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Rahway Hospital v. Horizon Blue Cross Blue Shield of New Jersey

January 3, 2005

RAHWAY HOSPITAL, PLAINTIFF-APPELLANT,
v.
HORIZON BLUE CROSS BLUE SHIELD OF NEW JERSEY, DEFENDANT-RESPONDENT.



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

Before Judges Lefelt, Alley and Falcone.

The opinion of the court was delivered by: Lefelt, J.A.D.

Argued November 3, 2004

This appeal focuses on the four-month period following termination of Rahway Hospital's in-network health-care services agreement with Horizon Blue Cross Blue Shield of New Jersey, a non-profit health insurer. The determinative issue is whether the Commissioner of the Department of Banking and Insurance correctly construed N.J.S.A. 17:48E-10(a)(2), of the Health Service Corporations Act (HSCA), to preclude Rahway from recovering the difference between the below-cost contract"payment rates" and higher out-of-network market rates for medical services Rahway provided to non-HMO Horizon subscribers during the four-month period in question. We conclude that the Commissioner incorrectly decided that N.J.S.A. 17:48E-10(a)(2) requires that Rahway accept contract"payment rates" for Horizon's non-HMO subscribers who were provided care during the period at issue. Consequently, we reverse.

I.

At the end of December 1993, Rahway, a not-for-profit hospital, entered into a one-year agreement, effective January 1, 1994, to provide healthcare services to Horizon subscribers at below-cost"payment rates," as opposed to Rahway's higher"out-of-network rates." The network service agreement, which was actively negotiated by Horizon and Rahway, applied to HMO and non-HMO Horizon subscribers and could be automatically renewed for two additional one-year terms.

The agreement allowed for termination, with and without cause. If a party wished to terminate the agreement without cause, Section 5.2 required that party to provide"the other Party with ninety (90) days advance written notice of the Party's intention to terminate this Agreement." Section 5.4, dealing with the"Effect of Termination," further required that for Horizon subscribers who were"undergoing an active course of treatment at [Rahway] at the time this Agreement is terminated, [Rahway] will continue to provide care until discharge, completion of treatment or until alternate arrangements have been made." Section 5.4 also provided that"payment to HOSPITAL for care rendered to [subscribers] during such period shall be subject to the terms and conditions of this Agreement." This Section further provided that should either party terminate the agreement,"the Parties shall abide by all obligations that may be required by law, rule or regulation with respect to [subscribers]."

In 1998, the parties amended section 5.1, dealing with expiration of the network agreement, as contrasted with termination, in this fashion:"In the event the Parties are unable to agree on the terms of a new agreement upon the expiration of this Agreement, the Parties shall continue to abide by the then current terms of this Agreement for a period of four (4) months from an expiration date mutually agreed upon by the Parties." Horizon contended that this amendment was necessary to conform the agreement with a section of the Health Maintenance Organizations Act (HMO Act), N.J.S.A. 26:2J-1 to - 44, requiring that the terms of an expired agreement be followed for four months after expiration. N.J.S.A. 26:2J-11.1; N.J.A.C. 8:38-3.5(e).

At the same time the expiration clause, Section 5.1, was amended because of the HMO Act, the parties also amended the"Effect of Termination" clause, Section 5.4, to provide that in order for a Horizon subscriber being treated at the hospital to continue to receive care at the payment rates for 120 days after termination of the agreement, the subscriber's continued treatment must be"medically necessary." Both the Departments of Banking and Insurance and of Health and Senior Services approved the amendments to the agreement.

In 1998 and 1999, Rahway claims to have sustained substantial financial losses because of the agreement with Horizon. After unsuccessfully attempting to negotiate higher rates closer to the hospital's actual costs, reflected in its out-of-network rates, Rahway notified Horizon, in accordance with Section 5.2, that it intended to terminate the agreement in ninety days, as of July 31, 1999. Horizon answered by claiming that under the HMO Act, Rahway had to continue to serve its HMO and non-HMO subscribers at payment rates for four months after the termination.

During the four-month period after termination, Rahway continued to accept and treat all of Horizon's subscribers (HMO and non-HMO), and Horizon reimbursed Rahway at the payment rates without regard to whether the subscribers had been undergoing active treatment as of July 31, 1999. However, Rahway claimed entitlement to reimbursement at the out-of-network rates during that four-month period with respect to all of Horizon's subscribers who were not in active treatment on the date of termination.

After the four-month period, Horizon"began paying out-of network rates for all subscribers treated at Rahway." The parties agree that the only dispute in this appeal involves the proper payment to Rahway for non-HMO Horizon subscribers treated at Rahway during the four months after the service agreement terminated, an amount that Rahway claims is almost two million dollars.

II.

This is the second time this dispute is before us. Originally, Rahway sued Horizon in the Law Division seeking various forms of declaratory relief and also asserting claims for breach of contract and breach of the implied covenant of good faith and fair dealing. Horizon defended by claiming that the termination provisions of the agreement conflicted with the HSCA, N.J.S.A. 17:48E-10(a). A motion judge granted Horizon summary judgment and dismissed Rahway's complaint. The judge found that it was not necessary to request the Department of Banking and Insurance to consider this dispute because the Department had already ruled on this issue in a similar case. The judge found determinative that the Department had previously approved a settlement in Englewood Hospital v. Horizon Blue Cross and Blue Shield of New Jersey, No. BER-L-11198-99 (Law Div. Jan. 31, 2000), order after transfer, Dep't of Banking & Ins., No. A00-148 (November 9, 2000), finding that it was reasonable and not contrary to public policy for Englewood Hospital to ...


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