Blue Cross of Maryland, Inc. v. Franklin Square Hospital

Eldridge, J., delivered the opinion of the Court. By Chapter 627 of the Acts of 1971, Maryland Code (1957, 1971 Repl. Vol., 1975 Cum. Supp.), Art. 43, §§ 568H-568Y, the General Assembly established the Maryland Health Services Cost Review Commission.

The Act vested the Commission with jurisdiction over the costs and rates of hospitals, health care institutions and related institutions located in Maryland. The Commission was charged with the responsibility of assuring that hospital “rates are set equitably among all purchasers or classes of purchasers without undue discrimination or preference.” In order to accomplish this, the Commission was given “full power to review and approve the reasonableness of rates established or requested” by hospitals subject to its jurisdiction. At issue here is the meaning of the terms “purchaser” and “classes of purchasers” as used in the statute. Also at issue is the scope of the Commission’s authority to “review and approve” the reasonableness of established or proposed hospital rate structures.

The Health Services Cost Review Commission was designed to “cause the public disclosure of the financial position of all hospitals and related institutions and the verified total costs actually incurred by each such institution in rendering health services.” Art. 43, § 568H (a). The Commission was also intended to insure the financial integrity of hospitals and related institutions, and to “concern itself with solutions when [financial] resources are inadequate.” Ibid. In order to carry out its statutory responsibilities, the Commission was vested with certain powers, including the power to promulgate rules and regulations, hold public hearings, conduct investigations, and “[e]xercise, subject to the limitations and restrictions herein imposed, all other powers which are reasonably ⁹⁶ necessary or essential to carry out the expressed objects and purposes of this subtitle.” Art. 43, § 568M (3). The law further provides, Art. 43, § 568U: “(a) From and after July 1,1974, the Commission shall have the power to initiate such reviews or investigations as may be necessary to assure all purchasers of health care hospital services that the total costs of the hospital are reasonably related to the total services offered by the hospital, that the hospital’s aggregate rates are reasonably related to the hospital’s aggregate costs; and that rates are set equitably among all purchasers or classes of purchasers of services without undue discrimination or preference. “(b) In order to properly discharge these obligations, the Commission shall have full power to review and approve the reasonableness of rates established or requested by any hospital subject to the provisions of this subtitle.

No hospital shall charge for services at a rate other than those established in accordance with the procedures established hereunder. * * * y> In October 1974, the Commission adopted its first set of rules and regulations concerning hospital rate applications and approval. 1 Maryland Register 177 (November 27, 1974). The regulations contained provisions authorizing rate differentials to qualifying “third-party-purchasers” in all hospitals throughout the state, regardless of the financial circumstances of an individual hospital. Rule 10.36.10.93, 1 Maryland Register at 188. The regulations also contained procedures by which the hospitals would submit proposed rate schedules of the hospital for the Commission’s review and approval.

Some of the regulations, such as the one providing for purchaser differentials, attempted to incorporate by reference certain portions of “Rate Approval Guidelines” issued by the Commission in September 1974. ⁹⁷ The guidelines were not themselves promulgated as rules and regulations pursuant to the provisions of the Administrative Procedure Act, Code (1957, 1971 Repl. Vol., 1975 Cum. Supp.), Art. 41, §§ 245-248. Franklin Square Hospital, along with nineteen other hospitals, all voluntary, nonprofit hospitals located in the State of Maryland, filed a bill for declaratory judgment in the Circuit Court for Baltimore County.

The bill challenged portions of the regulations governing hospital rate applications, and the incorporation by reference of provisions of the Commission’s guidelines into the regulations. Subsequently, four other voluntary, nonprofit hospitals were added as plaintiffs. The hospitals sought a declaration that the Commission only had authority to regulate rates on a hospital-by-hospital basis, rather than on a statewide basis as the Commission had attempted to do. Additionally, the hospitals sought a judgment declaring that the guidelines were not properly adopted as rules and therefore were not binding on the hospitals, and that the Commission could not properly incorporate any of the guidelines by reference in its formally adopted rules and regulations.

Subsequently, at various stages of the proceedings, Blue Cross of Maryland, Inc., the Health Insurance Association of America, and Group Hospitalization, Inc., were granted leave to intervene. Blue Cross is a nonprofit Maryland corporation offering hospitalization expense coverage to its subscribers who constitute about one-third of the population of Maryland. Group Hospitalization, Inc., is the “Blue Cross” plan for the Washington, D. C., metropolitan area, including portions of Montgomery and Prince George’s Counties in Maryland, and is qualified to do business in this State. Both Blue Cross and Group Hospitalization, Inc., are regulated by the provisions of Code (1957, 1972 Repl.

Vol., 1975 Cum. Supp.), Art. 48A, §§ 354-361A which govern nonprofit health service plans. 1 Health Insurance Association of America, a ⁹⁸ Delaware corporation, is an association of 322 health insurance companies of which 171 are qualified to do business in Maryland. At trial, the hospitals and the Commission entered a stipulation regarding certain facts as well as several contentions of the parties. The only witness, Dr. John Cook, testified on behalf of the Commission with respect to the guidelines and the rationale behind the differentials.

The chancellor, however, thereafter stated that the principal issues to be decided were legal, and that no testimony was needed. He then characterized those issues: “First is whether the Guidelines are really rules and regulations which have to be approved under Article 41. Second, is the power of the Commission regarding hospital rates. Third, whether the Guidelines are incorporated into the adopted rules and regulations by reference or not.

Fourth, is the power of the Commission to interfere with the business operation of the third party, major third party payors. Fifth, whether the differentials and the Guidelines are within the Legislative Mandate.” The remainder of the circuit court proceedings was devoted to legal argument by the parties. The court indicated, however, that issues concerning the differentials and the Commission’s power over third party payors would be deferred for a later hearing. Consequently, arguments during the proceedings were addressed primarily to the first three issues as characterized by the chancellor.

Subsequently, the chancellor issued an opinion and, about six weeks later, an “order of final judgment.” The final judgment order declared, inter alia: “A. In each case before it the Commission shall determine whether the rates charged by a hospital are reasonable. “B. Such a determination shall be made for each institution individually rather than for all or for a number of hospitals on a collective basis. ⁹⁹ “C. Under the Act purchasers means only patients. ‘Classes of purchasers’ refers to patients classified according to recognized therapeutic categories of treatment within the hospital or patients classified in the same manner as the hospital identifies its patient service centers for purposes of the Rate Review System. For example, medical-surgical patients and obstetrical patients may be different classes of purchasers. “F. The Commission is further to determine that, in each hospital, rates are set equitably among all purchasers or classes of purchasers of services without undue discrimination or preference. Medicare, Blue Cross, Medicaid and private insurance companies are not to be treated by the Commission as purchasers or classes of purchasers within the meaning of the Act. Further, the term ‘equitably’ as used in the Act means fairly — not equally, and the term ‘all’, as used in the Act, means all purchasers or classes of purchasers regardless of the area of the hospital from which they purchase services or the types of services purchased.

The term ‘undue’ as used in the Act means not appropriate or suitable, improper, unjustifiable; going beyond what is appropriate, warranted, or natural; excessive. “G. In the event the Commission finds that the rate structure charged or proposed by the hospital is reasonable it shall approve the rates even though some other rate structure might also be reasonable. “2. The Guidelines of the Commission published by the Commission October 15, 1974 are rules and regulations which must be adopted and promulgated pursuant to Maryland Code, Article 41, Sections 244-256 A, inclusive, (Administrative Procedure Act) and Maryland Code (1974 Cumulative ¹⁰⁰ Supplement), Article 41, Sections 256 B-256 S, inclusive. As it is stipulated that the Guidelines have not been adopted and promulgated in accordance with these applicable laws, they are invalid and of no effect. “7. Those portions of the aforementioned Rules of Procedure relating to Differentials beginning on page 39 of the Rules are invalid to the extent that certain provisions of the Guidelines are incorporated by reference.” Blue Cross and the Commission took an appeal to the Court of Special Appeals, and we issued a writ of certiorari prior to decision by the Court of Special Appeals.

In this Court, Blue Cross and the Commission argue that the circuit court erred in ruling that the term “purchasers” in the Act “means only patients.” Rather, they contend that the term “purchasers” was meant to embrace “third party payors” such as Blue Cross. The Commission further asserts that the words “classes of purchasers” do not pertain solely to recognized therapeutic categories of treatment. Instead, the Commission contends that the term “classes of purchasers” also refers to “different types of purchasers who make differing arrangements for the purchase and payment” of hospital services. Blue Cross further argues that due process of law was denied because the circuit court decided the issue relating to whether Blue Cross was a “purchaser” after having said that the issue would be reserved for determination in a subsequent hearing.

Thus, Blue Cross contends, it was denied the chance to be heard with respect to the meaning of the term “purchasers.” Blue Cross additionally argues that it was denied due process of law because the bill for declaratory judgment did not raise the issue of whether it was a “purchaser” or within a “class of purchasers” under the Act. In fact, Blue Cross ¹⁰¹ insists, the bill of complaint assumed that it was a purchaser and contested only the statewide differential which was permitted under the regulations. Another issue raised in this Court involves a somewhat different alignment of the parties. The Commission contends that the circuit court was in error in holding that the Commission was required to approve a reasonable rate structure even if it were to decide that another rate structure would be “more reasonable.” The Commission argues that it has the power to approve optimum schedules of rates, and may disapprove or modify less desirable rate schedules even if they might also be deemed “reasonable.” The hospitals, the Health Insurance Association of America and Blue Cross, on the other hand, all contend that the Commission may not substitute its view of reasonableness for that of a hospital, and that the Commission must approve any submitted rate structure as long as it is a “reasonable” one. 2 (1) Generally, due process requires that a party to a proceeding is entitled to both notice and an opportunity to be heard on the issues to be decided in a case.

Standard Oil Co. v. Missouri, 224 U. S. 270, 281 , 32 S. Ct. 406 , 56 L. Ed. 760 (1912); Armstrong Cork Co. v. Lyons, 366 F. 2d 206 (8th Cir. 1966); see also Ottenheimer Pub. v. Employ. Sec. Adm., 275 Md. 514, 520 , 340 A. 2d 701 (1975); Accrocco v. Splawn, 264 Md. 527, 534 , 287 A. 2d 275 (1972); Travelers v. Nationwide, 244 Md. 401, 409 , 224 A. 2d 285 (1966); Balto. County v. White, 235 Md. 212, 220 , 201 A. 2d 358 (1964). Thus, unless an issue decided by the court is raised by the pleadings, or a party otherwise receives adequate notice of an issue during the course of a proceeding, due process is denied.

United ¹⁰² Transportation Union v. State Bar of Michigan, 401 U. S. 576, 581 , 91 S. Ct. 1076, 1080 , 28 L.Ed.2d 339 (1971); see Reynolds v. Stockton, 140 U. S. 254, 265-266 , 11 S. Ct. 773 , 35 L. Ed. 464 (1891); Travelers v. Nationwide, supra, 244 Md. at 406-410 . Blue Cross contends that it was denied due process of law because the issues below, as framed by the bill for declaratory judgment, did not concern the status of Blue Cross as a “purchaser.” Instead, Blue Cross argues, the bill assumed that Blue Cross was a “purchaser” entitled to a “purchaser differential” in determining the rates of individual hospitals, although the bill did challenge the granting of differentials on a statewide basis. Therefore, Blue Cross concludes, it was denied due process of law because it had no notice that the meaning of “purchaser” was in issue. We believe that Blue Cross had adequate notice that its status as a “purchaser” within the meaning of the statute was at issue.

The relief prayed for by the hospital’s bill for declaratory judgment included: “3. That a judgment be entered declaring that Rule 10.36.10.021 is illegal and beyond the authority granted the Commission under Chapter 627 and it is thereby deleted from the rules and regulations of the Commission.” Rule 10.36.10.021 (later codified as Rule 10.36.10.93, 1 Maryland Register at 188) provides for purchaser differentials and working capital differentials to “third party purchasers.” By attacking the Commission’s regulation in its entirety, the hospitals placed in issue the propriety of granting differentials to third parties at all, not merely the propriety of such differentials on a statewide basis as Blue Cross contends. Additionally, the Commission’s guidelines treated Blue Cross as a purchaser, and the guidelines were attacked by the hospitals in their entirety. 3 ¹⁰³ Blue Cross also contends that, even if the meaning of the term “purchasers” was in issue, it was denied due process of law by the trial court’s decision interpreting “purchasers” and “classes of purchasers.” Blue Cross points out that the trial court expressly reserved for later determination “the questions involving differentials and the Commission’s authority over third-party purchasers. ... By defining ‘purchaser’ sua sponte the Court below . . . effectively decided the two questions expressly reserved for later argument, for the Commission has no authority of any kind over third-party payors if they are not ‘purchasers’ and the differentials described in Rule 10.36.10.93 are granted only to third-party purchasers, a class the Lower Court has totally eliminated.” According to Blue Cross, by determining the issues with which Blue Cross was “vitally concerned,” after expressly reserving them for a subsequent hearing, and without giving Blue Cross an opportunity to be heard on those issues, the circuit court denied it due process of law.

Essentially, Blue Cross’s complaint in this regard is that the chancellor’s action deprived it of its opportunity to present oral argument concerning the meaning of the terms “purchasers” and “class of purchasers.” Due process of law is not “a term of fixed and invariable content.” Communications Comm’n v. WJR, 337 U. S. 265, 275 , 69 S. Ct. 1097 , 93 L. Ed. 1353 (1949). With respect to ¹⁰⁴ legal issues, due process does not necessarily require that parties be given an opportunity to present argument. In Communications Comm’n v. WJR, supra, WJR’s petition for reconsideration of an administrative order granting a construction permit to another radio station was denied without oral argument, after the other station challenged the legal sufficiency of WJR’s petition. The Supreme Court held that the action of the administrative tribunal in not affording WJR an opportunity for oral argument did not constitute a denial of due process.

As the Court stated, 337 U. S. at 276 , “Certainly the Constitution does not require oral argument in all cases where only insubstantial or frivolous questions of law, or indeed even substantial ones, are raised.” While Communications Comm’n v. WJR, supra, dealt with administrative proceedings, it has been held applicable to judicial proceedings also. N.L.R.B. v. Local No. 42, Int. Ass’n of Heat & F. I. & A. Wkrs., 476 F. 2d 275 (3d Cir. 1973); Helene Curtis Industries v. Sales Affiliates, 233 F. 2d 148 (2d Cir. 1956). For other cases holding that there is no absolute constitutional right to argue questions of law see N.L.R.B. v. Sun Drug Co., 359 F. 2d 408 (3d Cir. 1966); United States v. O’Connor, 291 F. 2d 520 (2d Cir. 1961); Fritts v. Fritts, 11 Md. App. 195 , 273 A. 2d 648 (1971).

In this case, there are no disputed issues of fact the resolution of which is critical to the question before us. That question is one of statutory interpretation. Moreover, Blue Cross did proffer certain documents before the chancellor issued his order of final judgment. The material consists of sample Blue Cross invoices, contracts of Blue Cross with affiliated and participating member hospitals, and documents describing Blue Cross payment and benefit plans.

These documents have been fully considered by this Court on this appeal. Further, any relevant legal arguments by Blue Cross as to the meaning of the term “purchaser” were still open for presentation in this Court. United States v. O’Connor, supra, 291 F. 2d at 524. We therefore believe that Blue Cross was not harmed by any failure to present legal argument below. ¹⁰⁵ (2) Blue Cross and the