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Rehab Center Inc v. Blue Cross

Michigan Court of Appeals
Nov 5, 1979
287 N.W.2d 237 (Mich. Ct. App. 1979)


Docket Nos. 78-1823 through 78-1830.

Decided November 5, 1979. Leave to appeal applied for.

Cook Pringle, P.C., for plaintiff Rehabilitation Center, Inc.

Barris, Sott, Denn Driker (by Eugene Driker, Stephen E. Glazek and Barbara Shaw Harvey), for plaintiff Allen Park Convalescent Home, Inc.

David Lebenbom, P.C., for Nightingale West Inc.

Bellanca, Beattie DeLisle, for Venoy Continued Care Center, Inc.

Frimet, Goren Bellamy, P.C. (by Alan G. Gilchrist), for Westland Convalescent Center.

Frank J. Kelley, Attorney General, Robert A. Derengoski, Solicitor General, and Harry G. Iwasko, Jr., and Louis J. Porter, Assistants Attorney General, for defendant Commissioner of Insurance.

Before: BASHARA, P.J., and BEASLEY and J. DANER, JJ.

Circuit judge, sitting on the Court of Appeals by assignment.

In 1966, Blue Cross and Blue Shield of Michigan instituted a convalescent and long-term illness care (CLTC) program. Its purpose is to provide skilled nursing care to patients who would otherwise require hospitalization at a significantly higher cost. In order for a nursing home to qualify for participation in the program, it must be accredited by the Joint Commission on Accreditation of Hospitals.

Plaintiffs are nursing homes which have contracted with Blue Cross to participate in the CLTC program. In order to become accredited, some of the plaintiffs upgraded their facilities by adding additional personnel and equipment.

For 11 years following the inception of the program, the rate at which Blue Cross would reimburse plaintiffs for services rendered to Blue Cross subscribers remained fixed at the lesser of one-half the average per diem charged for acute care by local hospitals or the actual bill charged by the nursing home, if reasonable and customary. In September, 1977, Blue Cross notified plaintiffs that the program was being changed to limit reimbursement to a ceiling based upon the 80th percentile of the Medicare rates of payment on a regional basis. Plaintiffs were also sent new contracts, effective October 1, 1977.

Under the new contract, Blue Cross was to reimburse participating providers according to its reimbursement policies as established from time to time by its Board of Directors. On September 30, 1977, Blue Cross notified plaintiffs that reimbursement for their services would be limited to $35.98 per day.

Several of the plaintiffs then brought suit in Wayne County Circuit Court, and temporary restraining orders were issued preventing implementation of the revised formula.

On November 8, 1977, the Insurance Commissioner for Michigan notified plaintiffs that a public hearing would be held on the matter of the revised reimbursement ceilings. Plaintiffs' requests for a contested hearing were denied. The Insurance Commissioner subsequently issued an order approving the new plan of reimbursement.

Plaintiffs sought judicial review of the Commissioner's decision. The Wayne County Circuit Court found in favor of plaintiffs and remanded the case to the Commissioner for a trial-type contested hearing. From that decision and order, the Commissioner appeals.

Blue Cross and Blue Shield of Michigan is a nonprofit medical care corporation, MCL 550.301 et seq.; MSA 24.591 et seq. As such, rates charged subscribers and rates of payment to contracting hospitals, nursing facilities and home health care agencies are subject to the approval of the Commissioner of Insurance. MCL 550.503; MSA 24.623.

The sole issue before us is whether plaintiffs are entitled to a contested hearing before the Commissioner of Insurance as an integral part of the rate-approval procedure. The lower court ruled that plaintiffs were entitled to such a hearing on two bases: fundamental due process and a statutory right under § 3(3) of the Administrative Procedures Act, MCL 24.203(3); MSA 3.560(103)(3).

When the government seeks to deprive a person of a property right, due process requires a hearing appropriate to the nature of the case. Rockwell v Crestwood School District Board of Education, 393 Mich. 616, 633; 227 N.W.2d 736 (1975). The concept of "property" has been broadly construed to include interests which do not fall within traditional notions. Goldberg v Kelly, 397 U.S. 254; 90 S Ct 1011; 25 L Ed 2d 287 (1970). However, there are limits to what constitutes a property interest. In Board of Regents of State Colleges v Roth, 408 U.S. 564, 577; 92 S Ct 2701, 2709; 33 L Ed 2d 548, 561 (1972), the Supreme Court explained as follows:

"To have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it. It is a purpose of the ancient institution of property to protect those claims upon which people rely in their daily lives, reliance that must not be arbitrarily undermined. It is a purpose of the constitutional right to a hearing to provide an opportunity for a person to vindicate those claims.

"Property interests, of course, are not created by the Constitution. Rather, they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law — rules or understandings that secure certain benefits and that support claims of entitlement to those benefits. Thus, the welfare recipients in Goldberg v Kelly, supra, had a claim of entitlement to welfare payments that was grounded in the statute defining eligibility for them."

Plaintiffs have failed to demonstrate the deprivation of any property interest in this case.

Plaintiffs argue that they have a substantial economic stake in the CLTC program which constitutes a property interest. While plaintiffs may be economically dependent upon payments derived from the CLTC program, they have failed to demonstrate any "legitimate claim of entitlement", statutory or otherwise, to the unaltered continuation of the program.

Plaintiffs' claim that Morgan v United States, 304 U.S. 1; 58 S Ct 773; 82 L Ed 1129 (1938), is analogous to the instant case is entirely without merit. In Morgan, the Supreme Court held that cattle market agencies had a right to a hearing prior to the determination, by the Secretary of Agriculture, of the maximum rates which those agencies could charge for their services. In the instant case, the Commissioner of Insurance does not set the maximum rates which plaintiffs may charge for their services. Plaintiffs are free to charge whatever they want. If they feel that Blue Cross payments are inadequate, they may decline to enter into participation contracts with Blue Cross.

Plaintiffs also cite a number of cases involving Medicare and Medicaid payments to hospitals and nursing homes: Mercy General Hospital v Weinberger, 410 F. Supp. 344 (ED Mich, 1975), Langhorne Gardens, Inc v Weinberger, 371 F. Supp. 1216 (ED Pa, 1974), Coral Gables Convalescent Home, Inc v Richardson, 340 F. Supp. 646 (SD Fla, 1972). In those cases, the government sought to reduce or terminate payments due particular institutions in order to recoup prior overpayments. The Courts held that procedural due process required at least a post-termination hearing. However, the health care providers in those cases were entitled by statute and contract to be reimbursed for services they had provided. See Langhorne, supra, 1220. Plaintiffs in the instant case have demonstrated nothing more than a unilateral expectation that the CLTC program would continue unchanged. Under Roth, supra, this is not a property interest to which the requirements of procedural due process attach.

Plaintiffs also contend that a contested hearing is mandated by the Administrative Procedure Act, MCL 24.203(3); MSA 3.560(103)(3), which provides in pertinent part:

"(3) `Contested case' means a proceeding, including * * * rate-making, price-fixing, and licensing, in which a determination of the legal rights, duties, or privileges of a named party is required by law to be made by an agency after an opportunity for an evidentiary hearing."

Plaintiffs argue that the language "including rate-making" indicates that such proceedings are to be considered contested cases automatically. Such an interpretation was rejected with respect to licensing in Kelly Downs, Inc v Racing Comm, 60 Mich. App. 539; 231 N.W.2d 443 (1975). Unless an evidentiary hearing is required by law, the proceeding is not a "contested case". 13-Southfield Associates v Dept of Public Health, 82 Mich. App. 678, 685; 267 N.W.2d 483 (1978). While MCL 550.503; MSA 24.623 provides for approval of Blue Cross rates of payment by the Insurance Commissioner, it does not require an evidentiary hearing. Hence, it is not a "contested case".

The decision of the circuit court is reversed.

J. DANER, J., concurred.

While concurring with the majority opinion, I would urge the Legislature to give consideration to amplifying the statute to spell out a procedure for review of rates of payment to contracting hospitals which will include establishing standards for such review. Blue Cross Blue Shield of Michigan v Insurance Comm'r, 403 Mich. 399, 428; 270 N.W.2d 845 (1978).

Summaries of

Rehab Center Inc v. Blue Cross

Michigan Court of Appeals
Nov 5, 1979
287 N.W.2d 237 (Mich. Ct. App. 1979)
Case details for

Rehab Center Inc v. Blue Cross

Case Details


Court:Michigan Court of Appeals

Date published: Nov 5, 1979


287 N.W.2d 237 (Mich. Ct. App. 1979)
287 N.W.2d 237

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