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Group Health Insurance of New Jersey v. Howell

Decided: July 1, 1963.

GROUP HEALTH INSURANCE OF NEW JERSEY, A NEW JERSEY CORPORATION, APPELLANT,
v.
CHARLES R. HOWELL, COMMISSIONER, DEPARTMENT OF BANKING AND INSURANCE, STATE OF NEW JERSEY, AND ARTHUR J. SILLS, ATTORNEY GENERAL OF THE STATE OF NEW JERSEY, RESPONDENTS, AND MEDICAL-SURGICAL PLAN OF NEW JERSEY (NEW JERSEY BLUE SHIELD PLAN), A NEW JERSEY CORPORATION, AND THE MEDICAL SOCIETY OF NEW JERSEY, A NEW JERSEY CORPORATION, ADDITIONAL RESPONDENTS



For reversal and remandment -- Chief Justice Weintraub, and Justices Jacobs, Francis, Proctor, Hall, Schettino and Haneman. For affirmance -- None. The opinion of the court was delivered by Proctor, J. Jacobs, J., concurs in result.

Proctor

This appeal involves the constitutionality of N.J.S.A. 17:48A-2 and N.J.S.A. 17:48A-3 of the Medical Service Corporations Law (L. 1940, c. 74, as amended, N.J.S.A. 17:48A-1 et seq.).

The appellant, Group Health Insurance of New Jersey (GHI), a New Jersey corporation, applied to the respondent Commissioner of Banking and Insurance (Commissioner) for a certificate of authority to transact business as a medical service corporation under the Medical Service Corporations

Law, supra. After a meeting and an exchange of correspondence with the Commissioner, GHI indicated its ability and willingness to comply with all requirements of the Law except for sections 2 and 3 (N.J.S.A. 17:48A-2, 3), contending that those sections were unconstitutional. The Commissioner informed GHI by letter of his determination that under the Law compliance by an applicant with sections 2 and 3 was mandatory before a certificate of authority could be issued, and therefore the application of GHI could not be entertained without such compliance.

Thereafter, GHI brought an action in the Law Division seeking a judgment declaring that sections 2 and 3 of the Law are unconstitutional and that GHI need not comply with them. The complaint named the Commissioner and the Attorney General as defendants. After those defendants answered, denying the allegations of unconstitutionality of sections 2 and 3, GHI moved for summary judgment. Supporting the motion were affidavits of three officers and trustees of GHI and several exhibits attached thereto, showing GHI's unsuccessful attempt to secure the cooperation of The Medical Society of New Jersey (Medical Society) in obtaining a certificate of authority to transact business as a medical service corporation. Prior to the return date of the motion for summary judgment, the trial court granted the above-named defendants' motion to join as additional defendants the Medical-Surgical Plan of New Jersey (Blue Shield) and the Medical Society, because of their interest in the subject matter of the proceedings. Amended complaints were served on the additional defendants and their answers also denied the allegations of unconstitutionality of sections 2 and 3. Thereafter, on motion of the Attorney General, the trial court ordered the cause transferred to the Appellate Division pursuant to R.R. 1:27D(a), because it was satisfied that "the plaintiff [GHI] seeks a review of a final decision or action of a State administrative agency." See R.R. 4:88-8. The record of the proceedings before the Commissioner, including the exchange of letters between counsel for GHI and the Commissioner, was

certified and filed in the Appellate Division. Before argument in that court, we certified the matter on our own motion.

None of the parties questions the propriety of the procedure followed below, and as the only issues concern the constitutionality of N.J.S.A. 17:48A-2 and 3, we will consider the matter as an appeal under R.R. 4:88-8 from the final action of the Commissioner in refusing to entertain GHI's application for a certificate of authority to transact business as a medical service corporation. Cf. Carls v. Civil Service Commission of N.J., 17 N.J. 215 (1955).

The Medical Service Corporations Law was enacted under the sponsorship of the Medical Society in 1940. It was amended in 1944 and 1953 in matters not here pertinent. Under the Law, a medical service corporation is any nonprofit corporation organized without capital stock for the purpose of establishing, maintaining and operating nonprofit medical service plans, or to provide or pay for medical services on the basis of premiums. A nonprofit medical service plan is any plan or arrangement operated by such a corporation under the provisions of the Law whereby the expense of medical services to subscribers and covered dependents is paid in whole or in part by such corporation to participating physicians of such plans or arrangements and to others as provided in the Law. A subscriber is one to whom a subscription certificate is issued by the corporation which sets forth the kinds and extent of the medical services for which the corporation is liable to make payment. A participating physician is any physician licensed to practice medicine and surgery in New Jersey, who agrees in writing with the corporation to perform the medical services specified in the subscription certificates issued by the corporation, at such rates of compensation as shall be determined by its board of trustees, and who agrees to abide by the corporation's rules. Medical service includes all general and special medical and surgical services ordinarily provided by such licensed physicians in accordance with accepted practices in the community. No subscriber or his covered dependents shall be liable for any payment to any participating physician

for medical services specified in the subscriber's certificate to be paid to the participating physician by the corporation. N.J.S.A. 17:48A-1. The corporation may classify subscribers whereby under specified circumstances a subscriber or covered dependent may pay a participating physician for medical services an amount in addition to that payable by the corporation, if the subscription certificate contains the provisions thereof and specifies the circumstances. No medical service corporation may transact business unless it first secures a certificate of authority to do so from the Commissioner, who must be satisfied that the corporation has complied with all provisions of the Law. N.J.S.A. 17:48A-3.

The Commissioner is given broad powers under the Law to supervise a medical service corporation so that its "condition or methods of operation are not such as would render its operations hazardous to the public or its subscribers." N.J.S.A. 17:48A-3. The form of all subscription certificates must be filed with the Commissioner, who may at any time disapprove any such form as being "contrary to law, or as being oppressive or calculated to mislead the public," and the corporation may not thereafter issue any form so disapproved. N.J.S.A. 17:48A-9. Similarly, a full schedule of rates to be paid by subscribers must be filed with the Commissioner, who may at any time disapprove the rates "if he finds that such rates are excessive, inadequate or discriminatory." N.J.S.A. 17:48A-10. Annual financial reports must be filed with the Commissioner by the corporation, and the Commissioner may inquire into and investigate any matter connected with the corporation's affairs. N.J.S.A. 17:48A-15 to 19. Whenever the Commissioner shall ascertain as a result of examination or otherwise that any medical service corporation "is exceeding its powers or violating the law or that its condition or methods of business are such as to render the continuance of its operations hazardous to the public or its members, that its assets are less than its liabilities or that the number of subscribers to its service has decreased to less than one hundred persons, or that it has failed to maintain the

number of participating physicians specified by this act, said commissioner may institute an action in the Superior Court to enjoin it from the transaction of any further business, or from the transfer or disposal of its property in any manner whatsoever." N.J.S.A. 17:48A-20.

The Law specifically limits the percentage of payments received from subscribers which may be disbursed for the solicitation of subscribers and for administrative expenses, N.J.S.A. 17:48A-12, 13, and requires that the corporation's funds may be invested only in accordance with the requirements for the investment of funds of life insurance companies. N.J.S.A. 17:48A-14.

At the present time, the only medical service corporation authorized to transact business in New Jersey is the Medical-Surgical Plan of New Jersey, commonly called Blue Shield, which was organized in 1942. As stated in the brief of the Medical Society, the Society "subscribed and initiated the creation in 1942 of the Medical-Surgical Plan of New Jersey (Blue Shield)," and "it remains today * * * as the one medical service plan in our State. * * * [A]lthough M.S.P. is completely autonomous, it does enjoy with The Medical Society the benefits of four interlocking board members currently; The Medical Society president does sit ex officio as a member of M.S.P.'s Board of Trustees; there is an advisory committee to review M.S.P. disputed claims which is a Medical Society committee whose purpose is to achieve understanding and acceptance by subscribers and physicians in claim disputes; it does seek advice of the Society in its problems of common interest; the Society does approve the nominees to the M.S.P. board prior to their election * * *." The brief further states: "Through the year 1961 M.S.P. had enrolled 2,176,679 subscribers, and under contract had 6,564 participating physicians, or 81% of all the physicians in the State licensed to practice medicine and surgery."

GHI has been organized pursuant to N.J.S.A. 15:1-1 et seq. as a nonprofit corporation without capital stock and

has its principal office in Paterson. It is governed by a board of twelve trustees. GHI proposes to offer a medical service plan similar to that of Blue Shield, in that both undertake to pay a participating physician in full (according to the schedule of fees which each participating physician agrees to accept as payment in full for covered services) for enumerated medical and surgical services rendered to a subscriber or his covered dependents, or to indemnify the subscriber to the extent of the schedule of fees where the services are rendered by a non-participating physician. However, under the Blue Shield plan, a participating physician retains the right to charge a subscriber an additional amount for his fee if the subscriber earns over $5,000 per year, or if under a family contract, the yearly income of the subscriber together with that of the subscriber's spouse (if enrolled) is more than $7,500. The plan proposed by GHI, according to its certificate of incorporation, contains no such income limitations. Under it, a participating physician would agree to accept the scheduled fees as payment in full for the enumerated medical and surgical services rendered to a subscriber or his covered dependents, regardless of the amount of the subscriber's yearly income. Moreover, ...


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