Court Opinion

ID: 9487911
Source: CourtListenerOpinion
Date Created: 2023-08-05 12:29:51.662426+00
Date Added: 2024-06-11T17:52:33.514486
License: Public Domain

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 of 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 nonas-signability 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 opinion 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 judgmént that, under the specific circumstances presented in that case, such 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 ease. 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. 634 P.2d at 1127. The Augusta court appears to have concluded that nonassignability clauses fell within the broad scope of that *1469authority given by the legislature to Blue Cross while it was specially chartered to experiment with various techniques. Thus, all Blue Cross needed to do to uphold its utilization of nonassignability clauses was to show that such clauses arguably might result in industry-wide cost containment.1 The Kansas Supreme Court did not reach any factual conclusions that nonassignability clauses, in fact, reduced hospital costs overall. Now that Blue Cross no longer is legislatively authorized to experiment with techniques that may or may not work to reduce costs, the balancing analysis changes and the inquiry moves from permissible possible consequences to probable consequences.
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 balancing 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 the 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 reducing 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 tunneling 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 *1470be included in our analysis of whether Kansas public policy would continue to tolerate restraints on the assignability of ehoses in action.
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 has 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 Fed.R.Civ.P. 12(b)(6) does not reflect any judgment about the ultimate merits of St. Francis’s claims. . I note, along with the majority, that several other state courts have upheld restrictions on the assignability of health insurance proceeds. Maj. Op. at 1466-67. Nevertheless, St. Francis is entitled to its day in court. Because I do not read Augusta as barring the courthouse door, I respectfully dissent.

. This is why the Kansas Supreme Court said it had no bearing in the analysis whether Blue Cross’s cost containment methods would "in fact accomplish their intended purpose.” Augusta, 634 P.2d at 1127. That language, quoted by the majority at page 1467 of its opinion, does not show the controlling nature of Augusta, but rather highlights that the court there was addressing quite a different issue from that now presented to us in St. Francis’s complaint.

. The majority acknowledges Reazin'but somehow distinguishes it because St. Francis was not excluded by Blue Cross after bidding to join the Blue Cross system. Maj. Op. at 1467 n. 11. However, St. Francis’ failure to bid does not seem relevant to its present claim. If St. Francis were arguing that Blue Cross impermissibly refused to contract with it, St. Francis would have a standing problem given that it never bid for such a contract. However, that is not St. Francis’s. complaint. Rather, St. Francis complains that as an outsider, it and all other outsiders should be able to accept assignments from patients insured by Blue Cross, because Blue Cross's current use of nonassignability provisions violates Kansas public policy.
The majority also seeks to distinguish Reazin by arguing that St. Francis here, unlike in Reaz-in, has failed to argue that the "anti-competitive impact" of nonassignability clauses shifts the public policy balance struck in Augusta. Maj. Op. at 1467 n. 11. However, the majority is mistaken in its statement that St. Francis does not advance that claim. To the contrary, St. Francis has alleged that the public policy balance struck by the Augusta court is altered by Blue Cross's new exclusive contracting strategy, even though it has not asserted a specific right to contract with Blue Cross itself. The majorily elsewhere recognizes that "[fjrom the outset of this litigation, St. Francis has strenuously contested the contemporary validity of the conclusions drawn by the Kansas Supreme Court in Augusta," id. at 1467, and that "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,” id.