BLUE CROSS OF NORTHWEST OHIO v. JUMP

WILLIAM B. BROWN, J.

In this cause, we must determine whether the trial court erred in vacating the superintendent's order; and also whether the relevant provisions of R.C. Chapter 1739 are constitutional.

I.

The lawfulness of the trial court's vacation of the superintendent's order depends upon the construction given R.C. 1739.01(M). In relevant part, this section provides:

"`Good faith effort' means a conscientious, vigorous, and continuing attempt by a hospital service association through a combination of education, persuasion, and financial incentives and disincentives to control costs and to encourage member health facilities to control costs by accomplishing the following objectives: * * *."2 (Emphasis added.)

The fundamental basis for the superintendent's finding that Blue Cross had not satisfied R.C. 1739.01(M), and for his decision to disapprove Blue Cross' entire proposed rate increase, is that while Blue Cross may have used education and persuasion to encourage hospitals to accomplish certain cost containment objectives, it completely failed to utilize financial incentives and disincentives.3 The trial court ruled this reading to be "an incorrect interpretation of * * * [R.C. 1739.01(M)]," apparently believing that Blue Cross' good faith effort to use education and persuasion was sufficient to satisfy the statute.

The trial court's interpretation of R.C. 1739.01(M) is not correct. The General Assembly amended R.C. Chapter 17394 to require that Blue Cross make a good faith effort to control hospital costs, and made this effort a factor in rate setting, because the Blue Cross plans have the economic leverage and expertise to induce hospitals to become more cost-effective.5 Education and persuasion of hospitals do not induce cost effectiveness, and therefore should not ordinarily be considered sufficient to satisfy R.C. 1739.01(M). On the other hand, the effectiveness of R.C. 1739.01(M) in controlling hospital costs depends primarily on Blue Cross' exploitation of its economic leverage over hospitals through the use of financial incentives and disincentives. Blue Cross' compliance with R.C. 1739.01(M) must thus depend primarily on its efforts in this regard.

Therefore, since there was a need for Blue Cross to control hospital costs,6 and since Blue Cross did not exert a good faith effort to encourage its member hospitals to control costs by utilizing financial incentives and disincentives,7 the superintendent could lawfully determine that Blue Cross failed to satisfy R.C. 1739.01(M). Thus, the trial court erred in vacating the superintendent's order.

II.

Blue Cross also asserts that the Court of Appeals erred in determining that R.C. 1739.01(M) and Paragraph (F) of Rule 3901-1-288 are not unconstitutionally vague.

The Court of Appeals' determination is correct. R.C. 1739.01(M) and Paragraph (F) of Rule 3901-1-28 consist of words and phrases familiar both to Blue Cross and to the superintendent. Moreover, through intelligible guidelines, these provisions together detail types of behavior expected of Blue Cross. Finally, R.C. 1739.01(M) and Paragraph (F) of Rule 3901-1-28 are not impermissibly vague merely because they require that the superintendent condition his determination on Blue Cross' good faith compliance with these provisions. As the Court of Appeals concluded, "* * * there is certainly no dearth of case law on the matter [of good faith], and one must assume that duly appointed administrators will allow common sense to prevail."

III.

Blue Cross next argues that the discretion given the superintendent to determine whether Blue Cross has exerted a good faith effort to control hospital costs is an unlawful delegation of legislative authority.

This argument is without merit because the above determination merely executes R.C. 1739.051(D) and 1739.01(M). First, R.C. 1739.01(M) fixes the factors that the superintendent must consider both in rule making and in adjudication. Second, R.C. 1739.051(D) details mandatory procedures applicable to adjudication. Third, R.C. 1739.051 (D) also provides for judicial review under R.C. 119.12. Finally, Paragraph (F) of Rule 3901-1-28, which assists the superintendent in making this determination, was promulgated under the authority of R.C. 1739.051(D). Accord Strain v. Southerton (1947), 148 Ohio St. 153. See Belden v. Union Cent. Ins. Co. (1944), 143 Ohio St. 329, paragraph three of the syllabus.

IV.

Blue Cross finally argues that the discretion given the superintendent to partially approve a proposed rate request is an unlawful delegation of legislative authority. Blue Cross' specific objection is that, as is true, neither R.C. 1739.051(D) nor Paragraph (F) of Rule 3901-1-28 expressly guides the superintendent in making this apportionment.9

We hold that this lack of express guidance does not invalidate these provisions. When the General Assembly delegates power to an administrative official, it must provide standards insofar as it is possible to do so. See Coady v. Leonard (1937), 132 Ohio St. 329, 332. In the instant cause, however, Blue Cross has not suggested, nor does the record disclose, any standards which the superintendent could possibly employ to determine the portion of a rate request to approve, if he finds Blue Cross not in complete compliance with the cost containment provisions. Indeed, given the economic premises of the cost containment provisions,10 it is unlikely that the General Assembly could draft standards limiting the superintendent's discretion in a manner satisfactory to Blue Cross without undermining the effectiveness of these provisions.

The absence of specific standards in a law conferring authority on an administrative official is not necessarily unlawful. In Matz v. J. L. Curtis Cartage Co. (1937), 132 Ohio St. 271, paragraph seven of the syllabus, this court held:

"As a general rule a law which confers discretion on an executive officer or board without establishing any standards for guidance is a delegation of legislative power and unconstitutional; but when the discretion to be exercised relates to a police regulation for the protection of the public morals, health, safety or general welfare, and it is impossible or impracticable to provide such standards, and to do so would defeat the legislative object sought to be accomplished, legislation conferring such discretion may be valid and constitutional without such restrictions and limitations."11

With respect to the superintendent's discretion to partially approve a proposed rate increase, the General Assembly has made the policy decision that "it * * * [would be] impossible or impracticable to provide * * * [specific] standards, and [that] to do so would defeat the legislative object sought to be accomplished * * *." Nothing in the record, or in the nature of the problem, suggests that this decision is unreasonable. Therefore, we hold that R.C. 1739.051(D) and Paragraph (F) of Rule 3901-1-28 are constitutional, notwithstanding the discretion given the superintendent to approve a proposed rate increase or portion thereof.

Accordingly, the judgment of the Court of Appeals is reversed.

Judgment reversed.

CELEBREZZE, C. J., SWEENEY, LOCHER and HOLMES, JJ., concur.

HERBERT and P. BROWN. JJ., dissent.

PAUL W. BROWN, J., dissenting. Where a burden of proof is imposed upon a party such as that imposed upon Blue Cross and other hospital service associations under this statute, a definitive, prospective and understandable statement of what is to be proven must be fairly discoverable from the terms of the legislation or from rules provided pursuant to a lawful delegation of that power to the administrative agency. To that end the delegation must be rationally circumscribed and rules designed to implement the delegation must directly relate to legitimate regulatory goals of the agency.

I perceive that the incorporation of "good faith effort" cost containment goals into the rate-making function of the Department of Insurance represents a standard so vague that men of common intelligence must necessarily guess at its meaning and differ as to its application. I conclude that the delegation violates fundamental notions of due process and that the statutory scheme is to such extent unconstitutional.

HERBERT, J., concurs in the foregoing dissenting opinion.