The opinion of the court was delivered by: Haight, District Judge:
MEMORANDUM OPINION AND ORDER
The case of Group Health Inc. v. Blue Cross Ass'n, et al., 83
Civ. 7567 (CSH) is now before the Court on the motion of the
defendants and the intervenor-defendant for summary judgment
pursuant to Fed.R.Civ.P. 56(b).
The history of the captioned litigation is both extensive and
complicated. While basic familiarity with the underlying
dispute in these cases as well as the prior proceedings is
assumed, some explanation of both is necessary here.
In the first filed of these consolidated cases, plaintiff
Group Health Incorporated ("GHI")*fn1 seeks money damages from
defendants Blue Cross Association, now known as the Blue Cross
and Blue Shield Association ("Association"),*fn2 and the Blue
Cross/Blue Shield of Greater New York, now known as Empire Blue
Cross and Blue Shield, Inc. ("Blue Cross"),*fn3 for losses
arising out of bad advice rendered by Blue Cross in connection
with the Medicare Program.
Part A of the Medicare program "provides basic protection
against the costs of hospital, related post-hospital, home
health services, and hospice care" for persons over 65 years of
age as well as for certain disabled persons. 42 U.S.C. § 1395c.
For a period of time GHI provided hospital services to
individuals covered by Medicare. GHI provided these services
through Hillcrest General Hospital ("Hillcrest"), which GHI
purchased on February 28, 1974 and later sold on February 29,
1980. The Medicare program allows recipients to receive health
care services without having to make direct payments for such
services. Health care providers ("providers") accept
reimbursement for the services rendered to Medicare recipients
from a trust fund established for the purpose, specifically the
Federal Hospital Insurance Trust Fund. The monies in the trust
fund come from the Social Security taxes levied by the United
States government. 42 U.S.C. § 1395i (1983).*fn4 Providers are
reimbursed from the trust fund in amounts determined under
prevailing Medicare regulations. The calculation of the
appropriate amount of reimbursement is done by the Health Care
Financing Administration ("HCFA") or, at the option of the
provider, by private organizations under contract with the HCFA
pursuant to 42 U.S.C. § 1395h(a).*fn5 These
private organizations are known as fiscal intermediaries.
At all times relevant to the instant actions, the defendant
Association had a contract with the Department of Health,
Education and Welfare, now the Department of Health and Human
Services, ("HHS"), pursuant to 42 U.S.C. § 1395h(a). At all
relevant times, the Association served as the fiscal
intermediary for Hillcrest, itself "an operating component of
GHI." Complaint at ¶ 5. The Association's contract with HHS
allowed "the Association to enter into subcontracts for the
performance of some of the functions required of the
Association under the contract." Id. at ¶ 9. The Association
entered into a subcontract with Blue Cross pursuant to that
provision in its agreement with the Association.*fn6 Id.
Because GHI is a not-for-profit corporation organized under
the insurance laws of New York State, it is regulated by the
New York State Insurance Department ("Insurance Department").
Id. at ¶ 12. In or about 1973 when GHI first expressed interest
in purchasing Hillcrest, it sought the requisite approval from
the Insurance Department for such a purchase, which was
necessary because GHI proposed to expend so-called subscriber
funds to purchase Hillcrest. The Insurance Department premised
its approval of the transaction on whether a return on the
subscriber funds would be reimbursed under the Medicare
GHI consulted Blue Cross and requested a determination of
whether the interest payments in connection with the Hillcrest
purchase would be reimbursable under the Medicare program. By
letter dated June 11, 1974,*fn7 Lawrence P. Cafasso, the then
Director of the Provider Reimbursement Division of Blue Cross,
informed GHI that the payments would be reimbursable under
Medicare. GHI had purchased Hillcrest prior to receiving the
letter from Blue Cross, but argues that it could have and would
have refinanced the purchase had it received a negative ruling
from Blue Cross.
GHI appealed the Blue Cross disallowance to the Provider
Reimbursement Review Board ("PRRB") in respect of the 1974
through 1976 cost years.*fn9 The PRRB is a part of HHS
responsible for conducting hearings and issuing decisions on
certain Medicare reimbursement issues. See 42 U.S.C. § 1395oo.
Disallowance of the interest payments was upheld by the PRRB in
a decision of September 19, 1980. The Secretary of HHS did not
disturb the ruling of the PRRB, which thus became final on
November 18, 1980. 42 U.S.C. § 1395oo(f)(1) ("[a] decision of
the Board shall be final unless the Secretary, on his own
motion, and within 60 days after the provider of services is
notified of the [PRRB's] decision, reverses, affirms or
modifies the [PRRB's] decision").
GHI appealed the decision of the PRRB to this district. By
Opinion dated March 22, 1982, Judge Carter granted summary
judgment in favor of the defendants Secretary and PRRB. GHI v.
Schweiker, No. 80-6163 (S.D.N.Y. March 22, 1982). GHI took an
appeal from Judge Carter's decision and by Order of May 9,
1983, the Second Circuit affirmed. 742 F.2d 1434 (2d Cir.
1983). GHI next sought certiorari to the Supreme Court, but
that Court did not accept the case for review. 467 U.S. 1225,
104 S.Ct. 2677, 81 L.Ed.2d 873 (1984).
GHI filed an administrative tort claim with the Secretary on
September 20, 1982 seeking payment for damages suffered in
consequence of the advice rendered by Blue Cross in 1974. By
letter dated October 28, 1983, that claim was denied.
On September 16, 1983, GHI commenced an action against Blue
Cross and the Association in New York State Supreme Court
asserting, in essence, claims of negligence arising out of Blue
Cross' 1974 advice. Defendants filed a verified petition for
removal to the district court for this district and the case
was removed to this Court as 83 Civ. 7567 (RWS). Subsequent to
removal, GHI moved to remand the action to the state court and
HHS moved to intervene. By Opinion dated June 13, 1984, Judge
Sweet denied GHI's motion to remand the action and granted HHS'
motion to intervene pursuant to Rule 24(b)(2). GHI v. Blue
Cross Ass'n, 587 F. Supp. 887, 891-93 (S.D.N.Y. 1984).
On April 25, 1984, GHI commenced an action in this Court
against the United States and Otis Bowen as the Secretary of
HHS. That complaint alleged that the United States was liable
under the Federal Tort Claims Act ("FTCA") for damages to GHI
arising out of the 1974 advice rendered by Blue Cross. In
addition, the complaint sought review of the PRRB's earlier
decision disallowing reimbursement for the 1977 cost year. The
case was assigned a docket number of 84 Civ. 2917 and was
assigned to Judge Sweet, presumably as related to the earlier
filed case against Blue Cross and the Association.
On July 25, 1984, GHI filed a notice of motion for
consolidation of the two actions pursuant to Rule 42(a). Judge
Sweet's endorsement of that unopposed motion was filed on
September 25, 1984.
After some discovery was taken in the cases, defendants moved
for summary judgment on the first five claims in the 1983
complaint and moved to dismiss the remaining three claims for
lack of subject matter jurisdiction. By Opinion dated August
16, 1985, Judge Leisure*fn10 dismissed claims six through
eight for lack of subject matter jurisdiction, but denied
defendants' motion for summary judgment in respect of claims
one through five. GHI v. Blue Cross Ass'n, 625 F. Supp. 69,
79-81 (S.D.N.Y. 1985). In denying defendants' motion for
summary judgment, Judge Leisure held that defendants were not
entitled to sovereign or official immunity, the argument which
formed the basis for the summary judgment motion. Id. at 74-79.
The Blue Cross defendants appealed Judge Leisure's Opinion
insofar as it denied their motion for summary judgment and
rejected claims of official immunity. On June 30, 1986, the
Second Circuit dismissed an appeal from the denial of official
immunity for lack of appellate jurisdiction. GHI v. Blue Cross
Ass'n, 793 F.2d 491, 493, 497 (2d Cir. 1986) ("[a]lthough
defendants have alleged a nonfrivolous claim that fiscal
intermediaries in the Medicare program are entitled to official
immunity, this appeal must be dismissed") (citation omitted).
The Supreme Court denied certiorari in the case. 480 U.S. 930,
107 S.Ct. 1566, 94 L.Ed.2d 758 (1987).
On June 10, 1987, Judge Leisure issued an Opinion in GHI's
litigation against the government. GHI v. United States,
662 F. Supp. 753 (S.D.N.Y. 1987). GHI's FTCA claims were dismissed
on the grounds that the statute of limitations had run. Judge
Leisure also granted summary judgment in defendants' favor in
respect of the proceedings before the PRRB. What remains of
that action, 84 Civ. 2917, is the sixth and seventh causes of
action, both of which assert claims arising out of the PRRB's
determination in respect of the 1977 cost year. By stipulation
docketed on September 27, 1988, the parties have agreed that
those remaining claims will be dismissed with prejudice at such
time as a decision is rendered on the instant motions.
The consolidated actions were subsequently transferred to
Judge Daronco and upon his death were transferred to my docket.
III. 83 Civ. 7567 — The Complaint
The first claim for relief alleges negligence and gross
negligence on the part of Blue Cross insofar as it did not seek
confirmation from the Secretary that the interest costs would
be reimbursable under Medicare. GHI seeks money damages in the
amount of $1,611,036.
The second claim for relief alleges that "Blue Cross had no
authority to represent to GHI that a return on GHI's purchase
of Hillcrest would be includable in the calculation of
Hillcrest's Medicare reimbursement rate." Complaint at ¶ 33.
GHI contends that in representing that the interest payments
would be reimbursable under Medicare, Blue Cross made a false
representation to GHI upon which it knew GHI would and
subsequently did rely. GHI further contends that "[i]n making
the false representation, Blue Cross breached a duty owed to
GHI." Id. at ...