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Group Health Insurance of New Jersey v. Howell

Decided: July 15, 1964.


For remandment -- Justices Jacobs, Francis, Proctor, Hall and Schettino. For affirmance -- Chief Justice Weintraub, and Justice Haneman. The opinion of the court was delivered by Proctor, J. Weintraub, C.J. (dissenting). Haneman, J., joins in this dissenting opinion.


The present case is a continuation of Group Health Ins. of N.J. v. Howell, 40 N.J. 436 (1963). There we held that part of section 2 of the Medical Service Corporations Law (N.J.S.A. 17:48A-2), which provided in effect that no person could be elected as a trustee of any medical service corporation unless his nomination had been approved by the Medical Society of New Jersey, violated the New Jersey Constitution because it placed legislative licensing power in the hands of a private organization which had an interest in promoting the welfare of Blue Shield, the only existing medical service corporation in the State. The validity of part of section 3 of that law (N.J.S.A. 17:48A-3) was also challenged in the prior proceeding. Because the matter had been submitted on affidavits and because we felt that a more fully developed record was necessary to a proper determination of that issue, we remanded the matter to the Commissioner of Banking and Insurance for further proceedings and retained jurisdiction. Additional affidavits and testimony were submitted to the Commissioner, and the matter is again before us.

The challenged part of section 3 (N.J.S.A. 17:48A-3) provides:

"The certificate of authority issued by the commissioner shall specify the county or counties in which the corporation may conduct its

business. Such certificate may be amended from time to time to include additional counties on the basis of qualification pursuant to the provisions of this act. No such certificate shall be issued to authorize a corporation to transact business in any county, or if issued, the authority with respect to such county shall be cancelled by the commissioner, if he shall find that less than fifty-one per centum (51%) of the eligible physicians in any county are participating physicians."

The appellant contends that this provision is not reasonably related to any proper legislative objective. Respondents, on the other hand, contend that the provision serves the proper public purpose of insuring the availability of an adequate choice of participating physicians in those areas of the State wherein services might be sought by subscribers. The record on remand convinces us that this provision is not reasonably related to any proper legislative objective.

In our prior opinion we said that any person licensed to practice medicine and surgery in this State was an "eligible physician" within the meaning of section 3. 40 N.J., at p. 455. And we asked that the record be developed to show how many licensed physicians were not engaged in the active practice of medicine and thus would not be available to render eligible services to subscribers. While the parties agree that many physicians are in this category, we still do not know their number with any degree of accuracy. We are told that the American Medical Association estimates that 12% of all licensed physicians are not actively engaged in the practice of medicine. In addition, the record indicates that many physicians, though they practice medicine, are employed by government agencies, the Armed Forces, laboratories, hospitals and other organizations and institutions which would not normally render services under medical service plans. Thus it is clear that the base upon which the 51% is to be calculated does include a substantial number of physicians who would be unavailable to service subscribers and yet would be "eligible" to contract as participating physicians and form part of the required 51%. This would indicate that, depending on the

ratio of available eligibles (as we shall term them) to unavailable eligibles within a county, the applicant could comply with the statute by filling his roster to a substantial degree with unavailable eligible physicians. Certainly, to the extent that this is possible, the legislative purpose of assuring an adequate choice of available physicians would not be achieved.

Moreover, if the purpose of the Legislature, as suggested, was to provide an adequate choice of available physicians to subscribers, realistically those physicians must not only be engaged in the active practice of medicine but should be available to render services of the types covered by the plan's subscription contracts. Since the statute permits plans which limit the types of medical services to be offered subscribers (N.J.S.A. 17:48A-1 and 17:48A-6(b)),*fn1 the base group should be related to those practitioners who can render the eligible services covered by the plan. Obviously, a base group which includes general practitioners and physicians who are primarily engaged in specialties such as psychiatry, ophthalmology, or pediatrics, for example, would not be reasonably related to providing an adequate choice of physicians to service a plan which limited its coverage to in-hospital surgical procedures.

This lack of relationship appearing in the original enactment has been both aggravated and spotlighted by recent supplements to the law which apparently add to the base of "eligibles" all licensed dentists (L. 1964, c. 1; N.J.S.A. 17:48A-28) and all duly registered bio-analytical laboratories (L. 1963, c. 158; N.J.S.A. 17:48A-27), within the scope of their respective fields. A similar supplement in 1953 added chiropodists to the original base of licensed physicians and surgeons (L. 1953, c. 283; N.J.S.A. 17:48A-26), and chiropodists are included as eligible and participating physicians by Blue Shield. These statutory supplements clearly

contemplate that, at least in a comprehensive medical plan, dentists and bio-analytical laboratories as well as chiropodists may sign participation agreements with plans, and thus they would seem to be "eligible physicians" within the meaning of section 3. Under N.J.S.A. 17:48A-28 only eligible services rendered by a licensed dentist in an approved hospital are within the scope of the act. In a comprehensive medical-service plan, it is inconceivable that the large increase in the statutory base due to the addition of all licensed dentists would ever be reasonably related to the minimal percentage of total claims which would be filed for such services. The distortion of the statutory base and the consequent lessening of reasonable relationship to the suggested statutory purpose is evident.

The lack of reasonable relationship is further demonstrated by the variation in the ratio of county population to physicians throughout the State. A chart submitted by Blue Shield indicates, for example, that the ratio varies from 1,290 to 1 in Warren County to 552 to 1 in Essex County.*fn2 Thus if 51% of the physicians in Warren County would provide an adequate choice, the statutory requirement of the same percentage in Essex County would seem unnecessarily high and not reasonably related to public need in that county. On the other hand, if 51% of the physicians in Essex County are needed for an adequate choice, to provide comparable benefits in Warren County, virtually all physicians in that county should be enrolled. In short, the ratio of physicians to the population varies so widely from county to county that a rigid requirement of 51% in every county must in practice result in inadequacy in some counties, superabundance in others, and, in sum, a lack of reasonable relation to the suggested purpose of an adequate choice in all counties. Moreover, if we ignore the ratio of physicians to population and

look at the number of eligible physicians in these two counties, the statute would require 51% of Warren County's 49 eligible physicians, or 25, and 51% of Essex County's 1,673 physicians, or 853, without regard to the number of subscribers enrolled or likely to become enrolled in a plan in either county.

Two other factors also contribute to the lack of reasonable relationship demonstrated above. First, county lines, while perhaps a prima facie reasonable division of the State for the purposes of the statute, do not clearly define the areas in which subscribers would seek eligible services. Although the record indicates that most physicians practice in the county in which they reside and that most patients seek medical services in the county of their residence, there is a substantial crossing of county lines by both patients and physicians, particularly where larger cities are close to county lines. But of more significance under the statutory scheme is the fact that the groups (e.g., industrial employees, labor unions) which are solicited by medical service plans are frequently composed of residents of several counties. The participation of 51% of the doctors in the county where the group contracts with the plan does not achieve the objective of providing to the members of the group who reside outside that county service benefits in the area where they are most likely to seek them. Secondly, under section 3 the authority of the plan to continue to transact business in any county must be cancelled if the number of participating physicians falls below the required 51%. Thus, the mobility of doctors in and out of a county could determine the life and death of a plan, whether or not the feasibility of the plan is in any way affected by the shift in physician population. For example, in the less populous counties where the number of physicians is as low as 49, an increase of one or two doctors in the county might prevent a medical service corporation from continuing to transact business regardless of the effect of the entry on the workability

of its plan and regardless of the availability of the new doctors to service its subscribers.

For the foregoing reasons we conclude that the requirement of section 3 of 51% physician participation for all plans in all counties is not reasonably related to the suggested statutory objective of assuring an adequate choice of physicians to service subscribers in the area in which they are most likely to seek medical care.

Aside from its lack of reasonable relationship to proper statutory objectives, the unreasonableness of the statutory requirement is further indicated by the difficulty of determining the number of eligible physicians in any county. It is undisputed that no public records are available from which an applicant can accurately determine the number of eligible physicians residing or practicing in any county. Nor does the Commissioner have the necessary information. Following the remand, the Commissioner asked Blue Shield to advise him how it determined the number of eligible physicians in a county. The response of Blue Shield shows patent inadequacies in its procedures for determining compliance. For example, Blue Shield does not incorporate into its list of eligibles the newly licensed physicians (over 500 a year), as reported by the State Board of Medical Examiners, until a physician either files a claim for eligible services or requests to be enrolled. It advised the Commissioner that to do so would distort its records "since the majority of them would, in all probability, seldom have occasion to submit a claim." Of course, the statutory category of "eligible physicians" does not exclude physicians merely because they would be unlikely to file a claim with Blue Shield. We sympathize with the practical difficulty presented by ...

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