Highmark Inc. v. UPMC

J-A26007-16

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

HIGHMARK, INC., AND KEYSTONE IN THE SUPERIOR COURT OF
HEALTH PLAN WEST, INC., PENNSYLVANIA

Appellees

v.

UPMC, UPMC BEDFORD, UPMC EAST,
UPMC HORIZON, UPMC MCKEESPORT,
UPMC NORTHWEST, UPMC PASSAVANT,
UPMC PRESBYTERIAN-SHADYSIDE,
MAGEE WOMEN’S-HOSPITAL OF UPMC,
HEMATOLOGY ONCOLOGY
ASSOCIATION, ONCOLOGY-
HEMATOLOGY ASSOCIATION, INC., AND
SEWICKLEY MEDICAL ONCOLOGY
HEMATOLOGY GROUP – UPCI,

Appellants No. 557 WDA 2015

Appeal from the Order Entered March 24, 2015
In the Court of Common Pleas of Allegheny County
Civil Division at No(s): GD-14-015441

BEFORE: BENDER, P.J.E., RANSOM, J., and MUSMANNO, J.

MEMORANDUM BY BENDER, P.J.E.: FILED DECEMBER 02, 2016

Appellants, UPMC, UPMC Bedford, UPMC East, UPMC Horizon, UPMC

McKeesport, UPMC Northwest, UPMC Passavant, UPMC Presbyterian-

Shadyside, Magee Women’s-Hospital of UPMC, Hematology Oncology

Association (“HOA”), Oncology-Hematology Association, Inc. (“OHA”), and

Sewickley Medical Oncology Hematology Group–UPCI (“SMOH”) (collectively

referred to herein as “UPMC”), appeal from the trial court’s March 24, 2015
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order overruling their preliminary objections based on arbitrability and

denying their motion to compel arbitration. After careful review, we affirm.

We briefly provide some background information that we find pertinent

to understanding the issues raised in this appeal. UPMC, a not-for-profit

corporation with its principal place of business in Pittsburgh, Pennsylvania,

owns numerous hospitals, including those named in this lawsuit: UPMC

Bedford, UPMC East, UPMC Horizon, UPMC McKeesport, UPMC Northwest,

UPMC Passavant, UPMC Presbyterian-Shadyside, and Magee Women’s-

Hospital of UPMC (collectively “UPMC Hospitals”). In addition, it is affiliated

with multiple physician groups, some of which are also involved in this

lawsuit: HOA, OHA, and SMOH (collectively “Physician Group Practices”).

Appellees, Highmark, Inc. and Keystone Health Plan West, Inc. (collectively

referred to herein as “Highmark”), are organizations that offer non-profit

hospital and professional health services plans. UPMC and Highmark had

multiple commercial contracts with one another, which expired at the end of

2014. UPMC Brief’s at 8; Highmark’s Brief at 5. Highmark sought an

extension of these contracts, but UPMC declined to extend them. Id.

In the years leading up to the expiration of the parties’ commercial

contracts, the parties have clashed over UPMC’s billing practices and

Highmark’s reimbursement rates for oncology care. According to Highmark,

UPMC unjustifiably overbilled for their oncology drugs and services.

Specifically, Highmark alleges that “[a]round August 2010, UPMC began

charging Highmark customers significantly higher outpatient hospital rates

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for oncology drugs and services that had been previously rendered at lower

physician rates—even though the same services were rendered at the same

location as they had been before.” Highmark’s Brief at 10.

As a result of UPMC’s alleged overbilling, Highmark changed its fee

schedules for oncology services and drugs on April 1, 2014. Id. at 4.

Highmark says these “changes were intended to offset the billing practices

implemented by a number of UPMC hospitals and physician group practices

that had artificially inflated the cost of oncology drugs….” Id. at 4-5. In

turn, UPMC suffered financial losses, claiming that “Highmark’s unilateral

cuts reduced reimbursement payments to UPMC by about $200 million

annually.” UPMC’s Brief at 9. Further, it “contended that Highmark’s cuts

were a clear breach of the parties’ contracts and taken in retaliation for

UPMC ending the parties’ existing contracts.” Id.

After Highmark reduced its oncology reimbursement rates in April

2014, UPMC filed a demand for arbitration. Highmark’s Brief at 5; UPMC’s

Brief at 10. Through arbitration, UPMC “sought to restore the parties’ pre-

April 1 oncology rates, and require Highmark to pay the reimbursement

rates set forth in the parties’ contracts.” UPMC’s Brief at 10 (internal

quotations omitted).1
____________________________________________

1
We acknowledge that this initial arbitration of Highmark’s oncology
reimbursement rates has been enjoined, but subsequent arbitrations of this
same issue have ensued. See Highmark’s Brief at 9-10; UPMC’s Brief at 13-
15.

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While that arbitration was pending, UPMC, Highmark, and various

representatives from the Commonwealth began preparing a transition plan

to address the expiration of the parties’ commercial contracts at the end of

2014, which led to the execution of the Consent Decrees asserted by UPMC

as the basis for compelling arbitration in this case.2 In its brief, UPMC

describes the impetus for the Consent Decrees, explaining:

[] UPMC, Highmark, and certain Pennsylvania state officials
discussed a transition plan to deal with expiration of the parties’
commercial contracts at the end of 2014. These discussions
culminated on June 27, 2014, when UPMC and Highmark each
executed mirror-image Consent Decrees with those officials. The
Commonwealth Court adopted and entered the Consent Decrees
as Orders on July 1, 2014.

The purpose of the Consent Decrees was to “lessen[] the anxiety
of Highmark subscribers by providing certainty as to what would
occur during transitional periods and provid[e] a basis by which
Highmark subscribers … could make informed decisions
regarding their healthcare.”

UPMC’s Brief at 11 (internal citations and footnote omitted). Highmark

similarly explained that “[t]he Consent Decrees were designed both in

express terms and in concept to protect the public by ensuring continued
____________________________________________

2
Our Supreme Court has explained:
A consent decree is not a legal determination by the court of the
matters in controversy but is merely an agreement between the
parties - a contract binding the parties thereto to the terms
thereof[.] As a contract, the court, in the absence of fraud,
accident or mistake, had neither the power nor the authority to
modify or vary the terms set forth....

Lower Frederick Township v. Clemmer, 543 A.2d 502, 510 (Pa. 1988)
(internal citations omitted).

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access to UPMC facilities so that vulnerable members of the public would not

experience immediate disruptions in their medical care.” Highmark’s Brief at

6. It further elaborated that “[t]he Consent Decrees achieved that objective

by guaranteeing continued access to certain UPMC services at in-network

rates for specific groups of patients—including cancer patients, those

currently in a course of treatment with a UPMC doctor, those considered to

be ‘vulnerable populations,’ and others.” Id.

Approximately two months after the Consent Decrees were entered,

on September 3, 2014, Highmark filed the lawsuit underlying this appeal. In

this lawsuit, Highmark asserts claims for breach of contract and unjust

enrichment, challenging the purportedly inflated billing rates charged by

UPMC from August 2010 through March 2014.3 Highmark’s Brief at 10.

Highmark seeks to be “made whole for overpayments Highmark made to

UPMC…. [] UPMC was unjustly enriched when it improperly shifted billing for

oncology services from a lower physician rate to a higher outpatient hospital

rate—despite that there had been no change in the service rendered or the

actual site of service.” Id. at 3. Highmark claims that while its “April 2014

rate change attempted to address the problem going forward, it did not

address UPMC’s past wrongful billing practices.” Id. at 10. Highmark bases
____________________________________________

3
We note that Highmark initially sought a declaratory judgment, but that
request was withdrawn in its Amended Complaint, dated November 21,
2014. Highmark’s Brief at 10.

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its breach of contract claims on various contracts entered into between

Highmark and UPMC. See id. at 18 (explaining that Highmark asserts

“claims against the three physician group practices for breach of the

agreements between Highmark and each of those practices,” “a claim

against UPMC for breach of the Oncology Drug Agreement,” and “claims for

breach of multiple contracts by UPMC and the … UPMC hospitals”).

UPMC subsequently sought to dismiss this lawsuit and compel

arbitration, arguing that the Consent Decrees required arbitration of

Highmark’s claims in this case. UPMC’s Brief at 14, 16. In short, UPMC

argued that “the Consent Decrees were an arbitration agreement that tie[d]

into one comprehensive, binding arbitration all of the parties’ disputes over

oncology reimbursements.” Id. at 16 (citations and quotations omitted).

The trial court, however, overruled UPMC’s preliminary objections and

denied its motion to compel arbitration. Trial Court Opinion (TCO),

5/22/2015, at 9. The trial court determined that “the parties’ intent can be

determined based solely upon the contractual terms at issue” and, therefore,

it did not “consider[] any extrinsic evidence, such as the Consent Decrees.”

Id. at 2-3, 9. Ultimately, it concluded that the contracts underlying

Highmark’s lawsuit — that is, the agreements between Highmark and the

Physician Group Practices, the agreements between Highmark and the UPMC

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hospitals, and the Oncology Drug Agreement — did not require arbitration of

Highmark’s claims.4 Id. at 9.

Following the trial court’s order, UPMC filed a timely notice of appeal to

this Court.5 In its appeal, UPMC raises two issues for our review:

A. Did the trial court err in failing to consider the
parties’ Consent Decrees, when UPMC asserted those
agreements as the basis for the arbitration?

B. Did the trial court err in ruling on UPMC’s motion to
compel arbitration without holding an evidentiary
hearing when numerous underlying facts were
disputed between the parties?

UPMC’s Brief at 4 (unnecessary emphasis omitted).6
____________________________________________

4
In their briefs, both parties acknowledge that the underlying contracts do
not require arbitration. See Highmark’s Brief at 18 (“Only some of the
agreements between Highmark and UPMC contain arbitration provisions—
and none of those arbitration provisions cover the claims Highmark advances
in this litigation.”); UPMC’s Reply Brief at 7 (“Highmark follows the trial
court’s fatally flawed lead and devotes significant attention to the
unremarkable—and irrelevant—question of whether the parties’ other
contracts require arbitration. But UPMC never argued the point, and never
identified those contracts as the source of Highmark’s obligation to
arbitrate.”) (emphasis in original).
5
We acknowledge that “[a]s a general rule, an order denying a party's
preliminary objections is interlocutory and, thus, not appealable as of right.
There exists, however, a narrow exception to this oft-stated rule for cases in
which the appeal is taken from an order denying a petition to compel
arbitration.” Elwyn v. DeLuca, 48 A.3d 457, 460 n.4 (Pa. Super. 2012)
(citations omitted).
6
At the outset, UPMC’s brief contained an additional issue, regarding
whether the trial court erred “by not staying the case either pursuant to 42
Pa. C.S.A. § 7304(d) pending the outcome of a pending arbitration, or
pursuant to the court’s discretion pending a separate appeal to this Court
raising some of the issues present in this case[.]” UPMC’s Brief at 4. On
(Footnote Continued Next Page)

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Initially, we note that “[o]ur scope and standard of review of a claim

that the trial court erred in overruling a preliminary objection in the nature

of a motion to compel arbitration is whether there has been an abuse of

discretion and whether the trial court's findings are supported by substantial

evidence.” Washburn v. Northern Health Facilities, Inc., 121 A.3d

1008, 1012 (Pa. Super. 2015) (citation omitted). This Court applies “a two-

part test to determine whether the trial court should have compelled

arbitration: 1) whether a valid agreement to arbitrate exists, and 2) whether

the dispute is within the scope of the agreement.” Id. (citations omitted).

We have explained that “[w]hether a claim is within the scope of an

arbitration provision is a matter of contract, and as with all questions of law,

our review of the trial court's conclusion is plenary.” Elwyn, 48 A.3d at 461

(citations omitted). See also Warwick Township Water and Sewer

Authority v. Boucher & James, Inc., 851 A.2d 953, 955 (Pa. Super.

2004) (“The existence of an agreement and whether a dispute is within the

scope of the agreement are questions of law and our review is plenary.”)

(citation omitted).

_______________________
(Footnote Continued)

February 25, 2016, UPMC withdrew this argument, based on mootness,
“[b]ecause of the conclusion of the arbitrations and the discontinuance of
the prior appeal and underlying lawsuit[.]” See Notice of Partial Withdrawal,
2/25/2016, at 3, ¶ 9. Accordingly, we need not consider this issue here.

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We begin by deciding whether the trial court erred by not considering

and interpreting the parties’ Consent Decrees. UPMC asserts that “the trial

court declined to compel arbitration without considering the arbitration

agreement,” i.e., the Consent Decrees. UPMC’s Brief at 19. UPMC maintains

that “the Consent Decrees are agreements in their own right that require

arbitration independent of any other contract[,]” and it emphasizes that it

did not seek to compel arbitration under any prior agreements but, instead,

only based on the Consent Decrees. Id. at 23. Moreover, it states that

“[t]he Consent Decrees’ express terms require arbitration of all oncology

rate and billing disputes, which are indeed tied together by the ‘causal or

factual link’ of UPMC’s hospital-based billing.” UPMC’s Reply Brief at 2

(quoting Highmark’s brief).

We agree that the trial court should have considered UPMC’s asserted

basis for arbitration — the Consent Decrees. See Collier v. National Penn

Bank, 128 A.3d 307 (Pa. Super. 2015) (considering arbitration provision in

separate contract asserted by appellant); Highmark Inc. v. Hospital

Service Association of Northeastern Pennsylvania, 785 A.2d 93 (Pa.

Super. 2001) (looking at dispute resolution provisions in both a license

agreement and joint operating agreement).7 While we could vacate the trial
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7
Highmark argues that the trial court “looked at the Consent Decrees to the
extent needed to address the only question that was relevant to UPMC’s
motion to compel arbitration—whether the Consent Decrees amended or
overrode the parties’ arbitration agreements.” Highmark’s Brief at 21.
(Footnote Continued Next Page)

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court’s order and remand this matter for it to interpret the Consent Decrees,

this case raises questions of law — rather than fact — and, thus, we are

permitted to continue our review and render a legal conclusion. See

Sanitary Sewer Authority of Borough of Shickshinny v. Dial

Associates Construction Group, Inc., 532 A.2d 862, 864-65 (Pa. Super.

1987).8 See also Smith v. Cumberland Group, Ltd., 687 A.2d 1167,

1171 (Pa. Super. 1997) (“Because the construction and interpretation of

contracts is a question of law, the trial court's conclusion as to whether the

parties have agreed to arbitrate is reviewable by this Court.”) (citation

omitted). Accordingly, we examine the Consent Decrees.

We reiterate that this Court applies “a two-part test to determine

whether the trial court should have compelled arbitration: 1) whether a valid
_______________________
(Footnote Continued)

However, the trial court’s opinion contains no such analysis, and it explicitly
stated that it “has not considered any extrinsic evidence, such as the
Consent Decrees.” TCO at 9 (emphasis added). Moreover, we are
persuaded by UPMC’s argument that “[t]he Consent Decrees are not
evidence about some other agreements; they are themselves
agreements[.]” UPMC’s Brief at 23. Further, it states that “[t]he later
Consent Decrees cannot be ‘extrinsic evidence’ of hospital and provider
contracts signed over a decade earlier.” UPMC’s Reply Brief at 8.
8
In Sanitary Sewer Authority, the trial court failed to “determine whether
the dispute involved in the arbitration proceeding is covered by the
arbitration clause of the contract.” Sanitary Sewer Authority, 532 A.2d at
865. In response, this Court reasoned that “[a]lthough we could vacate the
order granting the stay and remand the case for the trial court to make this
determination, this issue is one of law rather than fact; in the interest of
judicial economy, we shall examine the dispute, along with the arbitration
clause, and reach a legal conclusion.” Id. (citations omitted). This same
reasoning applies to the case sub judice.

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agreement to arbitrate exists, and 2) whether the dispute is within the scope

of the agreement.” Washburn, 121 A.3d at 1012 (citation omitted). “Even

though it is now the policy of the law to favor settlement of disputes by

arbitration and to promote the swift and orderly disposition of claims,

arbitration agreements are to be strictly construed and such agreements

should not be extended by implication.” Elwyn, 48 A.3d at 461 (citation

omitted).

Even if we presume that UPMC met the two-part test set forth above,

we nevertheless would not compel arbitration because the proper procedure

for doing so under the Consent Decrees has not been met. Highmark’s

Consent Decree, which again is a mirror-image of UPMC’s Consent Decree,

provides for the following, in relevant part:

IV. TERMS

[Highmark] shall comply with the following terms:

***

C. Miscellaneous Terms

4. Enforcement of the Consent Decree- The [Office of
the Attorney General (“OAG”)], [Pennsylvania
Department of Insurance (“PID”),] and [Pennsylvania
Department of Health (“DOH”)] shall have exclusive
jurisdiction to enforce the Consent Decree.

(a) If the OAG, PID or DOH believe that a
violation of the Consent Decree has taken
place, they shall so advise [Highmark] and
give [Highmark] twenty (20) days to cure
the violation. If after that time the violation
is not cured, the OAG, PID or DOH may seek
enforcement of the Consent Decree in the

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Commonwealth Court; (b) Any person who
believes they have been aggrieved by a violation
of this Consent Decree may file a complaint with
the OAG, PID or DOH for review. If after that
review, the OAG, PID, or DOH believes either a
violation of the Consent Decree has occurred or
they need additional information to evaluate the
complaint, the complaint shall be forwarded to
Highmark for a response within thirty (30) days.
If after receiving the response, the OAG, PID or
DOH, believe a violation of the Consent Decree
has occurred, they shall so advise Highmark and
give Highmark twenty (20) days to cure the
violation. If after that time the violation is not
cured, the OAG, PID or DOH may seek
enforcement of the Consent Decree in [the
Commonwealth Court of Pennsylvania]. []

***

11. Retention of Jurisdiction- Unless this Consent
Decree is terminated, jurisdiction is retained by the
Commonwealth Court of Pennsylvania to enable any
party to apply to this Court for such further orders and
directions as may be necessary and appropriate for the
interpretation, modification and enforcement of this
Consent Decree.

Highmark’s Consent Decree, 7/1/2014, at 6, 11, 14-15, 17 (emphasis

added).

As noted supra, we must strictly construe the Consent Decrees. They

expressly state that if a violation of the Consent Decrees has occurred,

Commonwealth officials have exclusive jurisdiction to enforce their terms. 9
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9
In its reply brief, UPMC argues that section IV(C)(11) (“Retention of
Jurisdiction”), cited supra, permits UPMC to enforce the Consent Decrees.
UPMC’s Reply Brief at 10. That section, however, does not delegate direct
power to Highmark or UPMC to enforce the Consent Decrees, but instead
requires them to seek enforcement through the Commonwealth Court.
(Footnote Continued Next Page)

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Therefore, if Highmark violated the Consent Decrees by filing this lawsuit,

Commonwealth officials — and, notably, not UPMC — have exclusive

jurisdiction to enforce the arbitration provisions of the Consent Decrees and

compel Highmark to dismiss this lawsuit. It is undisputed between the

parties that Commonwealth officials have taken no such enforcement action

to stop this litigation from proceeding.10 Further, because Commonwealth

officials have not sought to dismiss this lawsuit or compel arbitration, we

must conclude that the arbitration provisions in the Consent Decrees do not

require arbitration of the issues raised in Highmark’s Complaint. 11 Finally,

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(Footnote Continued)

10
In its brief, Highmark points out that “state officials with ‘exclusive
jurisdiction’ to enforce the Consent Decrees have not acted to force
Highmark to dismiss this case.” See Highmark’s Brief at 31, n.13 (citing
Record evidence). UPMC does not dispute this assertion in its brief or reply
brief. Accordingly, no question of fact exists regarding this issue.
11
In their briefs, the parties debate whether the underlying dispute falls
within the scope of the arbitration provisions in the Consent Decrees. Both
parties focus on the “current arbitration” language in section IV(C)(1)(a)(ii)
of the Consent Decrees. See Highmark’s Consent Decree, at 12.
Unsurprisingly, the parties offer starkly different interpretations of what
matters the “current arbitration” encompass. See Highmark’s Brief at 28-29
(“The Consent Decrees do not say that the ‘current arbitration’ is a
receptacle for all of the parties’ past, present and future disputes. Instead,
the Consent Decrees reference the current arbitration for a very specific and
narrow reason—explaining how resolution of the current arbitration will
affect the parties’ 2014 and 2015 rates for oncology drugs and services.”);
UPMC’s Brief at 25 (“Highmark’s lawsuit and the ‘current arbitration’ involve
the same contracts between the same parties related to the same billing
practices, service locations, and reimbursement rates. Highmark seeks
damages dating from August 2010 ‘through the present,’ a period that
overlaps directly with the arbitrations.”). Because we determine the
(Footnote Continued Next Page)

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because this is a purely legal question based on the express terms of the

Consent Decrees, and there are no questions of fact at issue, we also

determine that an evidentiary hearing is unnecessary. As such, we affirm

the trial court’s order overruling UPMC’s preliminary objections and denying

its motion to compel arbitration.12

Order affirmed.

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 12/2/2016

_______________________
(Footnote Continued)

enforcement provision of the Consent Decrees to be dispositive of the issues
raised on appeal, we find no need to interpret the meaning of “current
arbitration” here.
12
“[N]otwithstanding the trial court's stated grounds, if its result is correct,
this Court can affirm the trial court on any basis.” See, e.g., Staub v.
Staub, 960 A.2d 848, 853 (Pa. Super. 2008) (citation omitted).

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