IN THE SUPREME COURT OF PENNSYLVANIA. No. 48 MAP COMMONWEALTH OF PENNSYLVANIA, et al., UPMC, A Nonprofit Corp.,

Transcription

1 Received 07/07/2015 Supreme Court Middle District IN THE SUPREME COURT OF PENNSYLVANIA No. 48 MAP 2015 COMMONWEALTH OF PENNSYLVANIA, et al., Filed 07/07/2015 Supreme Court Middle District 48 MAP 2015 v. UPMC, A Nonprofit Corp., et al Appeal of: UPMC, A Nonprofit Corp. On appeal from the Order of the Commonwealth Court of Pennsylvania (Pellegrini, P.J.), Entered May 29, 2015, in No. 334 MDA 2014 BRIEF FOR APPELLANT PUBLIC VERSION COZEN O CONNOR By: Stephen A. Cozen (Pa ) scozen@cozen.com Stephen A. Miller (Pa ) samiller@cozen.com Jared D. Bayer (Pa ) jbayer@cozen.com 1650 Market Street Philadelphia, PA Tel: (215) Fax: (215) JONES DAY Paul M. Pohl (Pa ) pmpohl@jonesday.com Leon F. DeJulius, Jr. (Pa ) lfdejulius@jonesday.com Rebekah B. Kcehowski (Pa ) rbkcehowski@jonesday.com 500 Grant Street, Suite 4500 Pittsburgh, PA Tel: (412) Fax: (412) Attorneys for Appellant UPMC

2 TABLE OF CONTENTS Page STATEMENT OF JURISDICTION... 1 ORDER OR OTHER DETERMINATION IN QUESTION... 2 STATEMENT OF THE SCOPE AND STANDARD OF REVIEW... 4 STATEMENT OF THE QUESTIONS PRESENTED... 5 STATEMENT OF THE CASE... 7 I. FORM OF ACTION AND BRIEF PROCEDURAL HISTORY... 7 II. PRIOR DETERMINATIONS IN THIS CASE... 9 III. JUDGE WHOSE DETERMINATION IS TO BE REVIEWED... 9 IV. STATEMENT OF NECESSARY FACTS... 9 A. The Commonwealth Brokered a Mediated Agreement to Delay the Termination of the Parties Medicare Advantage Contracts in B. The Commonwealth Intervened Again in 2014 to Negotiate the Consent Decrees C. The Parties Executed the Consent Decrees in June D. The Commonwealth Restructured and Removed Key Terms from the Vulnerable Populations Provision During the Drafting Process E. The Commonwealth Unsuccessfully Argued to the Commonwealth Court that Highmark s Community Blue Medicare Advantage Product Violated the Vulnerable Populations Provision F. UPMC Timely Notified Highmark in 2015 That It Would Not Renew Their Medicare Advantage Contracts G. The Commonwealth Moved Judge Pellegrini to Compel UPMC to Withdraw its Termination Notices H. The Commonwealth Court Issued the May 29 Order I. The Commonwealth Court Issued the June 29 Opinion SUMMARY OF THE ARGUMENT ARGUMENT FOR APPELLANT I. THE PARTIES ACTIONS AND ADMISSIONS PROVE THAT THE CONSENT DECREES DO NOT OBLIGATE UPMC TO RENEW ITS MEDICARE ADVANTAGE CONTRACTS WITH HIGHMARK i

3 A. Highmark Repeatedly Acknowledged UPMC s Right Not to Renew the Parties Medicare Advantage Contracts B. The Commonwealth Also Acknowledged UPMC s Right Not to Renew Its Medicare Advantage Contracts with Highmark II. THE VULNERABLE POPULATIONS PROVISION DOES NOT BIND UPMC TO IRREVOCABLE MEDICARE ADVANTAGE CONTRACTS WITH HIGHMARK THROUGH A. The Commonwealth Court Misinterpreted VP-2 to Include a Term ( Medicare Advantage ) that the Commonwealth Intentionally Removed B. The Commonwealth Court Misinterpreted the Scope of the Term Medicare in VP C. VP-3 is a Coordination of Benefits Clause, Not a Second Continueto-Contract Clause That Would Be Both Superfluous and Unenforceable III. HIGHMARK REPEATEDLY TRIGGERED UPMC S RIGHT TO PROTECT ITSELF UNDER VP A. The Take the Position Clause in VP-4 is Intentionally Broad B. Highmark Indisputably Took Positions that Authorized UPMC to Invoke the Protection of VP C. Judge Pellegrini Impermissibly Avoided the Undisputed Evidence By Inventing Additional, Non-Existent Conditions in VP IV. THE MAY 29 ORDER VIOLATED DUE PROCESS AND EXCEEDED THE COMMONWEALTH COURT S CONSTITUTIONAL AUTHORITY A. The May 29 Order Violated Due Process By Resolving Issues That The Parties Did Not Raise B. The Commonwealth Court Lacked Subject-Matter Jurisdiction to Issue the May 29 Order CONCLUSION CERTIFICATION OF COMPLIANCE WITH WORD COUNT LIMITS CERTIFICATE OF SERVICE ii

4 TABLE OF AUTHORITIES Page(s) Cases 401 Fourth Street, Inc. v. Investors Ins. Grp., 879 A.2d 166 (Pa ) Amerofina, Inc. v. U.S. Indus., Inc., 335 A.2d 448 (Pa. Super. Ct. 1975) Anflick v. Gruhler, 46 A.2d 161 (Pa. 1946) Askew v. The Trs. of the Gen. Assembly of the Church of the Lord Jesus Christ of the Apostolic Faith, Inc., 644 F. Supp. 2d 584 (E.D. Pa. 2009) Bald Eagle Area Sch. Dist. v. Bald Eagle Area Educ. Ass n, No. 108 C.D. 2011, 2011 WL (Pa. Commw. Ct. Oct. 11, 2011) Balshy v. Rank, 490 A.2d 415 (Pa. 1985) Block v. Mylish, 41 A.2d 731 (Pa. 1945) Bollinger v. Palmerton Area Communities Endeavor, Inc., 361 A.2d 676 (Pa. Super. Ct. 1976) Burton v. Temple Univ. Law School, 335 A.2d 830 (Pa. Commw. Ct. 1975) Capitol Bus Co. v. Blue Bird Coach Lines, Inc., 478 F.2d 556 (3d Cir. 1973) Chepkevich v. Hidden Valley Resort, L.P., 2 A.3d 1174, 1193 (Pa. 2010) Citizens Fin. Grp., Inc. v. Citizens Nat l Bank, 383 F.3d 110 (3d Cir. 2004) iii

5 City of Erie v. R.D. McAllister & Son, 204 A.2d 650 (Pa. 1964) Clarke v. MMG Ins. Co., 100 A.3d 271, 277 (Pa. Super. Ct. 2014) Commonwealth v. Barnes Found., 159 A.2d 500, 501 (Pa. 1960) Consol. Tile & Slate v. Fox, 189 A.2d 228 (Pa. 1963) Demharter v. First Fed. Sav. & Loan v. Loan Ass n of Pittsburgh, 194 A.2d 214 (Pa. 1963) In re Estate of Coleman, 317 A.2d 631 (Pa. 1974) Harding v. Stickman, 823 A.2d 1110 (Pa. Commw. Ct. 2003)... 4 Harrington v. Dep t of Transp. Bureau of Driver Licensing, 784 A.2d 871 (Pa. Commw. Ct. 2001) Int l Org. Master, Mates & Pilots of Am., Local No. 2 v. Int l Org. Masters, Mates & Pilots of Am., Inc., 439 A.2d 621 (Pa. 1981)... 4, 30 J.F. v. D.B., 897 A.2d 1261 (Pa. Super. Ct. 2006) Kuznik v. Westmoreland County Bd. of Comm rs, 902 A.2d 476 (Pa. 2006)... 4 Lankford v. Idaho, 500 U.S. 110 (1991) Lesko v. Frankford Hosp.-Bucks County, 15 A.3d 337 (Pa. 2011)... 42, 45, 52 Levin v. Fidelity-Philadelphia Trust Co., 56 A.2d 239 (Pa. 1948) iv

6 Lower Frederick Twp. v. Clemmer, 543 A.2d 502 (Pa. 1988) McMullen v. Kutz, 985 A.2d 769 (Pa. 2009)... 4 Musko v. Musko, 697 A.2d 255 (Pa. 1997) N. Liberties Gas Co. v. United Gas Improvement Co., 35 A.2d 284 (Pa. 1944)... 45, 51 Pennsylvania Gamefowl Breeders Ass n v. Commonwealth, 551 A.2d 361 (Pa. Commw. Ct. 1988) Ress v. Barent, 548 A.2d 1259 (Pa. Super. Ct. 1988) Samuels v. Blue Cross of Greater Philadelphia, 592 A.2d 1310 (Pa. Super. Ct. 1991) Stackhouse v. Commonwealth, 832 A.2d 1004 (Pa. 2003) United Parcel Serv., Inc. v. Pa. Public Utility Comm n, 830 A.2d 941 (Pa. 2003)... 1 Wynnewood Dev., Inc. v. Bank & Trust Co. of Old York Rd., 711 A.2d 1003 (Pa. 1998)... 1 Z&L Lumber Co. of Atlasburg v. Nordquist, 502 A.2d 697 (Pa. Super. Ct. 1985) Statutes 15 Pa. C.S Pa. C.S. 723(a) Pa. C.S Pa. C.S. 762(a)(5) U.S.C. 1395, et seq v

7 42 U.S.C. 1395ss(d)(3)(A)(i)(I) U.S.C. 1395w-21(a)(1) Other Authorities 42 C.F.R Pa. Code (b)(5) G. Ronald Darlington, et al., Pennsylvania Appellate Practice Pa. R.A.P. 311(a)(4)... 1 Pa. R. Judicial Admin. 2156(1)... 25,64 vi

8 STATEMENT OF JURISDICTION This Court has jurisdiction over this appeal from the Order entered on May 29, 2015 (the May 29 Order ) by the Commonwealth Court (Hon. Dan Pellegrini). The May 29 Order is immediately appealable under Pa. R.A.P. 311(a)(4), which provides for interlocutory appeal as of right of [a]n order granting... [an] injunction. See, e.g., Wynnewood Dev., Inc. v. Bank & Trust Co. of Old York Rd., 711 A.2d 1003, 1005 (Pa. 1998) (quoting Pa. R.A.P. 311(a)(4)). The May 29 Order entered a mandatory injunction compelling UPMC to, inter alia, be in a contract with [Highmark Health/Highmark, Inc. (collectively Highmark )] and be an in-network provider for Highmark Medicare Advantage Plans for physicians, hospitals, and other services for the term of the consent decrees. (R.3962a.) Additionally, the May 29 Order is a final order subject to direct appeal to this Court pursuant to 42 Pa. C.S. 723(a). The May 29 Order disposed of all claims and parties presented in the Commonwealth s Motion to Enforce Consent Decrees and Compel Arbitration. It is, therefore, a final appealable order. See, e.g., United Parcel Serv., Inc. v. Pa. Public Utility Comm n, 830 A.2d 941, 947 n.12 (Pa. 2003); G. Ronald Darlington, et al., Pennsylvania Appellate Practice

9 reads 1 : ORDER OR OTHER DETERMINATION IN QUESTION The full text of the May 29 Order which is also attached as Appendix A WHEREAS, the parallel consent decrees entered into by the parties with the Commonwealth are only at issue in this matter; WHEREAS, I find that Medicare Advantage participants are included within the definition of Medicare participating consumers in the third sentence of the Vulnerable Populations paragraph of UPMC s consent decree, UPMC consent decree IV(A)(2); WHEREAS, I find that Highmark did not take the position that it had the authority to unilaterally revise the rates and fees payable to UPMC after June 27, 2014, the date the consent decrees were executed, and did not revise any rates paid to UPMC; WHEREAS, I find that Highmark did not violate the fourth sentence of the Vulnerable Populations paragraph of the consent decrees. See UPMC consent decree IV(A)(2); see also id. IV(C)(1)(a)(ii); AND NOW, this 29th day of May, 2015, upon consideration of the Commonwealth s Motion to Enforce Consent Decrees and Compel Arbitration and Respondents replies thereto, the evidence presented at the hearing on May 27, 2015, and the findings that I have made, the Commonwealth s Motion is granted. It is further ordered that: 1. Respondent UPMC shall be in a contract with Highmark Health and Highmark, Inc. (collectively, Highmark) and be an innetwork provider for Highmark Medicare Advantage Plans for physicians, hospitals, and other services for the term of the consent decrees. 1 The lower court issued an opinion on June 29, 2015 (attached as Appendix B), which explained the reasoning behind the May 29 Order. 2

10 2. If the parties are unable to negotiate terms for payment owed by Highmark to those entities or other terms and conditions of the Plans: A. By July 1, 2015, Respondents shall submit a joint statement identifying all remaining and unresolved issues to be determined pursuant to the UPMC-Highmark Joint Plan for Single Last Best Offer Arbitration under Consent Decrees entered separately with the commonwealth of Pennsylvania as approved by this Court s November 24, 2014 Order. B. By the same date, the Respondents shall select an arbitrator in a manner provided for in the November 24, 2014 Order, or the Court will select the arbitrator. C. Respondents shall complete the arbitration of outstanding issues identified no later than September 30, D. Respondents shall provide this Court and the Commonwealth with monthly status reports commencing on July 1, 2015, and continuing until the arbitration decision is rendered. 3. Neither Respondent shall make any change to any Plan, contract, or other business relationship between UPMC and Highmark Health/Highmark, Inc., no matter how small, without first securing approval from the Court. 4. The Commonwealth will file a request for supplemental relief to effectuate compliance with the consent decrees, including but not limited to, changes in corporate governance. /s/ Dan Pellegrini DAN PELLEGRINI, President Judge 3

11 STATEMENT OF THE SCOPE AND STANDARD OF REVIEW The Court applies standard rules of contract interpretation and thus, de novo review in its determination of the parties obligations under the Consent Decrees. See, e.g., Int l Org. Master, Mates & Pilots of Am., Local No. 2 v. Int l Org. Masters, Mates & Pilots of Am., Inc., 439 A.2d 621, 624 (Pa. 1981) ( It is clear that in interpreting the terms of a consent decree, rules of contract interpretation apply. ); see also, e.g., McMullen v. Kutz, 985 A.2d 769, 773 (Pa. 2009) ( [T]he interpretation of the terms of a contract is a question of law for which [this Court s] standard of review is de novo, and [the] scope of review is plenary. ). Furthermore, in reviewing the Commonwealth Court s grant of an injunction, this Court s standard of review is de novo, and [the] scope of review is plenary. Kuznik v. Westmoreland County Bd. of Comm rs, 902 A.2d 476, 489 (Pa. 2006). To justify the award of a permanent injunction, the party seeking relief [here, the Commonwealth] must establish that his right to relief is clear, that an injunction is necessary to avoid an injury that cannot be compensated by damages, and that greater injury will result from refusing rather than granting the relief requested. Id. (quoting Harding v. Stickman, 823 A.2d 1110, 1111 (Pa. Commw. Ct. 2003)). 4

12 STATEMENT OF THE QUESTIONS PRESENTED 1. Did the Commonwealth Court erroneously interpret Section IV(A)(2) of the Commonwealth/UPMC Consent Decree to require UPMC to be in a contract with Highmark as to Medicare Advantage, where the plain language of the consent decree as confirmed by the drafting history, parties admissions, and a prior interpretation of the same provision by the same judge of the Commonwealth Court preserves the parties ability to terminate their Medicare Advantage contracts with each other upon proper notice? Suggested Answer: Yes. 2. Did Highmark take the position that it has authority to unilaterally and materially revise the rates and fees payable under its Medicare Advantage contracts with UPMC under Section IV(A)(2) of the Consent Decrees thereby triggering, inter alia, UPMC s right to withdraw from Medicare Advantage provisions of the Consent Decrees where, among other things, both the Commonwealth and Judge Pellegrini admitted that Highmark had indeed taken that position? Suggested Answer: Yes. 5

13 3. Did the Commonwealth Court violate due process by ordering sweeping relief that no party requested, that was expressly released by the Consent Decrees, and that exceeded the Court s constitutional authority? Suggested Answer: Yes. 6

14 STATEMENT OF THE CASE I. Form of Action and Brief Procedural History This is a direct appeal from an Order entered by the Commonwealth Court granting a mandatory injunction against Appellant UPMC. Following UPMC s decision not to renew its annual Medicare Advantage contracts with Highmark, the May 29 Order compelled UPMC to enter contracts with Highmark to provide services to Highmark s Medicare Advantage subscribers through On June 27, 2014, the Commonwealth commenced this action in the Commonwealth Court by filing a petition for review and two consent petitions to approve reciprocal consent decrees (the Consent Decrees ). The parties to the Consent Decrees were the Commonwealth and both UPMC and Highmark, respectively. On July 1, 2014 the Commonwealth Court entered an Order approving the Consent Decrees. (R.104a.) On October 10, 2014, the Commonwealth filed a motion to hold Highmark in contempt for violating its Consent Decree by excluding UPMC from Highmark s new Community Blue Medicare Advantage product. (R.123a-142a.) Following a hearing, Judge Pellegrini denied the Commonwealth s motion in an Order and Opinion on October 30, (R.592a-615a.) On April 27, 2015, the Commonwealth initiated the litigation that forms the basis of this appeal by filing a motion to enforce the consent decree against UPMC 7

15 and compel arbitration between UPMC and Highmark. (R.1229a-1247a.) The motion itself did not specify the legal standard under which it sought relief. On a scheduling call with the parties on May 11, 2015, Judge Pellegrini stated that he would treat the Commonwealth s motion as a request for a finding of contempt, and he scheduled a contempt hearing for May 27, (R.1a-35a; 3618a.) On May 12, 2015, Judge Pellegrini issued a scheduling order memorializing his intention to resolve only the contempt issue at the May 27 th hearing. (R.1326a- 1329a.) However, without prior notice, Judge Pellegrini instead conducted what amounted to an injunction hearing on May 27 th. (R.3618a.) Then, on May 29, 2015, Judge Pellegrini entered a mandatory injunction against UPMC. (R.3961a- 3963a.) UPMC timely filed its notice of appeal from that Order on June 1, 2015, and this Court noted its probable jurisdiction by Order entered on June 10, (R.3964a-4017a; 4661a.) UPMC sought an emergency stay, supersedeas, and expedited briefing schedule from this Court on June 3, In an order dated June 17, 2015, this Court granted the motion for expedited briefing but denied the emergency motion for a stay and supersedeas until Judge Pellegrini had been given an opportunity to resolve the motion. UPMC followed this Court s direction and filed its Emergency Motion for Stay and Supersedeas in the Commonwealth Court on the very next day, June 18,

16 Finally, Judge Pellegrini issued two decisions at the end of June: (a) an opinion dated June 29, 2015, in which he purported to explain the reasoning of the May 29 Order, and (b) an order dated June 30, 2015, in which he denied UPMC s request for a stay and supersedeas of the May 29 Order. UPMC thereupon renewed its emergency motion for a stay and supersedeas to this Court on July 1, II. Prior Determinations in this Case The Commonwealth Court s prior determinations of relevance to this appeal are: (a) the Court s July 1, 2014 Order approving the Consent Decrees, and (b) its October 30, 2014 Order and Opinion denying the Commonwealth s application to hold Highmark in contempt with respect to its introduction of Community Blue Medicare Advantage products that did not include in-network access to UPMC. III. Judge Whose Determination is to be Reviewed The Honorable Dan Pellegrini entered the May 29 Order. IV. Statement of Necessary Facts This case concerns the proper interpretation of reciprocal Consent Decrees entered between the Commonwealth, Highmark, and UPMC that settled certain claims by the Commonwealth and governed the orderly expiration of the commercial relationship between UPMC and Highmark. 9

17 A. The Commonwealth Brokered a Mediated Agreement to Delay the Termination of the Parties Medicare Advantage Contracts in UPMC is the largest healthcare provider in Western Pennsylvania, and Highmark is the largest health insurer in that region. For many years, UPMC and Highmark contracted for UPMC to provide healthcare services to Highmark Medicare Advantage and commercial subscribers. (R.1873a-1946a.) Redacted Redacted Redacted As a result of Highmark s acquisition of a competing hospital system West Penn Allegheny Health System UPMC was prepared not to renew its commercial contracts with Highmark when they expired on December 31, The Commonwealth brokered an extension. In May 2012, at the request of then-governor Tom Corbett, the parties entered a Mediated Agreement that continued the parties contracts through December 31, 2014 in order to ensure an Redacted orderly wind-down of their relationship. (R.1954a-1958a.) Redacted R e d a c t e d 10

18 Redacted Redacted Pursuant to the Mediated Agreement, the parties also executed an amendment to their Medicare Advantage contracts. (R.1959a-1990a.) Redacted In 2013, the Pennsylvania Insurance Department approved Highmark s acquisition of West Penn Allegheny Health System, in part, on the understanding that Highmark s contract with UPMC is scheduled to terminate on December 31, 2014, and new or extended provider contracts may or may not be entered into between the parties. (R.533a.) 11

19 B. The Commonwealth Intervened Again in 2014 to Negotiate the Consent Decrees. With the end of the extended contract period approaching, Highmark began an aggressive campaign to coerce UPMC into agreeing to a system-wide commercial contract beyond (R.1991a-1996a.) Among other things, Highmark engaged in negative advertising targeting UPMC and sought legislative intervention to force UPMC to contract. (Id.) Then, on February 25, 2014, Highmark announced that it was unilaterally cutting reimbursement rates for certain UPMC services under both its commercial and Medicare Advantage contracts by up to 80%. (R.2010a-2012a.) According to Highmark, these unilateral rate cuts amounted to an estimated $200 million annually. (Id.) On April 1, 2014, Highmark s unilateral rate reductions went into effect, resulting in ongoing underpayments to UPMC of up to $20 million per month. (R.2022a-2024a, 1997a-2009a.) As a result of Highmark s unilateral reductions in reimbursements, UPMC initiated arbitration. (R.2220a-2238a.) At this point, then-governor Corbett intervened again. He created the Patients First Leadership Team ( PFLT ) comprised of the Pennsylvania Insurance Department, the Pennsylvania Department of Health, and the Pennsylvania Office of Attorney General to negotiate with the parties to develop an orderly transition plan for the upcoming expiration of the UPMC/Highmark contracts. (R.709a.) 12

20 Redacted The negotiation process lasted several weeks and was highly contentious. (R.709a-711a, 718a; 1250a-1295a.) The PFLT served as intermediary and negotiated with each party separately. (R.710a-711a.) In that role, the PFLT negotiated identical, reciprocal agreements for the Commonwealth to enter with UPMC and Highmark, respectively. (Id.) The Commonwealth prepared initial term sheets that were circulated to both parties. (R.869a-888a.) Redacted Redacted The Commonwealth explicitly stated its promise throughout the process that the eventual Consent Decrees would be reciprocal and mutual i.e., that each party s agreement would contain materially the same terms and obligations. (R.59a-103a.) C. The Parties Executed the Consent Decrees in June On June 27, 2014, UPMC and Highmark each signed their Consent Decrees with the Commonwealth. Those Consent Decrees were submitted to the Commonwealth Court for approval that same day. (Id.) The Consent Decrees explicitly stated in the first paragraph that they were not a contract extension and shall not be characterized as such. (R.1253a.) That paragraph further provided that the Consent Decrees were to be interpreted consistently with the Insurance Department s UPE Order in the Highmark/West 13

21 Penn Allegheny Health System Matter, which recognized that the parties Medicare Advantage contracts were currently scheduled to expire on December 31, (R.1253a.) The Consent Decrees imposed parallel conditions on both UPMC and Highmark to facilitate an orderly wind-down of the parties business relationships through June 30, (R.1250a-1273a; 712a; 2642a-2646a; 1266a-1290a.) The Consent Decrees addressed several categories of care, including emergency room and trauma services at UPMC hospitals, continued access to UPMC at in-network rates for specified services for specifically defined vulnerable populations, provision of oncology/cancer services at UPMC, access to particular unique/exception hospitals and physicians at UPMC, and continuity of care for patients. (R.1250a-1295a.) The Consent Decrees did more than simply detail the mutual obligations placed upon UPMC and Highmark. Through those Decrees, the Commonwealth also released any and all claims the OAG, PID or DOH brought or could have brought against UPMC [and Highmark] for violations of any laws or regulations within their respective jurisdictions, including claims under laws governing nonprofit corporations and charitable trusts, consumer protection law, insurance laws and health laws relating to the subject matter of the Consent Decrees. (R.1265a; 1289a.) 14

22 Finally, under the Consent Decrees, the Commonwealth Court maintained limited jurisdiction to enforce the Decrees, and only upon an application by the Commonwealth seeking enforcement. (R.1264a-1265a; 1288a-1289a.) D. The Commonwealth Restructured and Removed Key Terms from the Vulnerable Populations Provision During the Drafting Process. This appeal focuses on the interpretation of one paragraph of the Consent Decrees the Vulnerable Populations provision, Section IV.A.2 (R.1257a- 1258a; 1280a-1281a) which seeks to minimize the impact of the transition on certain groups. It contains four clauses: [1] the definitions clause ( VP-1 ); [2] the continue to contract clause ( VP-2 ); [3] the coordination-of-benefits clause ( VP-3 ); and [4] the withdrawal clause ( VP-4 ). Section IV(A)(2) reads as follows: Vulnerable Populations [1] UPMC and Highmark mutually agree that vulnerable populations include: (i) consumers age 65 or older who are eligible or covered by Medicare, Medicare Advantage, (ii) Medigap health plans, (iii) Medicaid and/or (iv) CHIP. [2] With respect to Highmark s covered vulnerable populations, UPMC shall continue to contract with Highmark at in-network rates for all of its hospital, physician and appropriate continuity of care services for CHIP, Highmark Signature 65, Medigap and commercial retiree carve out as long as Highmark does not make unilateral changes to these programs. 15

23 [3] UPMC shall treat all Medicare participating consumers as In-Network regardless of whether they have Medicare as their primary or secondary insurance. Redacted [4] UPMC reserves the right to withdraw from these arrangements if Highmark should take the position that it has the authority to revise the rates and fees payable under those arrangements unilaterally and materially. Importantly, however, neither party accepted the original Vulnerable Populations provision as proposed by the Commonwealth. Rather, each party requested, and the Commonwealth agreed to accept, modifications to the Commonwealth s original language. (R.727a; 3689a-3690a; 3707a.) Among other things, Highmark insisted on the removal of Medicare Advantage from VP-2 the continue to contract clause because Highmark was intending to 16

24 exclude UPMC facilities from a future Medicare Advantage product. (R.3689a; 3707a.) Likewise, UPMC requested the addition of VP-4, which provided UPMC a right to withdraw from the Consent Decrees if Highmark took the position that it had the authority to revise rates and fees payable under the parties arrangements unilaterally and materially. (R.727a.) E. The Commonwealth Unsuccessfully Argued to the Commonwealth Court that Highmark s Community Blue Medicare Advantage Product Violated the Vulnerable Populations Provision. After the entry of the Consent Decrees on July 1, 2014, Highmark introduced a new Medicare Advantage plan, Community Blue Medicare Advantage, that did not include in-network access to UPMC doctors or hospitals. (R.598a-599a.) On October 10, 2014, the Commonwealth moved to hold Highmark in contempt for violating its consent decree. According to the Commonwealth, the Consent Decrees required Highmark to include in-network access to UPMC in all of its Medicare Advantage contracts. (R.123a-141a.) Subsequent discovery revealed that introduction of Community Blue Medicare Advantage was one facet in Highmark s self-declared war against UPMC a war with fronts in economics, politics, and public relations. (R.4796a.) Part of that war, implemented through a comprehensive "Command Center Strategy," was a unilateral reduction in the rates it would pay UPMC for oncology services and, 17

25 ultimately, a lawsuit in the Allegheny County Court of Common Pleas seeking a declaratory judgment that it had the right to change the rates it paid to UPMC unilaterally and at any time. (R.4798a; R.3645a.) On October 22, 2014, the Commonwealth Court held a hearing on the Commonwealth s motion to hold Highmark in contempt. At that hearing, Judge Pellegrini made it clear that he was displeased with the Commonwealth s handling of the UPMC/Highmark situation, calling the process that generated the Consent Decrees silly, (R.719a-720a), referencing a supposed hundred million dollars worth of ads, (R.856a), and expressing his clear preference for a more aggressive approach: And everybody should be cooperative to get those health-care costs down. And it s unfortunate that we have parties that just won t sit in a room together for the benefit of the public. But that s my belief. I just find it totally amazing. *** In all honesty, I think if the Attorney General used all the leverage of the Commonwealth, they could have got them to agree no matter what.... And one of the things I didn t hear was they use and I have to admit this, they didn t use their leverage like saying we re going to go after your tax exemption; we re going to reduce the Medicaid rate; we re going to I mean, I ve been in the position that the government has a lot of strings it can pull outside we think you should be nice. (R.842a; 853a-854a.) On October 30, 2014, the Commonwealth Court held that Highmark s new Medicare Advantage plan did not violate the Consent Decrees. (R.592a-615a.) Specifically, Judge Pellegrini reasoned that the Vulnerable Populations provision 18

26 and VP-2, in particular did not require UPMC and Highmark to contract with each other on all Medicare Advantage products: Nowhere in the text of the provision is there a requirement that Highmark include UPMC in all of its Medicare-Advantage products. Further, while Section IV(A)(2) requires UPMC to continue contracting with Highmark at in-network rates for CHIP, Highmark Signature 65, Medigap, and commercial retiree carve-out programs, it does not impose such requirements with regard to the Community Blue [Medicare Advantage] Program or future products. (R.608a-609a (emphasis in the original).) This was consistent with Highmark s argument at the time as summarized by Judge Pellegrini that the provision requires UPMC and Highmark to continue contracting for in-network rates with regard to certain specifically named products, none of which include Medicare- Advantage products or new products, generally. (R.608a (emphasis supplied).) F. UPMC Timely Notified Highmark in 2015 That It Would Not Renew Their Medicare Advantage Contracts. Against this backdrop, UPMC timely notified Highmark that it would not renew the Medicare Advantage contracts for (R.1544a-1545a.) On March 20, 2015, UPMC sent a Notice of Termination Medicare Acute Care Provider Agreements, which provided notice that UPMC was terminating each Medicare Advantage contract under the with cause and without cause provisions in each. 19

27 (R.1544a-1545a.) The contracts would remain in effect until December 31, (Id.) Before UPMC issued its termination notices, it provided Highmark an opportunity to comply with its obligations under the Medicare Advantage agreements and the Consent Decrees. On February 12, 2015, UPMC notified Highmark that it had breached those agreements, inter alia, by unilaterally reducing the rates specified in those agreements. It invited Highmark to cure its breaches by paying the full amounts owed under the parties contracts and dismissing its lawsuit against UPMC in Allegheny County. (R.1353a-1354a.) By letter dated March 13, 2015, Highmark rejected UPMC s allegation of breaches. (R.2472a-2538a.) In each of thirteen Responses to UPMC Notices (one for each implicated contract), Highmark denied that any changes made by it to its fee schedule constitute a breach of the Medicare Advantage contracts and asserted that it had every right to adjust the fee schedule as it did[,] without obtain[ing] UPMC s consent prior to changing its fee schedules. (R.2476a.) In its cover letter to UPMC, Highmark made an illuminating, conditional offer to settle the parties dispute. (R.2472a-2474a.) Specifically, Highmark stated that it would not make any unilateral and material changes to its Medicare Advantage fee schedules that revise rates and fees payable to UPMC hospitals for services to vulnerable populations in the future if UPMC agreed that Medicare 20

28 Advantage contracts will remain in effect for the duration of the Consent Decrees. (R.2474a.) The conditional offer had two important features: (1) an admission that UPMC had a right to otherwise terminate such Medicare Advantage contracts by their terms, and (2) a re-iteration of Highmark s contention that it had unilateral authority to make rate reductions. UPMC refused Highmark s conditional offer and, on March 20, 2015, notified Highmark that it would not renew the parties Medicare Advantage contracts for (R.2539a-2555a.) G. The Commonwealth Moved Judge Pellegrini to Compel UPMC to Withdraw its Termination Notices. On April 27, 2015, the Commonwealth moved the Commonwealth Court to enforce the Consent Decrees. Specifically, the Commonwealth sought: (i) enforcement of the Consent Decree to prevent UPMC from exercising its explicit contractual right not to renew its Medicare Advantage contracts with Highmark when the current contracts expire on December 31, 2015; and (ii) an order binding UPMC and Highmark to arbitrate certain questions under the Consent Decrees. (R.1229a-1247a.) In support of its motion, the Commonwealth asserted that VP-3 required UPMC to continue to contract with Highmark with respect to all Medicare Advantage products, even though VP-3 does not include the words contract, Highmark, or Medicare Advantage. (Id.) 21

29 On May 11, 2015, Judge Pellegrini convened a pre-hearing conference and announced that he would treat the Commonwealth s motion as one seeking a finding of contempt against UPMC and would conduct the upcoming hearing accordingly. Following that conference, Judge Pellegrini issued an order scheduling a hearing on May 27 th limited to UPMC s compliance with the Consent Decrees. (R.1326a-1329a.) As the Commonwealth confirmed in a subsequent filing, all parties therefore expected the Motion to Enforce to be[] treated as Motion for Contempt. (R.2976a.) On May 27, 2015, the Commonwealth Court opened the hearing by reneging on its promise to treat the proceeding as one for contempt. (R.3618a ( [T]here s always a danger of what happens when a judge is speaking off the cuff. ).) Instead, the court conducted a wide-ranging, ten-hour hearing exploring the proper interpretation of the Vulnerable Populations provision of the Consent Decrees. (R.3613a-3722a.) During the hearing, Judge Pellegrini probed lawyers and witnesses for all parties on whether he could vacate the Consent Decrees altogether and impose previously undisclosed obligations on the parties. (R.3620a-3621a.) He also repeatedly expressed discomfort with what he viewed as an apparent disconnect between the parties assertions of facts and unidentified newspaper articles that he claimed to have read. (R.3650a, 3678a-3679a; 3713a; 3718a; see 22

30 also, e.g., R.3679a (telling UPMC s lawyer that you have the distinct disadvantage, as I live in Pittsburgh and I read the newspaper. ).) H. The Commonwealth Court Issued the May 29 Order. On May 29, 2015, Judge Pellegrini issued the Order subject to this expedited appeal and, in the process, undermined his own opinion interpreting the Vulnerable Populations provision from October The May 29 Order mandated a sweeping overhaul of the parties business relations without any mention of the contempt standard that was supposed to govern the May 27 th hearing. In the May 29 Order, the court held that VP-3 s use of the term Medicare participating customers required UPMC to be in a contract with Highmark and be an innetwork provider for Highmark Medicare Advantage plans for the term of the consent decrees. (R.3962a.) Judge Pellegrini did not cite any other basis for this conclusion, and he held that Highmark s conduct did not allow UPMC to invoke the protections of VP-4. (Id.) But Judge Pellegrini s order then swerved far afield from the subjects addressed at the May 27 th hearing. For example, Judge Pellegrini: Ordered UPMC and Highmark to complete the arbitration of all remaining and unresolved issues prior to September 30, 2015, and provide monthly status reports to the court up to that date (R.3962a- 3963a); 23

31 Prohibited UPMC and Highmark from mak[ing] any change to their contracts or business relationship no matter how small, without first securing approval from the Court (R.3963a); and Instructed the Commonwealth to file a request for supplemental relief to effectuate compliance with the consent decrees, including but not limited to, changes in corporate governance (Id.). I. The Commonwealth Court Issued the June 29 Opinion. The lower court issued an opinion on June 29, 2015 (the June 29 Opinion ) purportedly explaining the reasoning behind the May 29 Order. Rather than clarify, however, the June 29 Opinion only sowed more confusion and undercut the stated reasons for the May 29 Order. In the June 29 Opinion, Judge Pellegrini stated that VP-3 obligated UPMC to enter Medicare Advantage contracts with Highmark, but he also discovered an alternative basis for this holding within VP-2 a basis that no party had ever before advanced. (R.4839a-4840a.) Moreover, the lower court rejected UPMC s invocation of the protections of VP-4 despite finding that Highmark took exactly the position that triggered the protection. (R.4842a-4844a.) The confusion only deepened when the lower court attempted to clarify the other components of its May 29 Order: 24

32 Stating that Paragraph Two of the May 29 Order which compelled unidentified arbitrations on undefined topics requires no further comment. (R.4846a.) Offering that Paragraph Three preclude[s] UPMC and Highmark altering without court approval their contracts and business relationships that involve matters within the scope of the consent decrees. (R.4846a-4847a.) Repeating that Paragraph Four instructs the Commonwealth to file a request for supplemental relief to effectuate compliance with the consent decrees, including but not limited to, changes in corporate governance. (R.4847a.) Judge Pellegrini did not even acknowledge that the Commonwealth had expressly released any corporate-governance claims in the Consent Decrees, (R.1289a), or that the Orphans Court maintains exclusive jurisdiction over such claims against non-profit corporations, see Pa. R. Judicial Admin. 2156(1). 25

33 SUMMARY OF THE ARGUMENT The Commonwealth Court committed several egregious, reversible errors in the May 29 Order. As an initial matter, the court disregarded the text, drafting history, and basic structure of the Vulnerable Populations provision. Specifically, Judge Pellegrini erroneously held that both the second and third sentences of that provision (VP-2 and VP-3) obligated UPMC to maintain Medicare Advantage contracts with Highmark through 2019 an interpretation that ignores the relevant text of those provisions and flies in the face of both Highmark and the Commonwealth s admissions to the contrary and their conduct after executing the Consent Decrees. For example, just 60 days after signing its Consent Decree, Highmark reported to the Commonwealth in a required Transition Plan that the Vulnerable Populations provision did not alter the renewable nature of the parties Medicare Advantage contracts: The current broad network contracts with UPMC extend until December 31, 2015 and renew annually unless either party provides prior notice. (R.2737a.) The May 29 Order buttressed by the June 29 Opinion took exactly the opposite view of the Vulnerable Populations provision that Highmark and the Commonwealth themselves have taken prior to this litigation. The lower court s interpretation is also discredited solely by the language and structure of VP-2 and VP-3. With respect to VP-2, Judge Pellegrini wrongly 26

34 concluded that its introductory clause incorporated Medicare Advantage despite the fact that the Commonwealth and Highmark intentionally removed that term from VP-2 in order to be absolutely clear that VP-2 did not apply to Medicare Advantage contracts. Judge Pellegrini compounded his interpretive errors by holding, first, that VP-3 was another continue-to-contract clause, and second, that Medicare Advantage was somehow included within its scope despite the fact that VP-3 (a) does not mention Medicare Advantage, (b) immediately follows, within the Vulnerable Populations provision, an express continue-to-contract clause that also does not include Medicare Advantage (at Highmark s request and the Commonwealth s approval), and (c) as Highmark itself acknowledged, was specifically included in the Consent Decree to address a coordination-of-benefits scenario that troubled a member of the Commonwealth s PFLT. Indeed, Judge Pellegrini contorted the plain language of the Consent Decree so badly that he ended up contradicting his own prior order interpreting the same provision of the Consent Decree. The Commonwealth Court s order is also clear error by its refusal to allow UPMC to invoke an alternative basis for relief provided by the Vulnerable Populations provision. In the final sentence of that provision ( VP-4 ), the Commonwealth released UPMC from its obligations under the provision if Highmark take[s] the position that it has the authority to revise rates/fees 27

35 unilaterally and materially. That is a far broader standard than the release clause that appears just two sentences earlier ( VP-2 ), which grants a release only if Highmark make[s] unilateral changes to various insurance plans (i.e., an actual rate change). The lower court, however, disregarded this critical distinction between the two release clauses. Despite acknowledging the Commonwealth s admission that Highmark had take[n] the position that triggered VP-4, Judge Pellegrini nonetheless held that UPMC could not invoke the protections of this clause because it failed to satisfy additional (non-existent) conditions that the Commonwealth Court improperly engrafted onto VP-4. More fundamentally, the Commonwealth Court denied UPMC due process by resolving issues that no party raised and that exceeded the court s subjectmatter jurisdiction. In particular, the May 29 Order compelled the parties to arbitrate a wide class of disputes even though the May 27 th hearing did not address that subject and the court s scheduling order expressly reserved any arbitration question for resolution at a subsequent hearing. Moreover, the court sua sponte ordered sweeping relief related to UPMC and Highmark s commercial relationship and corporate governance that no party had notice would be adjudicated. Finally, the lower court s expansive assertion of a judicial veto over any changes in UPMC s and Highmark s commercial relationship, and oversight over UPMC s 28

36 corporate governance, far exceeded its narrow subject-matter jurisdiction under Pennsylvania law and the Consent Decrees. Individually and collectively, these errors demand reversal. 29

37 ARGUMENT FOR APPELLANT Enforcement of the parties Consent Decrees has veered completely off the rails. In both the May 29 Order and the June 29 Opinion, the Commonwealth Court blatantly refused to acknowledge the parties admissions that the Consent Decrees permit UPMC to terminate its Medicare Advantage contracts with Highmark. It also ignored basic canons of contract interpretation and the plain text of those Decrees that compel the same conclusion. 2 Instead, Judge Pellegrini chose to enforce what he believes the Consent Decrees should say rather than enforce the terms of the parties actual agreements. The lower court made the situation even worse by ordering sua sponte an additional series of remedial measures that were both expressly foreclosed by the Consent Decrees and beyond the court s authority. 2 It is undisputed that standard principles of contract interpretation govern the interpretation of the parties Consent Decrees. See, e.g., Lower Frederick Twp. v. Clemmer, 543 A.2d 502, 510 (Pa. 1988) ( Since a judgment by consent is regarded as a contract between the parties, it must be construed the same as any other contract. ) (citation and quotation omitted); Int l Org. Masters, Mates & Pilots of Am., Local No. 2 v. Int l Org. Masters, Mates & Pilots of Am., Inc., 439 A.2d 621, 624 (Pa. 1981) ( It is clear that in interpreting the terms of a consent decree, rules of contract interpretation apply. ). 30

38 I. THE PARTIES ACTIONS AND ADMISSIONS PROVE THAT THE CONSENT DECREES DO NOT OBLIGATE UPMC TO RENEW ITS MEDICARE ADVANTAGE CONTRACTS WITH HIGHMARK. Common sense goes a long way in contract interpretation. See, e.g., Chepkevich v. Hidden Valley Resort, L.P., 2 A.3d 1174, 1193 (Pa. 2010) (rejecting interpretation of a contract that strains common sense ); Consol. Tile & Slate v. Fox, 189 A.2d 228, 230 (Pa. 1963) (rejecting interpretation of a contract that taxes one s common sense ). In particular, it is instructive to compare a party s litigating position about the scope of a disputed contractual provision with its conduct and express admissions. 3 The lower court s interpretation of the Consent Decrees defies common sense. Since executing the Consent Decrees, both the Commonwealth and Highmark have repeatedly demonstrated their understanding that the Vulnerable 3 See, e.g., City of Erie v. R.D. McAllister & Son, 204 A.2d 650, 660 (Pa. 1964) ( It is an axiom of interpretation that the construction placed upon a disputed contract by the parties thereto, as shown by their acts or declarations, will ordinarily be adopted, and will be referred to in determining the true nature of the agreement. ); Z&L Lumber Co. of Atlasburg v. Nordquist, 502 A.2d 697, 701 (Pa. Super. Ct. 1985) ( [The parties ] interpretation is entitled to great, if not controlling, influence, and will generally be adopted and followed by the courts, particularly when the parties' interpretation is made before any controversy, or when the construction of one party is against his interest. ) (citation and quotation omitted); Amerofina, Inc. v. U.S. Indus., Inc., 335 A.2d 448, 452 (Pa. Super. Ct. 1975) ( [T]he subsequent conduct of the parties is a persuasive indicator of their original intent. ); see also, e.g., Capitol Bus Co. v. Blue Bird Coach Lines, Inc., 478 F.2d 556, 560 (3d Cir. 1973) ( A contract must be interpreted in light of the meaning which the parties have accorded to it as evidenced by their conduct in its performance. ). 31

39 Populations provision did not alter UPMC s right to terminate its Medicare Advantage contracts with Highmark. Judge Pellegrini s May 29 Order and June 29 Opinion both, inexplicably, failed to mention any of these express admissions. A. Highmark Repeatedly Acknowledged UPMC s Right Not to Renew the Parties Medicare Advantage Contracts. Soon after executing the Consent Decrees, in August 2014, Highmark acknowledged UPMC s right to terminate the Medicare Advantage contracts. Highmark made the admission in the Transition Plan it was required to file with the Pennsylvania Insurance Department and Department of Health. (R.2526a- 2741a.) In that August 2014 filing, Highmark directly addressed the scope of the Vulnerable Populations provision in the Consent Decree that it had executed just two months earlier. Highmark s acknowledgment of UPMC s right of nonrenewal could not have been clearer: Current Medicare Advantage Products. Under the Consent Decrees, seniors in the current broad network Medicare Advantage products will continue to have in-network access to UPMC facilities and physicians after December 31, The current broad network contracts with UPMC extend until December 31, 2015 and renew annually unless either party provides prior notice. (R.2737a (emphasis supplied).) 32

40 Redacted Highmark re-iterated this understanding of the Vulnerable Populations provision in December Redacted Redacted Highmark plainly believed that this termination scenario was possible under the Consent Decrees, or else it would not have warranted even what if consideration. And Judge Pellegrini did not even give the testimony what if treatment he failed entirely to address this testimony. In March 2015, Highmark again demonstrated its understanding that the Consent Decrees permitted UPMC to terminate its Medicare Advantage contracts with Highmark. UPMC demanded in February 2015 that Highmark cure its multiple breaches of the parties Medicare Advantage agreements. (R.2439a- 33

41 2471a.) Highmark s response contained a critical admission. By letter dated March 13, 2015, Highmark denied the breaches but offered that it would refrain through 2019 from making unilateral changes to rates/fees in its Medicare Advantage contracts with UPMC if UPMC would agree not to terminate those contracts. (R.2474a.) ( Highmark s agreement to the foregoing is conditioned upon an agreement from UPMC that the current MA agreements will remain in effect for the duration of the Consent Decrees. ). Of course, Highmark s conditional offer makes no sense as a request for UPMC to do something that it was already required to do under the Consent Decrees. Finally, at the May 27 th hearing, the President of Highmark Inc. made an important admission about Highmark s view of VP-3. Deborah Rice-Johnson admitted that, prior to UPMC s cancellation of the Medicare Advantage contracts in March 2015, she could not recall seeing any document internal or external in which Highmark ever stated that VP-3 included any requirement that UPMC and Highmark maintain a Medicare Advantage contract. (R.3672a.) Neither Highmark nor the Commonwealth could ever produce any such document, which is unsurprising because the argument is a recent fabrication. 34

42 B. The Commonwealth Also Acknowledged UPMC s Right Not to Renew Its Medicare Advantage Contracts with Highmark. By the same token, the Commonwealth failed to invoke the Vulnerable Populations provision in response to multiple warnings from UPMC that it was preparing to terminate the parties Medicare Advantage contracts due to Highmark s misconduct. UPMC s Chief Legal Officer, Thomas McGough, notified the PFLT on at least two occasions letters dated September 10 and October 10, 2014 that Highmark had breached the parties Medicare Advantage contracts. He stated plainly in those letters that, if the breaches were not cured, UPMC would not renew its Medicare Advantage contracts in the Spring of (R.2323a-2327a; 2348a-2350a; 3599a-3600a; see also R.740a (McGough testimony: And I notified the in early September, notified the Patients First task force that Highmark had indeed taken those positions and that that triggered the right to withdraw. )). The Commonwealth never responded to those letters. The silence is understandable when one examines the legal conclusion reached by one member of that PFLT the Pennsylvania Insurance Department one month before the Commonwealth initiated this enforcement action. The PID received notice in March 2015 that UPMC was preparing not to renew its Medicare Advantage contracts with Highmark. In response, then-acting Commissioner Teresa Miller asked her press secretary, Ronald Ruman, to draft a press release for Governor Wolf in anticipation of the announcement. In a cover 35