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February 27, 1976

Paul I. GUEST, President of Methodist Hospital, et al.
Emmett F. FITZPATRICK, Jr., Dist. Atty. of Philadelphia, et al.

The opinion of the court was delivered by: WEINER

This is an action brought by several hospitals, members of the Delaware Valley Hospital Council (hereinafter DVHC) for declaratory judgment and injunctive relief, challenging the provisions of a Pennsylvania law, Act No. 94, 40 Pa.C.S. § 6124(c), effective August 2, 1975. Act No. 94 creates statutory requirements for the termination of contracts between hospitals and certain hospital plan corporations. Jurisdiction of this Court was invoked pursuant to 28 U.S.C. § 1331, and 28 U.S.C. § 1343(3), and a three-judge court was convened as required by 28 U.S.C. § 2284. The court has for its consideration cross motions for summary judgment filed by plaintiffs and defendants respectively. *fn1"

 Since the facts are not in dispute, there remain solely questions of law. From our examination of the record, the following facts emerge: On August 15, 1974, the contract between defendant Blue Cross of Greater Philadelphia and plaintiff hospitals expired. Run-out provisions of the contracts between Blue Cross and individual subscribers then began to take effect, and coverage expired on the anniversary dates of the subscription contracts. The last subscriber contracts were to run out on August 15, 1975. During the one-year following expiration of the above contract, negotiations toward a new contract proved to be unsuccessful. The effect of the run-out provisions would have been to limit most subscribers' coverage to that afforded in non-Blue Cross member hospitals. Traditionally, an individual enters into a subscription contract with Blue Cross. In the majority of cases, the insurance plan will obtain hospital services in member hospitals. The coverage afforded is then either complete coverage, i. e., the full hospital service is provided, or the subscriber pays a relatively small portion of the hospital fee. In either event, Blue Cross makes direct payment to the hospital. If the subscriber is admitted to a hospital which is not a member hospital, the subscriber will be fully responsible for his hospital costs and Blue Cross will partially reimburse the subscriber directly. Typically, only a small portion of the total hospital bill is repaid to the subscriber.

 In situations in which total coverage is provided subscribers, it is clearly necessary that there be a contractual relationship between Blue Cross and the hospitals. Hence, the term "member hospitals". The contract between Blue Cross and its member hospitals operates on a cost reimbursement formula. Under such a formula, the retail price of hospital services is not paid by Blue Cross. Rather, Blue Cross reimburses hospitals for the cost to the hospitals of providing care to the subscriber, computed in a way that allows, inter alia, for consideration of depreciation and economic inflation factors.

 It was the cost reimbursement formula that led to the breakdown of negotiations for new contracts between Blue Cross and the plaintiff hospitals who are represented by the DVHC.

 During the one-year period of negotiations, increasing numbers of subscribers lost member hospital benefits in the plaintiff hospitals. On August 2, 1975, the Pennsylvania legislature passed, and the Governor signed, Act No. 94, 40 Pa. C.S. § 6124(c).

 Chapter 61 of Title 40 establishes statutory control over hospital plan corporations. Defendant Blue Cross of Greater Philadelphia is a hospital plan corporation within the meaning of the statute. The Hospital Plan Corporation Act generally provides for regulation of hospital plan corporations and specifically requires, inter alia, that all hospital plan corporations obtain certificates of authority from the Pennsylvania Department of Insurance (§ 6102(a)); that hospital plan corporations enter into contracts only with hospitals approved by the Department of Public Welfare. (§ 6121).

 Section 6124 of the Hospital Plan Corporation Act, which section Act No. 94 amends, provides:

(b) Every application for such approval shall be made to the department in writing . . .

 Act No. 94 which amends the above section, provides:

 Section 1. Section 6124 of Title 40, . . . is amended by adding a subsection to read:

 § 6124. Rates and contracts

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