BAYSTATE MEDICAL CENTER & others [Note 1] vs. BLUE CROSS OF MASSACHUSETTS, INC.

ABRAMS. J. By their complaint the plaintiffs, four general acute care hospitals, seek a declaration as to the rate of reimbursement to be paid to them by the Medical West Community Health Plan (Medical West), a health maintenance organization (HMO) [Note 2] operated and controlled by Blue

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Cross. G. L. c. 231A. Blue Cross filed an answer admitting an actual controversy existed, and it filed a counterclaim. Thereafter, the parties filed a stipulation of agreed facts [Note 3] and a single justice of this court reserved and reported the case without decision. [Note 4]

At issue is whether the rate of reimbursement Blue Cross must pay when it acts as a carrier for an HMO is determined by G. L. c. 176A, [Note 5] the general statute governing Blue Cross hospital reimbursement rates. In support of their claim that the c. 176A rate does not apply, the plaintiffs rely on the absence of any rate limitation in the statute governing HMO's, G. L. c. 176G. Blue Cross argues that it is functioning in its usual capacity as a hospital care insurer under the HMO's hospital plan, and therefore the rate authorized by G. L. c. 176A does apply. We interpret the language of c. 176A and c. 176G in light of the intent of the Legislature, and "we consider the several statutes in question, not in isolation but in relation to each other and to other statutes, resorting

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to their origins, their historic development, and their present language." Pereira v. New England LNG Co., 364 Mass. 109, 115 (1973). For the reasons stated in the opinion we think that while Blue Cross's position is plausible, a careful reading of the statutes in light of their purposes favors the conclusion suggested by the plaintiffs. [Note 6]

We summarize the agreed facts. The plaintiffs are four hospitals operating in the Chicopee-Holyoke-Springfield area. Pursuant to G. L. c. 176G, on May 31, 1978, Blue Cross filed with the Commissioner of Insurance an application for a license for a health maintenance organization [Note 7] to be known as Medical West Community Health Plan, to serve the greater Chicopee-Holyoke-Springfield area. The license was granted, and Medical West commenced operations on October 6, 1978. Medical West provides its members with comprehensive doctors' services, inpatient and outpatient hospital care, emergency services and other forms of health care. See note 2, supra. Medical West provides some of these directly, [Note 8] and arranges for other providers

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to supply certain other services. The specific services which Medical West provides to its members are set out in a document entitled "Evidence of Coverage," issued to all members.

Medical West was first operated as a line of business of Blue Cross, through the Blue Cross HMO division. In 1979, it was incorporated as a separate nonprofit corporation, and the license for the HMO was transferred to it. Blue Cross is the only large investor in Medical West, and pursuant to the by-laws of Medical West, Blue Cross is the sole member of the Medical West Corporation. Blue Cross appoints all of the members of Medical West's board of directors.

Blue Cross is a nonprofit "hospital service corporation" organized under G. L. c. 176A. It is the only corporation in Massachusetts organized and doing business under that statute. Pursuant to c. 176A, Blue Cross for many years has provided a number of group hospital service plans to its subscribers, primarily indemnity plans, coinsurance contracts and comprehensive contracts.

In the c. 176A plans, Blue Cross contracts with hospitals to provide services to its members using a standard agreement known as the Hospital Reimbursement Agreement (HA-27). That is the only agreement between Blue Cross and any general hospital which has been approved by the Massachusetts Rate Setting Commission pursuant to G. L. c. 176A, Section 5, sixth and seventh pars. Each of the plaintiff hospitals had entered into such an agreement with Blue Cross, effective October 1, 1977, to govern reimbursement for services rendered to members of Blue Cross group plans. The agreement, HA-27, predated the establishment of Medical West. Under the terms of the HA-27 agreement, the hospitals are reimbursed by Blue Cross at the rate authorized by G. L. c. 176A, Section 5, sixth par. See note 5, supra.

When Blue Cross submitted its original application for the Medical West HMO to the Commissioner of Insurance, it included a proposed hospital agreement to cover Medical West's relationship with each of the plaintiff hospitals.

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Among its terms was a provision that the plaintiffs be reimbursed at the HA-27 level for care of its HMO members. That document was not submitted to nor approved by the plaintiffs prior to its submission to the Commissioner. When Blue Cross later offered the proposed agreement to each plaintiff, the hospitals would not sign it.

Pending the resolution of this action, the plaintiffs have agreed to accept payments from Blue Cross under HA-27, and have waived any claims to damages in excess of the difference between reimbursement at full charges and reimbursement under HA-27 at the reasonable cost level for Medical West members. [Note 9]

Statutory construction. The basic benefit offered by Blue Cross is payment toward hospital charges incurred by a subscriber. Blue Cross pays the hospital directly for these services at the discounted rate authorized by G. L. c. 176A. See note 5, supra. [Note 10] Blue Cross c. 176A plans are based on the fee-for-service concept.

In contrast, an HMO member pays a fixed monthly amount for health care. The benefits under an HMO plan include physician services, inpatient and outpatient hospital services, emergency health services, and may include chiropractic services. These benefits are generally greater than those conferred by traditional third party payor health plans. However, an HMO subscriber must receive care only from the persons and institutions that are on the

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staff of or have contracted with the HMO if the plan is to pay for the member's health care. [Note 11] See, e.g., note 8, supra. Since the HMO's must bear the cost of treating their own members, they are said to have a greater incentive than traditional fee-for-service providers to control the costs of health care. [Note 12] See generally Kissam & Johnson, Health Maintenance Organizations and Federal Law: Toward a Theory of Limited Reformmongering, 29 Vand. L. Rev. 1163, 1163-1165 (1976); Havighurst, Health Maintenance Organizations and the Market for Health Services, 35 L. & Contemp. Prob. 716, 719 (1970).

At the time G. L. c. 176G was enacted, "concern with rising costs of health care and lack of access by many people to quality health care [had] generated increased interest in alternative health care systems throughout this country." Huff v. St. Joseph's Mercy Hosp. of Dubuque Corp., 261 N.W.2d 695, 698 (Iowa 1978). The HMO statute was a legislative response to problems of access and cost. In this vein, the statute permits a number of persons, corporations or other entities to establish HMO's. G. L. c. 176G, Sections 1 and 3. It also delegates to the Commissioner of Insurance the power to disapprove HMO rates, and provides that "[n]o [subscriber] contracts shall be approved if the benefits provided therein are unreasonable in relation to the rate charged, nor if the rates are excessive, inadequate or unfairly discriminatory." G. L. c. 176G, Section 16. However, there is no regulation in c. 176G, governing an HMO's hospital reimbursement rate. Specifically, the reasonable

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cost limitation of G. L. c. 176A, Section 5, sixth par., is not included in G. L. c. 176G. See supra at 486 & n.5.

The question is whether c. 176A, or c. 176G, takes precedence when Blue Cross controls and operates an HMO, and simultaneously acts as a carrier for that HMO. Blue Cross claims that, when it functions as a carrier for an HMO, it is entitled to reimburse hospitals at the discounted rate mandated by G. L. c. 176A, Section 5, sixth par. We disagree.

The Legislature has exempted HMO's from the provisions of G. L. c. 176A in Section 2 of G. L. c. 176G. "[T]he provisions of chapters . . . one hundred and seventy-six A . . . shall not apply to a health maintenance organization." "Words found in a statute are to be given their ordinary lexical meaning unless there be a clear indication to the contrary." Randall's Case, 31 Mass. 383, 385 (1954). The legislative command in Section 2 is clear and unambiguous: G. L. c. 176A is not applicable to HMO's.

Blue Cross suggests that if the reasonable cost reimbursement requirement of c. 176A, Section 5, sixth par., is held not to apply to Blue Cross operated HMO's then Blue Cross would have to be exempted from the other regulatory provisions of c. 176A as well. Were this the case, Blue Cross argues, it and other insurance carriers would be allowed to operate in a total "regulatory lacuna," simply by virtue of operating an HMO. This argument renders nugatory Section 2 of G. L. c. 176G. "An intention to enact a barren and ineffective provision is not lightly to be imputed to the Legislature." Insurance Rating Bd. v. Commissioner of Ins., 356 Mass. 184, 189 (1969). In effect, as we read Section 2, it exempts health care carriers from the statutory provisions which generally regulate them only to the extent that they provide HMO care or coverage, and are therefore governed by G. L. c. 176G.

Blue Cross seeks to find support for its position in cl. 6 of Section 3 of c. 176G, which allows insurance carriers, including Blue Cross, to issue jointly "health maintenance contracts" with an HMO. See note 7, supra. Blue Cross argues that by issuing such a joint contract, which the statute clearly permits, the HMO members must be treated as Blue Cross

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hospital service plan members for reimbursement purposes. Although Section 3 allows Blue Cross and other carriers to issue plans under the HMO statute, the question is what reimbursement rate should apply. On that issue, Section 3 is silent. [Note 13]

We think that Section 2 of c. 176G indicates that the Legislature did not intend to extend to Blue Cross a competitive edge in the HMO field similar to that which Blue Cross enjoys under c. 176A. Blue Cross itself recognizes that there is a need for competition in the health care field. In a letter to the Commissioner of Insurance, it states that "competition between HMOs and the traditional system, and among HMOs, is particularly important as an incentive for cost containment." In its letter, Blue Cross also promises that neither it nor Medical West would engage in anticompetitive practices which act to enhance the market position of Medical West. "In particular," Blue Cross states, "we will not hinder the formation, operation, or expansion of other HMOs. . . ." However, to grant Blue Cross the advantage it seeks for its HMO members by virtue of c. 176A may well have that effect. [Note 14]

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Further, "[i]n all grants, made by the government to individuals, of rights, privileges, and franchises, the words are to be taken most strongly against the grantee." Cleaveland v. Norton, 6 Cush. 380, 383-384 (1850). Construing the exclusive privilege granted Blue Cross most strongly against it favors the plaintiffs' construction of the relevant statutes. We think that if the exclusive privileges granted Blue Cross under G. L. c. 176A are to be extended to c. 176G, that should be done by the Legislature.

Finally, Blue Cross suggests that if it does not prevail, Medical West's premiums may be increased, thereby rendering futile the Legislature's attempt to contain health care costs. The Legislature chose to keep costs down by encouraging competition rather than by extending Blue Cross's exclusive privileges. The choice of means to attain its goals is for the Legislature. We add that, although Medical West's premiums might rise in the short run, the Legislature might well have thought it imprudent to grant further exclusive privileges to the State's largest health insurance carrier.

This case is remanded to the county court for a declaration that the rate of reimbursement to be paid by Blue Cross to the plaintiffs for services rendered to Medical West subscribers is not controlled by G. L. c. 176A, Section 5, sixth par.; and for such further proceedings as are necessary.

So ordered.