No. 79 January Term, 1979, Appeal from Order of the Superior Court at No. 48 October Term, 1978, affirming Order of the Court of Common Pleas, Trial Division, Law, of Philadelphia, at No. 5242 July Term, 1973.
Fred Lowenschuss, William D. Parry, Philadelphia, for appellants.
James A. Young, Grant Sprecher, Philadelphia, for Thomas Jefferson University.
Jay H. Calvert, Jr., Thea Duell, Philadelphia, for Blue Cross.
O'Brien, C. J., and Roberts, Nix, Larsen, Flaherty and Kauffman, JJ.
On July 31, 1973, appellants, individually and on behalf of all other persons similarly situated, filed a class action complaint in the Court of Common Pleas of Philadelphia against Blue Cross of Greater Philadelphia (Blue Cross) and Thomas Jefferson University Hospital (Jefferson) and other similarly situated hospitals. On September 15, 1977, the court sustained defendants' preliminary objections to plaintiffs' amended complaint on the grounds that it was not a proper class action and that plaintiffs had failed to join certain "indispensable parties" as defendants. The court dismissed the complaint without prejudice to the rights of the named plaintiffs to proceed with individual actions. On September 25, 1978, the Superior Court affirmed per curiam, 394 A.2d 627. This Court granted plaintiffs' petition for allowance of appeal on February 27, 1979. The factual allegations pertaining to plaintiff Martha Sharkus are as follows: Sharkus was treated in the accident ward of Jefferson Hospital on July 21, 1970, by Dr. J. David Hoffman, a staff physician of the hospital. Dr. Hoffman diagnosed her injury as a fracture of the distal fifth metatarsal of the left foot. He performed a closed reduction of the fracture and applied a short leg cast. Thereafter, for several months Sharkus continued to suffer swelling and discomfort which Hoffman diagnosed as sympathetic causalgia of the foot. On October 19, 1970, Hoffman admitted Sharkus to Jefferson where she received therapy and cortisone injections.
At the time of her hospitalization Sharkus was covered by a Subscription Agreement between the Budd Company and Blue Cross which provided, inter alia that:
"h. Blue Cross shall not be required to provide under this Agreement the following:
"4. In-patient admissions or out-patient services primarily for the following diagnostic studies: Routine physical examinations or check-ups, research studies, screening, pre-marital examinations, studies relating to pregnancy, dental admissions, psychological testing, psychiatric examinations, audiometric testing, eye refractions, or examinations for the fitting of eye glasses or hearing aids, or fluoroscopy with-films;
"6. Hospitalization principally for observation or diagnostic evaluation, physical therapy, diagnostic x-ray or laboratory tests;
"7. Custodial care in hospitals, convalescent facilities or nursing homes;"
Upon her discharge on October 31, 1970, Blue Cross was billed for $1,205.70, the total cost of the hospitalization, and initially it paid all but $5.90 of that amount. However, following a retrospective review, Blue Cross notified Sharkus' physician, Dr. Hoffman, that her hospitalization was not medically necessary, and therefore, it was not covered by her Subscription Agreement.
At Hoffman's request, Blue Cross reviewed the Sharkus claim a second time and once again the claim was rejected. On January 26, 1971, Hoffman was so notified and was informed of his appeal rights to the Insurance Review Committee of the Philadelphia County Medical Society which he pursued. The Insurance Review Committee concurred with Blue Cross' determination that Sharkus' hospitalization was not covered by her Subscription Agreement. Consequently, Blue ...