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September 28, 1999


The opinion of the court was delivered by: Rakoff, District Judge.


The thinly-disguised premise of this lawsuit is that a New York health insurer should be penalized for adhering to the peculiarities of New York State health insurance law. That such a premise is contrary to common sense is obvious. To show that it is also contrary to applicable legal principles requires a bit more discussion.

On May 15, 1998, plaintiffs Laurie Garofalo and Hilary Rosser commenced this action against their health insurer, defendant Empire Blue Cross and Blue Shield ("Empire"), seeking under sections 502(a)(1)(B) and (a)(3) of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1132(a)(1)(B) and (a)(3), to enforce certain contractual rights and to remedy certain fiduciary breaches. Specifically, plaintiffs alleged that defendant was paying less than its requisite eighty percent share of certain insured hospital and medical expenses.

By Consent Order dated September 29, 1998, the lawsuit was certified as a class action, with plaintiffs Garofalo and Rosser named as the class representatives. The class certified by the September 29 Order consists of:

  All participants and beneficiaries in ERISA-governed
  health or dental benefit plans, underwritten or
  administered by defendant Empire, for whom Empire
  made payments to hospitals or other health care
  providers pursuant to plans which included or
  includes a provision whereby Empire or the plans
  administered by Empire and/or a plan participant is
  or was responsible to pay a specified percentage of
  some or all medical or hospital bills for which the
  plan provides coverage; and whose claims are not
  barred by an applicable statute of limitations.

By Stipulation dated May 14, 1999, the parties contingently settled all class-wide claims relating to coverage for outpatient health services. The parties further agreed that subsequent actions by defendant had mooted plaintiffs' requests for injunctive relief. See Transcript of Hearing, June 15, 1999 ("Tr.") at 36. As a result, the only claims remaining were those seeking reimbursement of certain inpatient hospital costs paid by members of the class that plaintiffs claimed should have been paid by defendant.

Following discovery, each side moved for summary judgment in its favor on these remaining claims. For the reasons that follow, the Court grants defendant's motion and denies plaintiffs' motion.

Plaintiff Garofalo is covered by Empire's TraditionPlus Comprehensive Group Contract, which Empire insures and administers. See Maloney Aff. ¶¶ 6, 20-23, Exs. A, B. With respect to inpatient hospital expenses, the contract provides that after the insured participants, like Garofalo, have satisfied an initial "deductible," Empire is to pay 80% of "covered expenses" up to a certain limit, after which 100% is covered, and that the insured participants "are responsible for amounts not covered." Id., Ex. B at 6. Plaintiff Rosser is covered by a health benefits plan sponsored by her employer, Merrill Lynch & Co., Inc., which similarly provides that, after the insured participants, like Rosser, have satisfied the basic deductible, the insurer is to pay "80% of the covered expenses" up to a certain limit, after which 100% is covered. See Phillips Aff. ¶ 12; Pl.Ex. 8 at 5. While, for most purposes, Merrill Lynch self-insures this plan and contracts with Empire to provide administrative services only, Empire itself insured participants for the hospital expenses here at issue pursuant to a "Required Operating Fund" agreement with Merrill Lynch. See Phillips Aff. ¶¶ 12-13; see also Def. 56.1 Statement ¶ 35.

It is undisputed that prior to January 1, 1997, Empire calculated its 80% coinsurance liability under these and similar plans on a different basis from that on which the participants' contributions were calculated. See Def. 56.1 Statement ¶ 28; Pl. 56.1 Statement ¶ 28. Specifically, each participant's contribution was calculated at 20% of the hospital's actual charges for that participant's hospitalization, while Empire's contribution was calculated at 80% of a statistical average rate for the hospital costs of the procedure at issue, known as the Diagnostic Related Group ("DRG") Rate. See id. The result was that, even though in each case the hospital always received 20% of its actual costs from the insured participant, in any given case it might receive more or less than 80% of its actual costs from Empire; but over many cases Empire's share would average out to 80% of actual costs as well.

This bimodal method for calculating coinsurance contributions was and is mandated, defendant asserts, by the New York Prospective Hospital Reimbursement Methodology ("NYPHRM"), codified at N.Y. Public Health Law § 2807-c. In pertinent part, this statute provides, at § 2807-c(11)(n)(i), that:

  (A) the dollar value of such percentage coinsurance
  responsibility by or on behalf of [the] patient shall
  be determined by multiplying such coinsurance
  percentage by the hospital's charges for such patient
  . . . and (B) the payment due to a general hospital
  for reimbursement of inpatient hospital services by
  [the] payor [i.e., the insurer] shall be determined
  by multiplying the [DRG Rate] . . . by the
  coinsurance percentage for which such payor is
  responsible, considering any applicable deductibles.

It is undisputed that at all times here relevant Empire's coinsurance calculation methodology conformed to § 2807-c(11)(n)(i). Plaintiffs assert, however, that in the case of a person covered by not-for-profit insurers like Empire, other provisions of the NYPHRM limit "the hospital's charges for such patient" to the DRG rate, so that the co-insurance responsibility of an Empire-insured participant should never exceed the participant's coinsurance percentage (typically 20%) multiplied by the DRG Rate, as it allegedly did in various instances here at issue. Alternatively, plaintiffs assert that, even if Empire's methodology was correct under New York law, ERISA preempts that law and requires Empire to adhere to what was actually represented in the plans that it insured, which, according to plaintiffs, were worded so as to lead a reasonable participant to understand that both the insurer's and the participant's respective percentage payments were calculated on the same basis.

Whatever the merits of these contentions, it follows from the fact that plaintiffs' remaining claims are now limited to recovering for alleged past overcharges of their portions of inpatient hospital charges that plaintiffs Garofalo and Rosser lack standing to pursue these claims, since neither suffered actual injury in respect to these claims.*fn1 See Valley Forge Christian College v. Americans United for Separation of Church and State, Inc., 454 U.S. 464, 472, 102 S.Ct. 752, 70 L.Ed.2d 700 (1982); Gladstone, Realtors v. Village of Bellwood, 441 U.S. 91, 99, 99 S.Ct. 1601, 60 L.Ed.2d 66 (1979). Specifically, it is undisputed that, with respect to inpatient hospital claims, plaintiff Garofalo has never paid more than 20% of the DRG Rate. See Maloney Aff. ¶¶ 30-34, Exs. D, E; Def. 56.1 Statement ¶ 32; Pl. 56.1 Statement ¶ 32; Pl. Submission Regarding Standing, June 29, 1999, pp. 2-3; see also Tr. at 5. The same is true of plaintiff Rosser except with respect to a single hospital visit in June 1996 in connection with which she allegedly was billed $362 in excess of 20% of the DRG Rate. With respect to that visit, however, her entire bill was subsequently reimbursed under another health insurance plan maintained through her husband's employer, so that she suffered no actual out-of-pocket loss. See Pl. Submission Regarding Standing, June 29, 1999, pp. 3-4, Exs. B, C.

Rosser nonetheless argues that she still has standing to sue under the New York "collateral source" rule, which provides that tort damages "may not be reduced or offset by the amount of any compensation that the injured person may receive from a source other than the tort-feasor," Oden v. Chemung County Indust, Develop. Agency, 87 N.Y.2d 81, 85, 637 N.Y.S.2d 670, 661 N.E.2d 142 (1995); see Stanley v. Bertram-Trojan, Inc., 868 F. Supp. 541, 542-43 (S.D.N.Y. 1994). She fails, however, to cite a single case in which this doctrine has been applied to a claim brought under ERISA; and, in any event, the underlying nature of the remaining claims here at issue render the doctrine inapplicable. Specifically, to the extent Rosser's remaining claims are for breach of contract, the collateral source rule does not apply because "no one should profit more from the breach of an obligation than from its full performance," 22 Am.Jur.2d Damages § 568 (1988). See also United States v. City of Twin Falls, 806 F.2d 862, 873 (9th Cir. 1986) ("The policy rationales underlying the collateral source rule . . . do not support its application to contract cases."). This leaves only her claims under ERISA for a fiduciary breach that she concedes was, at worst, neither purposeful nor negligent, see Tr. at 11. In these ...

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