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LARRY D'AMELIO v. BLUE CROSS LEHIGH VALLEY (10/11/85)

filed: October 11, 1985.

LARRY D'AMELIO, INDIVIDUALLY AND ON BEHALF OF ALL OTHER PERSONS SIMILARLY SITUATED, APPELLANT,
v.
BLUE CROSS OF LEHIGH VALLEY, AND ST. LUKE'S HOSPITAL, INDIVIDUALLY AND ON BEHALF OF ALL OTHER HOSPITALS SIMILARLY SITUATED, APPELLEES



Appeal from Order, Court of Common Pleas, Civil Division, Northampton County, No. 1981-C-8192

COUNSEL

Margaret H. Poswistilo, Thomas R. Elliott, Jr., Easton, for appellant.

William F. Brodt, Jr., Bethlehem, for St. Lukes, appellee.

Oldrich Foucek, III, Allentown, for Blue Cross, appellee.

Cavanaugh, Cirillo and Johnson, JJ.

Author: Cavanaugh

[ 347 Pa. Super. Page 444]

This is an appeal from an order denying appellant/plaintiffs' motion for certification of a class action. The court below held that certification was not appropriate because plaintiffs failed to satisfy the commonality, typicality and adequacy of representation requisites for certification pursuant to Pa.R.C.P. 1702.*fn1 We disagree and, therefore, reverse and remand to the Court of Common Pleas to make additional findings of fact necessary for a determination of whether class certification is appropriate.

I. FACTUAL HISTORY

The pertinent facts are as follows. Plaintiff, Larry D'Amelio, entered St. Luke's Hospital on October 23, 1979, with an admitting diagnosis of "depressive reaction." He was hospitalized at St. Luke's until November 23, 1979. D'Amelio, at admission and throughout his stay, was insured pursuant to an agreement between his employer, Shoemakers AMC Jeep, Inc., and Blue Cross of Lehigh Valley (hereinafter referred to as Blue Cross.) According to the terms of this agreement, D'Amelio was entitled to the benefits accorded in-patients provided that Blue Cross determined that his medical expenses were medically necessary. At the time of his admission, D'Amelio signed a payment guarantee where he, in effect, assumed the responsibility for payment to St. Luke's for his medical expenses not covered by Blue Cross which accrued during his stay.

[ 347 Pa. Super. Page 445]

At the times relevant to this appeal, St. Luke's had its own internal utilization review process, the purpose of which was to determine whether a stay or admission was medically necessary for insurance payment purposes. The process was used as a screening procedure whereby costs to Blue Cross would be kept down, and payment by Blue Cross to St. Luke's would be likely.

St. Luke's utilization review procedure, at the time of D'Amelio's admission and stay operated as follows. The day after admission, a utilization review coordinator on St. Luke's staff would review a patient's chart for medical necessity and treatment rendered. Ten days later a further review would be conducted. At that point, a coordinator would review the patient's record, examine the medical necessity of the treatment rendered and match it with established criteria for severity of illness, intensity of care and discharge screens. If no problem was detected, further reviews would be conducted periodically. If the coordinator questioned the necessity of medical services, the matter would be referred to a physician serving on the utilization review committee. If the committee physician also questioned the medical necessity, he would then contact the attending physician. If a dispute were to arise between the committee physician and the attending physician, the matter would be reviewed by a second committee physician. If a dispute still remained, a letter would be sent to the insurance carrier stating that the utilization review committee had recommended that medical necessity was not indicated beyond a specified date. The patient would also be sent a copy of that letter. Whether a patient chose to remain in the hospital thereafter rested within the discretion of the patient, his family and attending physician.

In Mr. D'Amelio's case, St. Luke's, through its utilization review committee, determined that plaintiff's hospitalization was medically necessary for the entire period of his stay.

Subsequent to plaintiff's discharge, St. Luke's submitted Mr. D'Amelio's hospital bill to Blue Cross, which employed its own utilization review procedure. As a result of Blue

[ 347 Pa. Super. Page 446]

Cross' review, it was determined that Blue Cross would provide benefits to D'Amelio for the period of October 23, 1979, to November 3, 1979. However, Blue Cross refused to provide benefits for the period from November 4, 1979, through November 23, 1979, on the basis that said period of hospitalization was not medically necessary. Thereafter, Blue Cross notified both St. Luke's and the plaintiff of its decision.

After the notification of denial of benefits, appellant appealed the denial through various internal review procedures. Ultimately, the initial decision to deny benefits was upheld by a panel of Blue Cross' reviewing psychiatrists.

Thereafter, because St. Luke's was not a participant in the waiver of liability program,*fn2 it sought payment of the unpaid balance of $2,208.15 directly from D'Amelio.

II. PROCEDURAL HISTORY

Mr. D'Amelio brought a cause of action in trespass and assumpsit to obtain allocation of responsibility for costs of in-patient hospitalization for a class of plaintiffs. Appellant, in his action, seeks money damages and equitable relief on behalf of the plaintiff class from a health plan corporation, Blue Cross, and a class of defendant hospitals, of which St. Luke's as D'Amelio's health care provider was named class action representative. The complaint avers that the plaintiffs incurred medical expenses which were not paid by Blue Cross because Blue Cross retrospectively determined that the expenses were not medically necessary. The complaint continues by averring that because of Blue Cross' denial, the proposed members of the class are personally

[ 347 Pa. Super. Page 447]

    liable to the treating hospitals to pay their hospital expenses.

D'Amelio claims that Blue Cross breached its subscription agreement and implied contractual terms by retrospective denial of coverage. In the alternative, he argues that if the retrospective review and denial provisions were part of and authorized by the agreement, they were unconscionable and void as against public policy. Plaintiff also seeks relief as a third-party beneficiary of the Blue Cross-Hospital contract.*fn3 In addition, plaintiffs seek recovery on the basis of alleged violations of the Unfair Trade Practices and Consumer Protection Act, based upon alleged misrepresentations by Blue Cross.

Blue Cross filed preliminary objections, and plaintiff amended his complaint by redefining his class by reference to the contractual two year period of limitations. The redefined class then included subscribers hospitalized after September 10, 1979 instead of subscribers denied coverage after September 10, 1979. A later amendment named other hospitals similarly situated to St. Luke's thus creating a double class action. A third amendment to the definition of the class was made, proposing that the plaintiff class should include all subscribers of Blue Cross of Lehigh Valley who were hospitalized after September 10, 1975, and subsequently denied benefits. This amendment was made based on plaintiff's argument that Blue Cross did not act in good faith in denying the claims based on its medical necessity clause and therefore, the two year contractual period of liability found in the subscription agreement was unenforceable. Accordingly, the amendment provided that the class would include persons hospitalized over a six year and not a two year period of time.

[ 347 Pa. Super. Page 448]

After the third amendment was made, pleadings were concluded and the case proceeded to a class certification hearing. By stipulation of counsel, it was agreed that in lieu of a evidentiary hearing, the issue of certification would be determined based on the record to date and oral argument. Based on the record and oral argument, the lower court denied plaintiff's Motion for Class Certification and plaintiff petitioned for reconsideration. Plaintiff's petition for reconsideration was denied. This appeal followed.

III. STANDARD OF REVIEW

Appellants contend that the court below abused its discretion in holding that the second, third and fourth requirements and criteria for class certification were not met. Pa.R.C.P. 1702, 1708, 1709. We agree. The lower court's determination regarding class certification is a "mixed finding of law and fact entitled to 'appropriate deference' upon appeal." Janicik v. Prudential Insurance Co. of America, 305 Pa. Super. 120, 451 A.2d 451, 454 (1982) (quoting with approval from Bell v. Beneficial Consumer Discount Co., 465 Pa. 225, 235, 348 A.2d 734, 739 (1975) on remand, 241 Pa. Super. 192, 360 A.2d 681 (1976)).

[ 347 Pa. Super. Page 449]

"Trial courts are vested with broad discretion in determining definition of the class as based on commonality of the issues and the propriety of maintaining the action on behalf of the class." Klemow v. Time, Inc., 466 Pa. 189, 197, 352 A.2d 12, 16 (1975). Accord, Sharkus v. Blue Cross of Greater Philadelphia, 494 Pa. 336, 342-43, 431 A.2d 883, 886 (1981); ABC Sewer Cleaning Co. v. Bell of Pennsylvania, 293 Pa. Super. 219, 225-26 n. 4, 438 A.2d 616, 619 n. 4 (1981). Accordingly, the lower court's order granting or denying class certification will not be disturbed on appeal unless the court neglected to consider the requirements of the rules or abused its discretion in applying them. See Janicik v. Prudential Insurance Co. of America, supra; Sharkus v. Blue Cross of Greater Philadelphia, supra; Klemow v. Time, Inc., supra; Bell v. Beneficial Consumer Page 449} Discount Co., supra. See also Zeidman v. J. Ray McDermott & Co., 651 F.2d 1030, 1050 (5th Cir. 1981).

IV. BURDEN OF PROOF

It is well established law that the party seeking certification bears the burden of proving that the matter is maintainable as a class action. Janicik v. Prudential Insurance Co. of America, supra; Klemow v. Time, Inc., supra. Pennsylvania Rule of Civil Procedure 1702 denotes five prerequisites to class action certification: numerosity; common issues of law or fact; typicality; adequacy of representation; and, fairness and efficiency. The policy of our Commonwealth in regard to class certification is that "decisions in favor of maintaining a class action should be liberally made." Bell v. Beneficial Consumer Discount Co., supra, 241 Pa. Super. at 205, 360 A.2d at 688. When, as here, the underlying facts are not in dispute, the court may hold the burden more easily satisfied. Ablin v. Bell Telephone Co. of Pennsylvania, 291 Pa. Super. 40, 50 n. 5, 435 A.2d 208, 214 n. 5 (1981); Wolfson v. Solomon, 54 F.R.D. 584, 591 (S.D.N.Y. 1972).

Once the pleadings are concluded, the party moving for class certification must present evidence at the certification hearing, establishing that the five prerequisites have been met. See Janicik, supra. Due to the overlapping and interrelated nature of the five prerequisites, the moving party may satisfy his burden by proving sufficient facts from which the court can properly determine that each of the five prerequisites have been met. Janicik, supra; see Albin, Inc. v. Bell Telephone of ...


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