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KENNEDY v. EMPIRE BLUE CROSS & BLUE SHIELD

August 7, 1992

ANNE KENNEDY, MICHAEL CHUBRE (as representatives of EMILY CHUBRE), on behalf of themselves and others similarly situated, Plaintiffs, against EMPIRE BLUE CROSS AND BLUE SHIELD, Defendant.


The opinion of the court was delivered by: THOMAS P. GRIESA

 This is a class action. Each of the plaintiffs subscribes to one of several major medical insurance policies issued by defendant Empire Blue Cross & Blue Shield. The complaint alleges that in 1991 Empire changed its geographic formula for computing rates of reimbursement for medical procedures. Plaintiffs claim that this change was a breach of contract, resulting in decreased coverage for the class members.

 Empire now moves to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), for failure to state a claim upon which relief can be granted, on the ground that plaintiffs have failed to exhaust their administrative remedies. On this issue, plaintiffs have presented materials in addition to the complaint. The court has considered these materials and will therefore treat the present motion as one for summary judgment under Rule 56.

 For the reasons stated below, the motion is granted and the action is dismissed.

 The Complaint

 This suit began in New York State Supreme Court. Empire removed the case to federal court because some of the policies at issue are governed by the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 et seq., known as ERISA. There is no challenge to the court's jurisdiction to decide the present motion.

 The complaint alleges that the four named plaintiffs each subscribe to one of three different Empire medical insurance plans: TraditionPlus, Wraparound or the Federal Employees Program. The complaint also refers to an undisclosed number of "similarly situated" plaintiffs who subscribe either to these three policies or to unnamed "similar contracts." Plaintiffs provide no further information about these "similar contracts."

 According to the complaint, Empire computes the maximum amount it will pay for a medical procedure by examining "customary charges." The complaint explains that Empire sets customary charges in the New York area by looking at charge data for doctors performing similar procedures over a period of time in a given geographic zone.

 Plaintiffs state that prior to January 1, 1990 Empire had computed customary charges based on three large geographic zones. For example, all of Manhattan was one zone. The complaint alleges that on January 1, 1990 Empire switched to a new system called "Zip Code Pricing." The new system, plaintiffs claim, created numerous smaller geographic zones drawn along United States Postal Service Zip Code lines.

 The gravamen of plaintiffs' complaint is that Zip Code Pricing has reduced their rates of reimbursement. They assert that Empire's purpose in switching to Zip Code Pricing was to deprive subscribers of their rightful compensation. They further contend that, after switching to Zip Code Pricing, Empire continued to use the old three zone system for calculating charges in its dealings with Medicare. The result, plaintiffs claim, is that Empire operated with a "double set of books," allowing it to pay less to plaintiffs while collecting the same amount from Medicare.

 The complaint alleges that the rates of reimbursement applicable to plaintiffs under Zip Code Pricing were well below what was due under the contracts. It is further alleged that plaintiff Anne Kennedy, upon discovering that her reimbursement for certain medical services performed in February 1990 was below the payment previously made for similar services, lodged a protest with Empire through her representative, Yvonne S. Archer. The complaint alleges that on July 31, 1990 Empire wrote to Archer explaining the new system and asserting that the payment for the February 1990 services had been correct. Kennedy is covered by the Federal Employees Program.

 Materials Submitted Other Than The Complaint

 In view of the fact that Empire has raised the issue of exhaustion of administrative remedies, plaintiffs have submitted certain correspondence in addition to the complaint.

 The representative of plaintiff Kennedy, referred to in the complaint, was actually Dr. Joel S. Archer, who wrote Empire on May 18, 1990 complaining about the reimbursement. His letter is submitted by plaintiffs. The letter of response by Empire dated July 31, 1990, addressed to Yvonne S. Archer, is annexed to the complaint, ...


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