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Johnson v. Hospital Service Plan of New Jersey

Decided: October 21, 1957.


On appeal from the Superior Court, Law Division, Essex County.

For affirmance -- Chief Justice Weintraub, and Justices Oliphant, Wachenfeld, Burling, Jacobs and Francis. For reversal -- Justice Heher. The opinion of the court was delivered by Wachenfeld, J.


On April 11, 1955 Alfreida Johnson, infant daughter of plaintiff William Johnson, was struck by an automobile and suffered a severe fracture of the hip. She was conveyed by ambulance to the Newark City Hospital, now known as Martland Medical Center, where she was admitted as an emergency case. The hospital, a public institution owned by the municipality, is principally dedicated to the charitable care of indigents, but by virtue of an ordinance enacted in 1937, persons may be accepted for emergency treatment although they possess the financial resources to secure adequate care elsewhere. Section 9.2 of the ordinance under consideration provides:

"Any person who shall receive emergency treatment and who is not indigent, shall be charged and pay the cost of such care and treatment at rates to be fixed by the director."

Alfreida Johnson required hospitalization and medical treatment for a total of 70 days. Her hospital bill, computed at the normal rates for non-indigent patients as established by the medical director of the hospital, amounted to $1,190. Only $100 of this sum was ever paid to the city, however, and this fact is at the heart of the present litigation.

During 1955 William Johnson was a subscriber to the Hospital Service Plan of New Jersey, also known in common parlance as the New Jersey Blue Cross Plan. Under the terms of his individual contract with the Plan, his daughter was eligible for the benefits of his subscription.

The Department of Institutions and Agencies of the State of New Jersey in 1944 had approved the Newark City Hospital as a possible participant in the Hospital Service Plan. Thereafter, negotiations were commenced for the inclusion of the Newark City Hospital as a cooperating member of the Plan. These discussions eventuated in a purported agreement signed by the then Medical Director of the City Hospital, Dr. Earl Snavely, whereby certain fixed rates were to be paid the hospital by the Plan for the hospitalization and treatment of subscribers and eligible

members of their families. This agreement stipulated that payments made under its terms would constitute payment in full to the hospital.

The initial arrangement, made by Medical Director Snavely, provided for payment to the hospital at the rate of $5 per day for the first 21 days that a subscriber was hospitalized on an emergency basis, and for the payment of $3.63 per day thereafter for a period of not more than 90 days. Subsequently, this basic understanding was modified several times to increase the charges to the Plan, but the provision was always retained that the payment required of the Plan on behalf of any subscriber, or eligible member of his family, should constitute payment in full to the city.

At the time when Alfreida Johnson was injured the agreement with the Plan, signed by Medical Director Chmelnik, provided for payment of the flat sum of $100 per subscriber-patient regardless of the amount or quality of hospitalization required. Thus, if a subscriber to the Hospital Service Plan were taken into the city hospital as an emergency case and hospitalized for only one day, the Plan was nevertheless obligated to pay the full $100 to the hospital. Correspondingly, if 70 days of hospitalization and treatment were necessary, as here, the Plan was still obligated to pay only $100 as full compensation to the city.

In accordance with the alleged agreement entered into by its medical director, the city hospital billed the Plan in the amount of $100 for its care of Alfreida Johnson. This sum was paid by the Plan, and the city accepted the check. Meanwhile, the Johnsons had instituted a negligence action against the driver allegedly responsible for Alfreida's injuries, and a settlement of the suit had been effected. The insurance carrier for the putative tort-feasor refused, however, to pay over $1,090 of the settlement money to the Johnsons because the city had filed a hospital lien in that amount. Under N.J.S. 2 A:44-37 such a lien attaches to the proceeds of ...

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