 66 would eliminate this economic risk. Blue Cross argues, and the district court concluded, that the potential injury to St. Francis was merely indirect. It is true that the injury would result from restrictions оn the rights of third parties to assign expected health insurance benefits. Kansas, however, embraces a flexible test for standing that looks beyond direct injury to find standing whenever a plaintiff possesses a personal stake in a justiciable controversy. See, e.g., Delight Wholesale Co. v. City of Overland Park, 203 Kan. 99, 453 P.2d 82 (1969) (finding standing where a franchiser has attacked the constitutionality of an ordinance limiting the activities of its franchisees); Joe Self Chevrolet, Inc. v. Board of County Comm‘rs, 247 Kan. 625, 802 P.2d 1231, 1234-35 (1990)
Artiсle XII, Section 1, in essence, forbids the granting of statutory powers to one corporation that are not possessed by other, similarly situated corporations.8 The legislature cannot circumvent this prohibition by creative drafting because special legislation can always be drafted in a superficially neutral manner. Patrick v. Board of County Comm‘rs, 105 Kan. 153, 181 P. 611, 614 (1919) (“The mere fact that a statute is general in form will not save it if its operation and effect are necessarily local and special.“).9 The legislature, moreover, cannot confer special powers upon a select group of corporations through the identification of a class that is “arbitrary and fictitious, not based upon distinctions having a reasonable and substantial relation to the subject matter involved.” Board of County Comm‘rs v. Robb, 166 Kan. 122, 199 P.2d 530, 538 (1948), appeal dismissed sub nom. Big Slough Drainage Dist. v. Board of County Comm‘rs, 336 U.S. 957, 69 S.Ct. 893, 93 L.Ed. 1110 (1949). Thus, the law must treat—in substance, not in form—all like corporations uniformly.
In its original complaint, St. Francis alleged that Blue Cross “is now, at its own instigation, only one of a number of mutual life insurance companies operating under [Kansas law].” Aplt.App. at 5. There is nothing in the pleadings to suggest that this classification of Blue Cross is in any way “arbitrary” or “fictitious.” We therefore accept St. Francis‘s allegations that Blue Cross properly falls within the class of mutual life insurance companies that provide health insurance.
We now reach the heart of the issue before us: does Senate Bill 66 grant Blue Cross a power—namely, the ability to restrict the assignability of benefits—that other health care prоviders lack under Kansas law? If so, Senate Bill 66 is unconstitutional special legislation from which Blue Cross cannot benefit. If not, Senate Bill 66 is legally superfluous, albeit constitutional, and again Blue Cross gains nothing from the bill. The general legality of nonassignability clauses must in turn be resolved by reference to Kansas public policy.
In Augusta, the Kansas Supreme Court held decisively that Kansas public policy favored the use of nonassignability clauses by Blue Cross—at that time, a nonprofit state-affiliated insurer with a statutory mandate to control health care costs. The use by Blue Cross of nonassignability clauses created an incentive for hospitals to contract with Blue Cross as “member hospitals.” Member hospitals, in turn, were subject to a variety of cost control programs initiated by Blue Cross. The Kansas Supreme Court therefore concluded that nonassignability clauses acted as a cost containment measure and, as such, advanced the statutory goal of limiting health care costs. Augusta, 634 P.2d at 1126-27. After balancing the interests at stake, the Augusta court determined that this “vital public interest” in health care cost containment, in conjunction with the tradi-
From the outset of this litigation, St. Francis has strenuously contested the contemporary validity of the conclusions drawn by the Kansas Supreme Court in Augusta. In its complаint, St. Francis alleges that the transformation of Blue Cross from a nonprofit insurer willing to contract with all interested hospitals, into a for-profit insurer selectively contracting with certain hospitals has eliminated any benefit that nonassignability clauses may have held as cost containment measures. St. Francis maintains that, at this stage of the proceedings, we must accept this allegation as true, and therefore it asks that we re-examine the balance struck by the Kansas Supreme Court in Augusta.
This we cannot do. After Augusta, the utility of nonassignability clauses as a method of cost control simply is not a pure question of fact susceptible of quantitative proof. The Kansas Supreme Court has confronted, and brusquely dismissed, factual arguments based upon the alleged inefficacy of nonassignability clauses as a means of facilitating cost control:
The plaintiffs argue that there is no evidence that the cost control methods of Blue Cross will in fact accomplish their intended purpose. In support thereof, plaintiffs aver that the plaintiff hospitals generally have lower rates than do member hospitals. This really has no bearing on the question before us.
Augusta, 634 P.2d at 1127. St. Francis may be correct that nonassignability clauses merely redistribute costs among hospitals, with any savings inuring to Blue Cross as increased profit. Augusta, however, did not turn upon proof that nonassignability clauses would always or inevitably contain costs; rather, it rests upon a legal conclusion that nonassignability clauses, as a deviсe, could contain costs and therefore are legitimate cost containment devices. We are bound by the reasoning of the Kansas Supreme Court and are therefore required to assume, pleadings notwithstanding, that nonassignability clauses are a method of cost containment.
Our acknowledgment of the value of nonassignability clauses does not foreclose our inquiry, however. Kansas public policy is dictated by a balancing of relevant interests, merely one of which is cost containment. Augusta does not compel us to hold that balance static in the face of changed circumstances. See, e.g., Reazin v. Blue Cross & Blue Shield, 635 F.Supp. 1287 (D.Kan.1986), aff‘d, 899 F.2d 951 (10th Cir.), cert. denied, 497 U.S. 1005, 110 S.Ct. 3241, 111 L.Ed.2d 752 (1990) (distinguishing Augusta because of Blue Cross‘s refusal to deal with certain hospitals). We recognize that the factors weighed by the Kansas Supreme Court no longer accurately reflect the health insurance regime in Kansas. Blue Cross is now a for-profit health insurer rather than a state-affiliated non-profit insurer. Blue Cross no longer operates under a statutory mandate to control health care costs, nor is Blue Cross empowered by statute to undertake measures to implement that mandate. Blue Cross has abandoned its universalist market strategy and has turned instead to a competitive scheme in which hospitals bid for the right to contract with Blue Cross.11
The ruling of the district court is AFFIRMED both as to the ERISA and as to the state constitutional claims.
AFFIRMED.
EBEL, Circuit Judge, concurring in part and dissenting in part.
I agree with most of the majority‘s well reasoned and cogently presented opinion and concur as to its disposition оf St. Francis‘s claims under ERISA. However, I dissent to express my disagreement with the majority‘s treatment of St. Francis‘s state law claims. In particular, I believe that St. Francis has alleged facts that, if proven, would state a claim that Blue Cross‘s current use of nonassignability provisions violates Kansas public policy and that Senate Bill 66 is an impermissible grant of a special corporate power in contravention of the Kansas Constitution‘s prohibition on special legislation, which precludes reliance on that legislation to define Kansas public policy. Unlike the majority, I would not dismiss St. Francis‘s allegations as a matter of law and deprive St. Francis of an opportunity to substantiate its allegations.
The essential flaw in the majority‘s оpinion is its view that the Kansas Supreme Court‘s opinion in Augusta Medical Complex, Inc. v. Blue Cross, 230 Kan. 361, 634 P.2d 1123 (1981), establishes as a matter of law and under all circumstances that the public policies favoring containment of health care costs and freedom of contract are advanced by Blue Cross‘s use of nonassignability clauses and that those public policies outweigh the public policy favoring free assignability of choses in action. Contrary to the majority‘s suggestion, Augusta did not hold that a court must presume that nonassignability clauses foster cost containment regardless of evidence to the contrary about their actual operation in the market. Rather, the Augusta court made a judgment that, under the specific circumstances presented in that case, suсh nonassignability clauses did not violate Kansas public policy as it was then defined for Blue Cross as a special state-chartered nonprofit health insurer.
There are several important distinctions between Augusta and the situation presented in the instant case. First, the Augusta court was bound by a specific statutory mandate that Blue Cross no longer enjoys to experiment with techniques and devices that may result in industry-wide cost containment. Id. at 1127. The Augusta court appears to have concluded that nonassignability clauses fell within the broad scope of that
In Reazin, Blue Cross had unilaterally refused to deal with selected health care providers. The district court concluded that Blue Cross‘s actions had subverted the logical underpinnings of Augusta, which had assumed that nonassignability clauses would be used to encourage participation in the Blue Cross system. See Reazin, 635 F.Supp. at 1335 (“[Blue Cross] cannot argue its nonassignment of benefits policy is intended under these circumstances to serve the statutory purposes relied on by the [Augusta] court.“). We affirmed without comment. See 899 F.2d 951.
Notwithstanding our appreciation of the more dubious aspects of nonassignability clauses, St. Francis cannot benefit from Reazin because, having chosen not to bid upon Blue Cross‘s contract, St. Francis cannot now claim to have been unilaterally and unwillingly excluded from the Blue Cross system. It is true that Blue Cross, in implementing its competitive bidding scheme, unilaterally terminated the existing relationship with St. Francis; in so doing, however, Blue Cross merely exercised its contractual rights. St. Francis, moreover, has raised no antitrust or unfair competition claims, which figured prominently in Reazin. St. Francis has likewise failed to arguе that the potentially anticompetitive impact of nonassignability clauses has shifted the balance found by the Kansas Supreme Court. We therefore have no cause to re-examine Augusta from the perspective of a party who has been excluded from the Blue Cross system after having entered a bid.
Moreover, even if Augusta had held that nonassignability clauses did reduce costs, the changes in Blue Cross‘s status would now require a new determination. Blue Cross‘s new strategy of favoring only one or two hospitals in a market with the ability to accept assignment of Blue Cross benefits is a dramatic change in marketing, and that ought to be one of the items weighed in the balancing analysis that Augusta requires us to perform in determining whether Kansas public policy would tolerate the challenged restraints on assignability of choses in action. That balаncing analysis has never been done. Until such a balancing analysis is performed—under the current state of facts—we cannot say whether Kansas public policy as expressed by its common law would approve this limitation or not. In any event, we must remember that we are dealing with this case at a motion to dismiss stage, and St. Francis has certainly alleged that Blue Cross‘s current practices do not lead to cost containment.
In its earlier form, Blue Cross had a statutory obligation to reduce health care costs in the entire industry. It sought to meet that obligation by imposing strict benefit limits in its policies, which limits had to be accepted as payment in full by the contracting hospitals. Those provisions had the effect of containing thе costs of the hospitals that contracted with Blue Cross. As an incentive to encourage all hospitals to contract with Blue Cross, Blue Cross utilized nonassignability clauses so that a hospital that did not contract with Blue Cross could not indirectly get all of the advantages that providers received who did contract with Blue Cross. However, the nonassignability clause did not contain costs by its own terms, but rather it simply provided the incentive to persuade the individual hospitals to accept other cost containment provisions imposed by Blue Cross contracts.
Once Blue Cross became a mutual life insurance company, it shed itself of any statutory obligation to reduce costs industry-wide. It was no longer concerned about reduсing costs in the entire industry, but rather was interested only in reducing costs for itself. As part of that new strategy, it no longer sought to bring the entire hospital industry under its benefits schedule. Instead, it sought to direct all of its business to several favored hospitals in exchange for the best possible deal from those particular hospitals. Once again, nonassignability clauses were used as an incentive to encourage several select hospitals to contract with Blue Cross. The difference, however, is that there are now hospitals with whom Blue Cross refuses to contract, and, thus, those hospitals will not be under Blue Cross‘s benefits schedule. St. Francis argues that funneling all of the Blue Cross business to several favored hospitals will substantially increase the per-bed costs of the disfavored hospitals, who will then lose all the Blue Cross patients. St. Francis alleges that the net effect industry-wide will be an increase in hospital costs. The difference results from Blue Cross‘s change in marketing strategy from an all-inclusive industry-wide strategy to a divide-and-conquer strategy. The former focuses on industry-wide costs and the latter focuses on what is best for Blue Cross individually as a for-profit company. Once Blue Cross is treated like an ordinary health care insurer without special statutory powers, these allegations about the actual operation of nonassignability provisions must
The case of Reazin v. Blue Cross and Blue Shield certainly provides a reason to think that the public policy balance might be altered by Blue Cross‘s adoption of its new exclusive marketing strategy. 635 F.Supp. 1287 (D.Kan.1986), aff‘d, 899 F.2d 951 (10th Cir.), cert. denied, 497 U.S. 1005, 110 S.Ct. 3241, 111 L.Ed.2d 752 (1990). Although St. Francis does not allege an antitrust claim as did the plaintiff in Reazin, Reazin draws a sharp distinction between Blue Cross‘s marketing strategy that makes its contracts available on a nondiscriminatory basis to the entire industry and a marketing strategy that seeks simply the best deal for Blue Cross by excluding some hospitals from its system. Id. at 1333-35. When Blue Cross is not trying to encourage hospitals to join its network, it “cannot argue its nonassignment of benefits policy is intended ... to serve the statutory purposes relied on by the court [in Augusta].” Id. at 1335. The Reazin analysis is thus more applicable than the Augusta analysis.2
Further, as the majority recognizes, Blue Cross cannot rely on Senate Bill 66 because that statute hаs been challenged as special legislation and we must assume for purposes of this appeal that no substantive reason exists to treat Blue Cross differently from any other health insurer—unlike when Blue Cross was a unique nonprofit statutory entity. Thus, “Senate Bill 66 ... cannot itself foreclose the outcome of this case.” Maj. Op. at 1465.
My conclusion that we should not dismiss St. Francis‘s action pursuant to