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Radiological Society of New Jersey v. Sheeran

Decided: July 17, 1980.

RADIOLOGICAL SOCIETY OF NEW JERSEY, A CHAPTER OF THE AMERICAN COLLEGE OF RADIOLOGY, A NON-PROFIT CORPORATION; RAYMOND F. HEALEY, M.D.; CARL KNITZER, M.D.; BARRY I. LOIGMAN, M.D.; CHARLES C. ROYER, M.D.; KENNETH JEWEL, M.D.; JOHN J. THOMPSON, M.D.; JOHN V. REARDON, M.D.; THOMAS F. MCGUIRE, M.D.; PHILIP SORABELLA, M.D.; HERBERT GERSTEIN, M.D.; JOHN D. MAUN, M.D.; HERBERT FRIEDMAN, M.D.; LLOYD SPINDELL, M.D.; MICHAEL OCH, M.D.; NORMAN MAGID, M.D.; LEONARD BARRIS, M.D.; U.R. KRISHMAN, M.D.; ARMAND F. LEONE, M.D.; RITA G. LEONE, M.D.; MONTCLAIR RADIOLOGY ASSOCIATES, A PROFESSIONAL CORPORATION OF THE STATE OF NEW JERSEY; RADIOLOGY ASSOCIATES OF RIDGEWOOD, A PROFESSIONAL CORPORATION OF THE STATE OF NEW JERSEY; HERBERT FRIEDMAN, M.D., P.A., A PROFESSIONAL CORPORATION OF THE STATE OF NEW JERSEY; NBIH RADIOLOGISTS, A PROFESSIONAL CORPORATION OF THE STATE OF NEW JERSEY; AND PREAKNESS RADIOLOGICAL ASSOCIATION, A PROFESSIONAL CORPORATION OF THE STATE OF NEW JERSEY, PLAINTIFFS-APPELLANTS,
v.
JAMES J. SHEERAN, COMMISSIONER, DEPARTMENT OF INSURANCE OF THE STATE OF NEW JERSEY; HOSPITAL SERVICE PLAN OF NEW JERSEY, A NEW JERSEY HOSPITAL SERVICE CORPORATION; AND MEDICAL-SURGICAL PLAN OF NEW JERSEY, A NEW JERSEY MEDICAL SERVICE CORPORATION, DEFENDANTS-RESPONDENTS, AND HOSPITAL SERVICE PLAN OF NEW JERSEY, DEFENDANT-RESPONDENT AND THIRD-PARTY PLAINTIFF, V. NEW JERSEY HOSPITAL ASSOCIATION; MOUNTAINSIDE HOSPITAL; VALLEY HOSPITAL; MONTCLAIR COMMUNITY HOSPITAL; NEWARK BETH ISRAEL MEDICAL CENTER, AND GREATER PATERSON GENERAL HOSPITAL ASSOCIATION, THIRD-PARTY DEFENDANTS-RESPONDENTS



On appeal from the Commissioner, Department of Insurance of the State of New Jersey.

Matthews, Ard and Polow. The opinion of the court was delivered by Matthews, P.J.A.D.

Matthews

On October 30, 1975 plaintiffs Radiological Society of New Jersey, five professional corporations who deliver radiological services, and 19 licensed physicians who specialize in the field of radiology (radiologists) instituted this action in the Chancery Division against the Commissioner of the Department of Insurance (Commissioner), the Hospital Service Plan of New Jersey (Blue Cross) and the Medical-Surgical Plan of New Jersey (Blue Shield). The complaint sought a declaratory judgment recognizing in-hospital radiological services to be within the scope of Blue Shield coverage rather than Blue Cross, and the concomitant right of radiologists to submit bills directly to subscribers for the amount not otherwise reimbursed by Blue Cross. In addition, plaintiffs requested injunctive relief.

The Commissioner filed a counterclaim against the radiologists seeking a declaratory judgment recognizing in-hospital radiological services to be within the scope of Blue Cross coverage, an injunction restraining plaintiffs from submitting balance-due bills to Blue Cross subscribers, an accounting of monies collected therefrom and an award of damages.

By way of third-party complaint, Blue Cross impleaded the New Jersey Hospital Association and five hospitals (hospitals) in which plaintiffs have rendered in-hospital radiological services and have engaged in the practice of balance-due billing. The third-party plaintiff seeks indemnification from the hospitals for any monies it may be obligated to pay the radiologists in connection with this action. Three hospitals filed a crossclaim for indemnification against plaintiffs who rendered radiological services in their hospital.

The Chancery Division judge consolidated the case with Cohen v. Hospital Service Plan of New Jersey (subscriber action against Blue Cross asserting liability for the direct billing of in-hospital radiology services) and Cohen v. Healey (subscriber action contesting the validity of balance-due billing). The Commissioner thereafter moved for an order transferring the case to the Appellate Division on the ground that it involved the review of actions of a state administrative agency or officer. Following a hearing on the motion the Chancery Division judge ordered the case transferred to this court, and placed the two remaining consolidated actions on the inactive list until we decided this case.

Plaintiffs are physicians licensed to practice medicine and surgery in this State who engage in the specialized practice of radiology. Radiology involves the application of x-rays, after determining the anatomical area to be exposed and the quantum of exposure, for the purpose of rendering a medical diagnosis.

Traditionally, radiologists were compensated for rendering in-hospital radiological services as salaried employees or on a percentage of the hospital's gross billings. These expenses were included in the total cost picture by Blue Cross and thus gave complete coverage for radiology services. With the advent of Medicare in 1966, many radiologists terminated their arrangements with the hospitals.

Medicare separated radiology services into a professional and technical*fn1 component, allowing radiologists to bill separately hospital in-patients for the former services. Thus many radiologists commenced billing patients directly for their professional services rendered on a fee-for-service basis.

The adoption of fee-for-service billing presented a problem for Blue Cross subscribers. Since Blue Cross could not directly reimburse physicians for services rendered and Blue Shield subscription certificates specifically excluded payment for in-patient

radiological services, the subscribers would be liable for the bills submitted by plaintiffs. A procedure was developed by Blue Cross and the New Jersey Hospital Association (NJHA) whereunder a hospital could agree to pay the radiologists' bills for professional services rendered Blue Cross patients. In return, Blue Cross would reimburse the hospital for the payments made on behalf of its subscribers provided they did not exceed the rate of reimbursement in effect in 1966 when the hospitals directly compensated radiologists. The hospitals were given the right to have the limitation reviewed by the Council on Hospital Reimbursement (council) if they suffered a hardship in a given year.

Although plaintiffs did not enter into a formal written agreement with the hospitals, they nevertheless submitted their bills for services rendered Blue Cross subscribers to their hospitals and received payment from them. In turn, the hospitals submitted claims to Blue Cross for reimbursement of the amounts paid radiologists as part of the Blue Cross per diem rate. According to plaintiffs, they refrained from billing Blue Cross subscribers directly as an accommodation to the hospital and Blue Cross, so that the subscribers would not be denied coverage in any amount. It is claimed that this reimbursement arrangement was only intended to be implemented on an interim basis until the payment of radiologists' fees was shifted from Blue Cross to Blue Shield.

In 1966 plaintiff Radiological Society, the NJHA, Blue Cross, Blue Shield and the Commissioner engaged in meetings which concluded that representatives of the Society would meet with the Blue Shield Fee Committee in 1967 to work out the details of the proposed transfer. Throughout the following years there were many meetings and correspondence between the parties, the last meeting was held on July 1, 1974, but the Commissioner failed to respond to the radiologists' continued requests.

Meanwhile, plaintiffs were not satisfied with the rate of reimbursement, frozen at 1966 levels, they were receiving from Blue Cross via the hospital. Many radiologists under contract with hospitals were being compensated at a higher level than the amounts approved by the counsel for radiologists who billed on a fee-for-service basis. The existent rate and budget review

mechanism proved ineffective to rectify the disparity. Consequently, plaintiffs began to bill Blue Cross subscribers directly for the difference between the reasonable value of their professional services and the amount paid by Blue Cross in 1972 and 1974. Presently, out of 128 hospitals with which Blue Cross has contracts, balance-due billing occurs in only seven of them.

Blue Cross immediately informed the Commissioner that plaintiffs did not consider the reimbursements as payment in full and were thus engaging in the practice of balance-due billing. The Commissioner was requested to do something to resolve the problem. However, it was not until August 7, 1975 that the Commissioner responded. In a letter addressed to Blue Cross he requested the plan to see to it that all hospitals demand that their radiologists stop billing Blue Cross subscribers for professional services not otherwise reimbursed. The Commissioner threatened the termination of their contracting hospital agreement if the hospitals did not comply. On August 7, 1975 the Commissioner issued a press release summarizing his position that the cost of radiology is covered entirely by Blue Cross payments to hospitals. As a result, many subscribers refused to pay the radiologists' balance-due bills.

Although Blue Cross subsequently requested a meeting of all the parties to resolve the problem, no definitive action has been taken. Consequently, the radiologists filed this action seeking a declaratory judgment setting forth their right to be included within the scope of Blue ...


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