Informed Physician Services, Inc. v. Blue Cross & Blue Shield of Maryland, Inc.

WILNER, Judge. This appeal arises from the demise of an endeavor known as the Select Advantage Network (SAN), developed in 1990 by Blue Cross and Blue Shield of Maryland, Inc. (BCBS). Appellant, InforMed Physicians Services, Inc. (InforMed), sued BCBS in the Circuit Court for Baltimore County for injunctive relief and to recover some $16 million in compensation that it contended BCBS owed to InforMed or to physicians represented by InforMed as a result of the SAN program. The court granted summary judgment in favor of BCBS, and InforMed appealed.

We granted certiorari prior to argument in the Court of Special Appeals and shall affirm the judgment entered by the circuit court. BACKGROUND In 1990, BCBS provided insurance for about 1.4 million Marylanders. About one million of its subscribers had some form of indemnity plan; the other 400,000 were in health maintenance organizations. Traditionally, at least with respect to group indemnity plans, BCBS used the “usual, customary, and reasonable” (UCR) method of paying health care ³¹² providers for the covered services provided to BCBS subscribers.

We described that method in Insurance Comm’r v. Blue Shield, 295 Md. 496, 501-02 , 456 A.2d 914, 917-18 (1988). Briefly, BCBS would determine, for each provider, the fees most frequently charged by that provider for each covered service; that became the “usual” profile for that provider for that service. BCBS would then develop a composite of the various “usual” profiles and, using a weighted system based on the total number of claims, calculate the “customary” profile for that service. The “usual” profiles were arrayed from high to low, and the level at which 90% of the claims would be paid in full became the “customary” profile for the service.

As we indicated in Insurance Comm’r , “[ojrdinarily, the amount paid by a plan for a particular service will be the lowest of the provider’s submitted charge, his usual profile, or the customary profile.” Id. at 501-02 , 456 A.2d 914 . In an effort to control the escalating costs of health care coverage, BCBS, in the mid-1980’s, developed “preferred provider” plans, under which it afforded a higher level of reimbursement to the subscriber for a covered service if the subscriber was treated by a physician who was a member of the “preferred provider network,” i.e., a physician who agreed to accept a discounted amount for services provided to plan members and to refer subscribers only to physicians in the network. As of 1990, a typical preferred provider contract provided that the health care provider would accept as “payment in full for covered services 90% of [BCBS]’s Usual, Customary, and Reasonable (UCR) payment methodology.” BCBS is a non-profit health service plan, as defined in then-Maryland Code, Article 48A, § 354 (current § 14-102 of the Insurance Article (1997)), and, until 1996, was prohibited from amending “the terms and provisions of contracts executed or to be executed” with health care providers “until such proposed amendments have been first submitted to, and approved by, the Insurance Commissioner.” See former Article 48A, § 356 (1994 Repl.Vol.). Any contractual change in the method of reimbursement to health care providers thus had to be ³¹³ submitted to and approved by the Insurance Commissioner.

See Johns Hopkins Hosp. v. Insurance Comm’r, 302 Md. 411, 413 , 488 A.2d 942, 943 (1985); Weiner v. Maryland Ins., 337 Md. 181 , 652 A.2d 125 (1995). In late 1990, BCBS began to develop a more refined system of “credentialed” provider networks, which became known as the Select Advantage Network—the SAN. It was directed at physicians practicing in 20 designated specialties. The objective of the SAN was to recruit selected physicians in each of the 20 specialties who would agree to provide certain statistical data regarding the frequency and costs of services provided by them, to submit to evaluative site visits, and to permit their medical records to be reviewed for content, format, and appropriateness.

The data would be analyzed, and each physician would be informed of the comparison between his or her procedures and practices and those of other Maryland physicians in the same specialty. The theory was that, with this knowledge, the physicians would develop more efficient approaches to managing health care. The program was envisioned as part of a more general movement to assure better quality in medical service and “to start winnowing down the gross numbers of providers in the marketplace that are being insured to those that can have demonstrated quality and effectiveness.” Key to the recruitment of the physicians, who would be burdened with the additional administrative work, was the prospect of a higher level of payment for the medical services they provided to BCBS subscribers. The SAN approach called for the site visits and clinical evaluations to be done by BCBS, but for there to be an independent entity to collect and analyze the data submitted by the physicians and to render general reports to BCBS and individual ones to the physicians.

BCBS therefore envisioned three sets of contractual relationships—one between BCBS and the selected physicians, one between the third party and the physicians, and one between BCBS and the third party governing, among other things, compensation for the data ³¹⁴ collection and analysis service. 1 The initial proposed contract between BCBS and the recruited specialists required the doctors, subject to certain conditions, to allow BCBS’s agent access to data identified as necessary to evaluate the effectiveness and efficiency of the doctor’s practice and to cooperate with BCBS’s efforts to develop and conduct “utilization review activities.” The contract called for a one-year continuation of the current level of reimbursement at 90% of UCR, but provided that, for subsequent years, BCBS would “adjust its calculation of UCR for selected procedures, resulting in an increase in compensation for qualifying physicians.” Qualification for the adjustment would be determined by an index based on the efficiency of the physician’s practices and procedures. Paragraph 11 of the contract provided that, after December 31, 1992, either party could terminate the contract upon 60 days notice. We are informed that, at some point prior to October, 1992, that contract was submitted to and approved by the Insurance Commissioner. 2 Initially, BCBS selected the Barton-Gillet Company, which had an existing contractual relationship with the Medical and Chirurgical Faculty of Maryland, to serve as the third party liaison with the recruited physicians, and, in 1990, an agreement was signed between BCBS and Barton-Gillet. In March, 1992, a new company, InforMed, was chartered, and ³¹⁵ the rights and obligations of Barton-Gillet under the agreement with BCBS were assigned to InforMed.

Under that agreement, BCBS was to use its best effort to enroll 2,500 primary care and specialist physicians in the SAN and companion program for primary care physicians, to provide data to InforMed from the BCBS claims history files, and to pay InforMed $162,000 for its services in 1992. In March, 1993, a new contract was signed between BCBS and InforMed. According to a January, 1994 internal BCBS memorandum written by Debora Craig, Director of Networks Management, the new contract “differed greatly” from its predecessor. Indeed, it marked a major change in the fiscal aspect of the program.

For one thing, rather than continuing in effect the current UCR rate of reimbursement for a year and then making indexed adjustments in the future, the contract obligated BCBS to “commit $3.5 million to fund incentive adjustments in the reimbursement profiles of specialty physicians who satisfy [BCBS] selection criteria and who are willing to participate in the InforMed feedback loop.” 3 Those adjustments were to be in the form of a single incentive adjustment, to be implemented at the beginning of the SAN contract period, with subsequent incentive adjustments to the SAN physicians’ reimbursement profiles to be dependent on the continuing ability of those physicians to demonstrate quality and effectiveness. The new contract also, for the first time, permitted InforMed to recover a fee from the physicians in the amount of 1.5% of the payments they received from BCBS. According to the Craig memorandum, that approach was taken because InforMed had not recovered its full start-up costs and “therefore had to find another way to recover expenses.” The memorandum makes clear that the immediate increase in physician profiles was driven by the agreement to allow InforMed to recover part of its expenses from the physicians: “InforMed was depending on these profile increas ³¹⁶ es to ‘soften’ the blow of the InforMed fee to their physician clients, as they were collecting 1.5% of BCBS payments.” ■The new BCBS-InforMed contract was to take effect January 1, 1993 and continue in effect “for 24 months following regulatory approval of the projected adjustments in physician compensation.” (Emphasis added.) It would then be renewed annually, subject to the right of a party to terminate on 90 days notice. As compensation to InforMed, BCBS agreed to pay $19,167 per month for consultation services and $15,000 per month for providing feedback services to the physicians.

On October 6, 1992, in conformance with its undertaking in the new contract with InforMed, BCBS unilaterally changed the arrangement with the recruited physicians. In a letter to the physicians, BCBS noted that the promised adjustment to their profile was to take place “when the effectiveness and efficiency of the SAN network could be documented by InforMed” but advised that BCBS had decided to “accelerate the timing of our planned increase” in accordance with an attached schedule. That schedule, BCBS stated, would provide the physician “with at least a 5% increase in revenue for your care of [BCBS] patients” and would be implemented in about 14 days. Nothing was said in that letter about the physician having to pay a 1.5% fee to InforMed.

It appears that, during this period of time, BCBS had a number of informal meetings with the Insurance Commissioner’s staff regarding the SAN program. Associate Commissioner Donald Brandenberg later noted that, in early October, 1992, BCBS and the staff “discussed several form filings” related to the SAN program, that the Insurance Division had also received some inquiries from physicians concerning adjustments to the profiles, and that a meeting was held in late October to discuss the relationships between BCBS, InforMed, and Barton-Gillet, the SAN program, and the funding mechanisms that would be required to implement that program. Mr. Brandenberg stated that, in November and December, various communications “addressed the need for the Division’s ³¹⁷ approval of the changes being proposed for the physician profiles.” The change made by BCBS in its arrangement with the physicians, consistent with the commitment it made in the 1993 agreement with InforMed, was obviously significant. Whereas the initial contract approved by the Commissioner kept the profile at 90% of UCR for the first year and provided for an undetermined index adjustment thereafter, the new arrangement appeared to call for an immediate 5% increase in reimbursement.

As indicated in the Craig Memorandum, the money necessary to fund that immediate increase was to come from a 3% general increase in profiles, which would require approval by the Commissioner. An application for approval was expected to be filed in the spring of 1993, to take effect June 1, 1993. On or about December 18, 1992, BCBS sought separate approval by the Insurance Commissioner of the reconstituted SAN program. On December 30, the Commissioner, through a letter signed by Associate Commissioner Brandenberg, disapproved the program “as presently proposed.” Unfortunately, because the papers that BCBS filed with the Commissioner on December 18 are not in the record before us, we have no clear idea of what, in fact, was proposed; it is apparent, however, that the submission did not include an application for a general increase in profiles.

Mr. Brandenberg gave six reasons for the disapproval: (1) the methodology for increasing payments to the selected physicians was “unwieldy and a potential boondoggle for physicians and [BCBS] service personnel to understand”; 4 (2) the additional administrative ³¹⁸ work for the physicians, coupled with the requirement that 1.5% of BCBS payments be remitted to InforMed, would likely negate the benefit of the additional remuneration; (3) because the actual increases in remuneration would vary by procedure and by specialty, there would be considerable problems for BCBS in determining the correct payment, explaining the process, and keeping track of administration; (4) the methodology “bears no relationship to underlying cost for each procedure other than as a mechanism, presumably, to spread an overall 5% increase across a selected limited number of specific procedures” and that arguments “for this apparent mathematical drill are not convincing to the Insurance Division”; (5) there was concern that what appeared to be administrative services from InforMed may flow through the BCBS accounting system as claims or cost of care; and (6) there was concern as to whether an intermediary such as InforMed was necessary, and BCBS would have to demonstrate why similar services could not be provided in house via BCBS’s own databases. The letter concluded with the statement that the Insurance Division “is ready to further discuss this disapproval or consider your revised program if appropriate.” (Emphasis added.) Unfortunately, BCBS did not await approval by the Insurance Commissioner before proceeding with the program. Pri- or to the December 30 letter, an undetermined number of physicians had been recruited and had, in fact, signed new contracts, some as early as August, 1992. Indeed, “a former employee” of BCBS had proceeded to increase the profiles of at least 728 physicians in accordance with the revised SAN plan.

For those physicians, the plan had been at least partially implemented, and it remained so, notwithstanding the disapproval of December 30, until April, 1995. BCBS continued its recruitment efforts, and, by January 12, 1993, informed the Insurance Commissioner that over 1,000 specialists and 600 primary care physicians had signed new SAN contracts. ³¹⁹ On January 12, apparently at BCBS’s request, an informal meeting was held with Mr. Brandenberg to discuss the concerns raised in his December 30 letter. Later that day, BCBS, in a letter to Brandenberg, attempted to allay those concerns. It insisted that the new arrangement was well understood by both BCBS and the physicians, that the additional 5% would be “loaded into our pricing file” and would therefore be “transparent,” and that an intermediary such as InforMed was necessary.

In that last regard, it stated that the BCBS database was inadequate and that BCBS would be unable to access the database of the Health Services Cost Review Commission. That letter was followed by two others. On January 20, BCBS sent a one-page conclusory document estimating a savings from the SAN program of between $20 million and $48 million. Two days later, InforMed confirmed that the request was for permission “to adjust $70 million in specialist physician fees, for a total fee effect of $3.5 million.” It assured the Commissioner that the increase for SAN physicians would not reduce the amount other participating physicians would receive as part of a general profile adjustment BCBS intended to request in June, 1993.

None of these letters appears to contain or suggest any revision to the proposed program, but constituted, instead, arguments in support of the program that had been presented and disapproved and, at least inferentially, sought reconsideration of that disapproval. In response to those and other letters that he received concerning the SAN proposal, the Commissioner caused notice to be published in the Maryland Register of a public hearing on March 1,1993, the hearing to be “an informational hearing to receive information on whether to approve a change in the usual, customary, and reasonable method (UCR) of health care provider reimbursement submitted by [BCBS] that would permit a 5 percent increase in the reimbursement provided to health care providers who qualify for participation in a proposed Select Advantage Network (SAN).” ³²⁰ Mr. Brandenberg, who conducted the hearing, noted at the outset that the Insurance Division had met several times with representatives from BCBS and InforMed and had heard from many other persons, that the Division had “gotten some slightly different answers on certain issues” resulting in some confusion, and that the purpose of the hearing was to get “everybody together” and “get the final version of everything.” It appears from the presentations made by BCBS that the SAN program was still evolving, and that some of the information previously supplied to the Commissioner was either incorrect or no longer valid. The BCBS representative, Mr. Sutton, indicated that only $2.5 million would be needed for profile adjustments in the current year, not $3.5 million, as initially asserted. He stated that instead of an overall profile adjustment of 4%, which had previously been expected, BCBS would be asking for only 3%.

He disavowed the implication in the document accompanying the January 20, 1993 letter that the SAN profile adjustment for the primary care physicians would be allocated from the anticipated 1993 general profile adjustment, asserting instead that any adjustment for the primary care physicians would be done separately. Mr. Sutton clarified that the SAN profile increase was not going to be a straight 5% for each procedure but rather was to be an anticipated composite. In response to questions from the Commissioner’s assistant chief actuary, he acknowledged that for some procedures there may be no increase at all, while for others the increase could be as much as 10%. Indeed, Mr. Sutton made clear that there was no guarantee that any physician would actually receive a composite 5% increase.

In his words, “[t]hey are guaranteed that the procedures that are being identified will, are estimated on our part and with their concurrence represent a potential for a 5 percent increase.” (Emphasis added.) He acknowledged the prospect that physicians could receive “much more than a 5 percent increase,” and, in response to further questions from the actuary, that physicians might be inclined to use one procedure rather than another based on the percentage increase attached to it. ³²¹ Following the presentation by Mr. Sutton, a representative from the State Department of Personnel registered an objection to the proposal. Noting that the State was the second largest account administered by BCBS, she complained that BCBS had not informed the State of its SAN plans during the 1992 contract negotiations but had represented instead that the preferred provider network was the only network it had. She expressed concern that the SAN program would undermine the preferred provider network and urged that BCBS learn to manage its present network before launching into a new one. It was later pointed out by BCBS that the State had been informed of the SAN program during the contract negotiations.

On March 24, Mr. Brandenberg requested certain documents and information from BCBS. In light of the fact that BCBS intended to request a general profile increase on or about May 1, he questioned whether there was any need to proceed with separate increases for the SAN program. He also asked whether the profile increases would be prospective only—for services rendered after approval—and sought actuarial documentation of BCBS’s estimate of the savings to be realized from the SAN program. The letter concluded with the statement that the Insurance Division intended to “immediately address” the BCBS response and “hopefully move to a timely conclusion of these issues.” BCBS responded on March 31, noting, among other things, that the filing for a general profile increase was being delayed to June 1.

On April 8, 1993, the Governor removed the incumbent Insurance Commissioner, Mr. Donaho, and replaced him with an interim Commissioner, Mr. Benton. Eleven days later, in response to an inquiry from the State Secretary of Personnel, who apparently continued to harbor objections to the proposal, Mr. Benton related his own substantial concerns about the proposal, but advised that (1) Mr. Brandenberg was “still in the process of assembling information to formulate a recommendation to the Commissioner,” and (2) in light of his expectation that the Governor would name a permanent Com ³²² missioner shortly, he did not intend to rule “on this or any other similar request.” On May 17, BCBS filed its application for the 3% general profile increase, to become effective June 1, 1993. That application projected an increase of $14.5 million, with $2.5 million allocated to the SAN program. On May 25, Mr. Brandenberg rejected the application as “not comparable to previous profile updates” and lacking in certain information. 5 He informed BCBS that any resubmission would be subject to Mr. Benton’s disinclination to rule on the SAN proposal pending the appointment of a permanent Commissioner. 6 The May 25 letter from Mr. Brandenberg was the last official communication between BCBS and the Commissioner concerning the SAN program.

Significant changes in the top management of BCBS occurred around that time, and the new management, in effect, abandoned SAN in favor of more orthodox forms of managed care. It never submitted a revised SAN proposal; it supplied no additional information concerning the proposal that had been rejected; and it never resubmitted the application for general profile increase, from which the funds for SAN were to come. In an internal memorandum dated September 29, 1993, BCBS’s Director of Sales suggested that BCBS “pull the plug on SAN.” A January 4, 1994 memorandum from Ms. Craig acknowledged that, following the March 1 hearing, “the SAN product was considered by many internally as DOA.” She opined that the Insur ³²³ anee Division “was not about to budge” but observed that no one had informed InforMed “that SAN as a product is dead.” She recommended that the agreement with InforMed be terminated, noting that, in any event, “[t]here are many items in the existing agreement that have not been delivered.” At some point, the President of InforMed was informed orally by BCBS that, in June, 1993, BCBS “changed its strategy” and that, as a result, “no one at BCBS supported SAN and no one was trying to get Insurance Division approval of either the SAN increase or the general profile increase.” Mr. Branden-berg had some informal conversations with BCBS following the May 25 letter, but, in light of the management changes at BCBS, regarded the SAN matter as “just generally under review.” In the summer of 1994, BCBS attempted to disengage from InforMed. On July 18, its chief legal officer, Mr. Broccolino, wrote to InforMed’s attorney, noting that an earlier settlement proposal had not been responded to and advising that BCBS would make only one further payment.

InforMed was instructed to stop all work being done for BCBS. In December, 1994, InforMed wrote to Mr. Brandenberg, inquiring about the status of the SAN proposal. In response, Branden-berg confirmed that the original proposal “was formally disapproved via a December 30, 1992 letter” and that that disapproval “precipitated the various meetings, communications, and hearing in early 1993.” With the appointment of a new Commissioner and the management changes at BCBS, it was his understanding that BCBS, aware of the Insurance Division’s concerns, would “reevaluate its proposals under the developing circumstances” but that nothing more had been received from BCBS. 7 Five days after receiving Mr. Brandenberg’s response, InforMed filed this lawsuit, both in its own right and as agent ³²⁴ for the doctors who had been recruited for SAN, seeking (1) an injunction to restrain BCBS from terminating the increased payments being made to the SAN doctors, (2) an accounting, and (3) damages of up to $16 million for breach of contract, unjust enrichment, fraud, and negligent misrepresentation. It also, apparently, sent a letter to the various physicians who had been recruited for the SAN program, although that letter is not in the record before us.

What is in the record is the BCBS response to that letter. On March 27, 1995, BCBS informed the physicians of its efforts to obtain approval of the SAN program. It advised, however: “Unfortunately, the Insurance Administration did not approve the increases proposed for the SPO/SAN delivery system, thus rendering our SPO/SAN addendum -with you a nullity. Therefore, a formal notice of termination under Paragraph 11 was unnecessary.

However, if needed, this letter shall serve as such notice.” In April, 1995, perhaps as a result of the suit, Mr. Broccoli-no informed the Commissioner that, in December, 1992, BCBS “incorrectly instituted profile increases for a number of physicians who had agreed to participate in [the] SAN program” and that BCBS was then attempting to determine how many providers had their fees adjusted. Associate Commissioner Randi Reichel responded, seeking specific information regarding the SAN program and the adjustments. On May 17, Mr. Broccolino advised that BCBS “never implemented the SAN program” but that a “former employee” had increased the profiles of 728 physicians while the request for SAN approval was pending and before the disapproval was received. He said that gathering more detailed information was difficult because none of the managerial persons who worked on the SAN were still employed by BCBS.

BCBS’s initial response to the InforMed complaint was a motion to dismiss it, principally on the grounds that (1) the court had no jurisdiction to enjoin BCBS from altering its reimbursement payments, (2) InforMed had no standing to bring an action on behalf of the physicians, and (3) any enforcement of the SAN program would be unlawful, in light ³²⁵ of its disapproval by the Commissioner. The motion was granted in part and denied in part by Judge Cahill, following which an amended complaint was filed. BCBS answered that complaint and moved for partial summary judgment on the ground that, because the profile increases had never been approved by the Commissioner, any payments to the physicians under it would be unlawful. InforMed responded that the December 30 disapproval was irrelevant.

It regarded the March 1 hearing as a reconsideration of the disapproval and urged that, as the Commissioner never issued a second disapproval, the SAN program was deemed approved. That argument was based on provisions in then-Article 48A, §§ 242B(1) and 356(a) (current §§ ll-502(f) and 14-126 of the Insurance Article), which we shall discuss later in this Opinion. In summary, § 242B provided that, if a person aggrieved by a decision of the Commissioner that was made without a hearing requested a hearing, one must be held, and the Commissioner was required to affirm, reverse, or modify the previous decision within 20 days after the conclusion of the hearing. If the Commissioner failed to hold or complete the hearing or make a decision within the time specified, the filing or application “shall be deemed approved.” Section 356(a) required a proposed amendment to a BCBS physician contract to remain on file with the Commissioner for 60 days, unless that time was extended, and provided that the filing would be deemed approved unless disapproved within the waiting period.

The section also stated that, if the Commissioner demanded additional information regarding the proposed amendment, the waiting period would be suspended until the information was supplied. The dispute concerning § 356 was largely over whether all of the information requested by Mr. Brandenberg had been supplied, and InforMed filed a motion under Maryland Rule 2-502 for a separate determination of that issue. Believing, in light of InforMed’s argument, that whether the SAN proposal had been approved or disapproved was a question of disputed fact, the court, through Judge Turnbull, initially denied the motion for partial summary judgment. ³²⁶ The case was then assigned to Judge Fader, who conducted several hearings—one in July, 1996, one in June, 1997, and two in July, 1997. Like Judge Turnbull, he initially viewed the issue as being whether, for purposes of the “deeming” provisions in §§ 242B and 356, the Commissioner was still gathering information.

Prior to the 1997 hearings, however, the General Assembly enacted 1996 Md. Laws, ch. 645, repealing the requirement in § 356 that amendments to BCBS physician contracts be approved by the Commissioner. The new Act became effective October 1, 1996. In light of that enactment, InforMed insisted that BCBS’s illegality argument had no further basis—that the Commissioner’s approval was no longer required and it was therefore not unlawful for BCBS to honor its contractual undertakings. After hearing argument, Judge Fader concluded that the 1996 Act did not apply retrospectively to contracts entered into prior to its enactment, that the Commissioner’s approval was therefore necessary, that the SAN proposal had