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WASHINGTON HOSP. CTR. CORP. v. GROUP HOSPITALIZATI

March 8, 1991

THE WASHINGTON HOSPITAL CENTER CORPORATION, AS ASSIGNEE OF CARL SPALDING, Plaintiff,
v.
GROUP HOSPITALIZATION AND MEDICAL SERVICES, INC., Defendant


Michael Boudin, United States District Judge.


The opinion of the court was delivered by: BOUDIN

MICHAEL BOUDIN, UNITED STATES DISTRICT JUDGE

 In this case plaintiff Washington Hospital Center ("Washington Hospital") seeks to recover payment of hospital bills incurred by Carl Spalding ("Spalding"), from defendant Group Hospitalization and Medical Services ("Blue Cross"). Washington Hospital sues as Spalding's assignee, asserting his rights as the insured under his Blue Cross policy. Blue Cross has moved for summary judgment on the ground that an anti-assignment clause in the policy defeats Washington Hospital's right to recover. For reasons explained below, the Court agrees that the anti-assignment clause is valid as applied in this case and summary judgment for Blue Cross is therefore warranted.

 I. THE FACTS

 Defendant is a non-profit corporation that operates under its trade name, Blue Cross and Blue Shield of the National Capital Area, and provides prepaid health care benefits to subscribers in the vicinity. Blue Cross contracts with individual hospitals in the Washington area, which are then described as "participating hospitals." A participating hospital may agree, as Washington Hospital did in this case, to accept Blue Cross payment to the hospital as payment in full for covered services provided to Blue Cross subscribers. The Blue Cross contracts with participating hospitals contain formulas that determine the charges that a participating hospital can recover from Blue Cross for services provided to Blue Cross subscribers. The contracts typically contain other provisions to constrain hospital costs as well as the hospital charges imposed on subscribers and paid by Blue Cross. Washington Hospital has such an agreement with Blue Cross and is a participating hospital.

 If a Blue Cross subscriber is cared for by a non-participating hospital, the situation is quite different. The hospital in such case has no contract with Blue Cross but can seek payment directly from the subscriber. The hospital is not constrained by Blue Cross cost controls and may bill the subscriber at the hospital's customary rates regardless of whether subscriber can be reimbursed in full by Blue Cross. In fact, under the policy involved in this case, Blue Cross will reimburse the subscriber for only 85 percent of the cost of reasonable and necessary care provided by the non-participating hospital. Presumably, Blue Cross subscribers are less likely to patronize a non-participating hospital where reimbursement is limited to 85 percent.

 Carl Spalding, who is not a party in this case, was a Blue Cross subscriber under a group policy obtained by his employer, Jerry's Ford. Spalding's coverage under the policy became effective March 1, 1987. Between June 21, 1987, and July 15, 1987, Spalding was treated at Washington Hospital and incurred hospital bills of $ 57,690.75. It appears that administrative claims were made against Blue Cross by Washington Hospital for payment of those charges, but the claims were rejected on the ground that the hospital care in question related to a preexisting medical condition of Spalding. Under the group policy, coverage for a preexisting condition took effect 10 months after the subscriber came within the policy. Spalding's hospitalization occurred during the fourth and fifth month after he became a subscriber.

 Although Washington Hospital could easily have brought suit against Blue Cross under the Washington Hospital-Blue Cross contract, Washington Hospital chose a different course. Washington Hospital first brought suit against Spalding in the District of Columbia Superior Court, obtaining (but presumably not collecting) a default judgment for the amount of the bill. It then brought this suit in this Court to recover from Blue Cross the amount of the outstanding bill as the "Assignee of Carl Spalding." See Caption of Complaint. As the basis for asserting Spalding's claim under the Blue Cross policy, Washington Hospital relied upon a form Spalding executed on admission to the hospital "assigning to the Hospital his insurance benefits under [Blue Cross] Policy including his right to payment or to reimbursement of the Hospital's charges." Complaint at para. 8.

 Blue Cross answered the complaint, asserting that the policy did not cover the condition for which Spalding was hospitalized. Blue Cross further asserted that Washington Hospital could not rely upon the assignment to it by Spalding of his policy claim against Blue Cross because the Blue Cross policy covering Spalding contained the following provision:

 
"The benefits of this Contract are personal to a Participant and may be received only by the Participant. The Corporation reserves the right to refuse to make payment directly to the Employee and to refuse to honor the assignment of any claim to any person or party." Group policy, p. 17.

 Blue Cross then moved for summary judgment on the ground that Washington Hospital is not entitled to sue as Spalding's assignee. In response, Washington Hospital contends that the anti-assignment provision of the group policy, as applied to a participating hospital such as Washington Hospital, is not valid. The facts pertinent to this issue are not in dispute. Solely for purposes of this motion, it must be assumed that Washington Hospital might be able to prove at trial that Spalding's hospital bills were covered by the group policy.

 II. DISCUSSION

 This litigation appears to be designed as a test case rather than merely a dispute about an individual hospital bill. Spalding could readily have sued Blue Cross in his own right under the group policy. Even more important, Washington Hospital could have sued in its own right under its own contract with Blue Cross. Washington Hospital states (and Blue Cross does not dispute) that the amount Washington Hospital seeks as Spalding's assignee does not exceed the amount that Washington Hospital would be entitled to collect under its own contract, assuming Spalding is covered for this hospitalization. In sum, Washington Hospital is challenging, and Blue Cross is defending, the anti-assignment clause because the parties are concerned with the broader implications of the decision.

 Analysis begins with the choice of law. The group policy was signed in the District of Columbia and both parties in this case treat the anti-assignment clause issue as governed by District of Columbia law. That assumption may well be incorrect. Jurisdiction in this Court is based upon the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1461, whose provisions permit a federal court action by a "participant" or "beneficiary" to recover upon a group policy such as this one. See 29 U.S.C. § 1132(a)(1). *fn1" Given the fact that the claim here is asserted under ERISA, it may well be that federal law, rather than local law, governs the validity of the anti-assignment clause. See Idaho Plumbers & ...


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