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In re Individual Health Coverage Program Board's Adjustment of Blue Cross and Blue Shield of New Jersey's Requests for Reimbursement of Losses for Calendar Years 1993 and 1994

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


August 28, 2007

IN THE MATTER OF THE INDIVIDUAL HEALTH COVERAGE PROGRAM BOARD'S ADJUSTMENT OF BLUE CROSS AND BLUE SHIELD OF NEW JERSEY'S REQUESTS FOR REIMBURSEMENT OF LOSSES FOR CALENDAR YEARS 1993 AND 1994.
HORIZON BLUE CROSS BLUE SHIELD OF NEW JERSEY, PETITIONER-APPELLANT,
v.
NEW JERSEY INDIVIDUAL HEALTH COVERAGE PROGRAM BOARD OF DIRECTORS, RESPONDENT-RESPONDENT.

On appeal from a Final Agency Decision and Administrative Order of New Jersey Individual Health Coverage Program Board of Directors, OAL Docket No. IHC 08083-02, Order No. 05-IHC-01.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued November 14, 2001

Remanded April 16, 2002

Reargued May 2, 2007

Before Judges Stern, A. A. Rodríguez and Sabatino.

Following our limited remand for a hearing on issues of waiver, Administrative Law Judge (ALJ) Hurd found that appellant, Blue Cross and Blue Shield of New Jersey (now known as "Horizon"*fn1 ), waived any claim to be reimbursed by the State Individual Health Coverage Program (the "IHCP") for $6,092,000 in certain expenses that Horizon had allegedly incurred in calendar years 1993 and 1994. On November 4, 2004, the IHC Board of Directors ("the IHC Board") adopted the ALJ's recommendation.

Horizon now appeals the IHC Board's final administrative decision. We affirm.

I.

As our prior opinion of April 16, 2002 (A-4020-98T1) explains, Horizon provides individual health coverage to New Jersey residents and is consequently a member of the IHCP. The Legislature created the IHCP in 1992 to help assure that citizens in our State would receive the benefits of individual health care coverage. See N.J.S.A. 17B:27A-2 to -16.5 ("the IHCA"). Members of the IHCP that provide health coverage pursuant to the terms of the program are allowed to seek reimbursement from the IHC Board for certain net paid losses they sustain in providing that coverage. Any such reimbursement is calculated with reference to the provider's (a) net earned premiums, (b) claims paid, and (c) administrative expenses for individual coverage issued during the applicable years. See N.J.S.A. 17B:27A-12a(1)(b). Upon receipt of a claim for reimbursement, the IHC Board may appoint independent auditors to examine the provider's books and records, see N.J.A.C. 11:20-8.8, and then makes a determination of the appropriate amount of any reimbursement.

At issue here are employee incentive expenses (known as "MICP") and deferred (computer) system development expenses (known as "CARS"), totaling $6,092,000, which Horizon asserts that it incurred in calendar years 1993 and 1994, the first two "start-up" years of the IHCP. As we noted in our April 16, 2002 opinion, Horizon omitted these expenses from the so-called "Exhibit K" certifications that it submitted to the IHCP under N.J.A.C. 11:20-8.6(b) for calendar years 1993 and 1994. The certifications for each of those years were signed by Robert Pures, Horizon's Vice President of Finance and Treasurer.

Specifically, Horizon's Exhibit K for 1993 omitted from its "net paid losses" $2,969,000 of the company's reported overall expenses of $29,404,058. As the certification, signed by Pures, stated:

The combined administrative expenses of $29,404,058, as reported to the IHC Board on the 1993 Net Paid Loss Report, have been allocated to the Individual Under Age 65 Business on a basis consistent with the prior Net Paid Loss Report and Annual Statements filed with the Commissioner of Insurance except for the fact that:

i) Employee incentive expenses of $373,000 for [Horizon] have been taken out of the reported expenses, since [Horizon] believes that they should not be subsidized by other carriers; and

ii) Amortization of deferred system development costs of $2,596,000 have been taken out of the reported expenses, since they pertain to expenditures incurred prior to 1993.

iii) Expenses reported on the 1992 Annual Statement and Paid Loss Report for Individual Under Age 65 Business were understated by $2,437,000, due to an error in preparation of Exhibit 5. This was offset by an overstatement in the reported Over Age 65 expenses. 1993 expenses are reported correctly.

Likewise, for calendar year 1994, Horizon's Exhibit K excluded $3,123,000 in employee incentive expenses and deferred system development costs. As Pures' certification for that year stated, in language virtually identical to the 1993 Exhibit K:

The combined administrative expenses of $31,009,888 as reported to the IHC Board on the 1994 Net Paid Loss Report, have been allocated to the Individual Under Age 65 Business on a basis consistent with the prior Net Paid Loss Report and Annual Statements filed with the Commissioner of Insurance. In order to be consistent with the 1993 Net Paid Loss Report the following two adjustments have been made:

i) Employee incentive expenses of $885,000 for [Horizon] have been taken out of the reported expenses, since [Horizon] believes that they should not be subsidized by other carriers; and

ii) Amortization of deferred system development costs of $2,238,000 have been taken out of the reported expenses, since they pertain to expenditures incurred in 1993.

The IHC Board arranged for the accounting firm of Deloitte & Touche ("D&T"), which already had familiarity with Horizon's books and records, to audit Horizon's 1993 and 1994 loss reimbursement claims. D&T presented a final audit report to the IHC Board in May 1996. The auditors slightly reduced Horizon's reimbursement from $54,178,827 to $54,153,372 for 1993, and from $39,976,793 to $38,081,088 for 1994. The auditors did not, however, disallow the $6,092,000 in combined expenses for MICP and CARS that Horizon had disclaimed in its Exhibit K submissions.

In May 1996, the IHC Board adopted the auditors' recommendations, except that it also determined, from its review of the written record, that Horizon had waived reimbursement of the $6,092,000 for employee incentive expenses and deferred system development expenses. Horizon then requested a hearing on the IHC Board's waiver finding. The IHC Board denied a hearing on that issue, but did allow Horizon to submit additional affidavits on the subject. After considering those affidavits, in which Horizon tried to explain why it had initially eschewed reimbursement of the expenses, the IHC Board reaffirmed its determination that such reimbursement had been waived.

Horizon also challenged the auditors' methodology in reducing its other expenses for 1993 and 1994. The IHC Board did refer that contested issue to the Office of Administrative Law. After a hearing, an ALJ found, among other things, that the audit methodology was appropriate, and consequently recommended that Horizon's challenge to it be rejected. In February 1999 the IHC Board adopted that recommendation.

Horizon appealed the IHC Board's findings of waiver and also its rejection of Horizon's challenge to the auditors' methodology. In our April 16, 2002 opinion, we affirmed the IHC Board's determination on the methodology issue. However, on the waiver issue, we reversed the IHC Board's decision to deny Horizon's request for a hearing on that subject. In particular, we perceived that sufficient disputed facts existed to warrant a hearing. See High Horizons Dev. Co. v. State of N.J., Dep't of Transp., 120 N.J. 40, 53 (1990). Consequently we remanded the matter for a hearing "solely on the waiver issue," specifically as to "whether the 1993 and 1994 certifications constituted waivers of Horizon's right to reimbursement of the employee incentive expenses and amortization of deferred system development costs."

On remand, the IHC Board transmitted the waiver issue to the OAL. The assigned ALJ, Douglas Hurd, presided over two days of testimony in October 2003 and in January 2004. ALJ Hurd also considered numerous documentary exhibits. The following is a summary of those proofs.

In general, Horizon's witnesses alleged that the insurer had decreased its overall reimbursement figures in its 1993 and 1994 Exhibit K submissions to the IHC Board for three main reasons: (1) because Horizon wanted to solidify the future of the IHCP; (2) because Horizon did not believe the IHC Board would reimburse the true amounts, since those amounts were so high; and (3) because Horizon believed the audit would confirm the overall amount that Horizon had set forth as its net paid losses, instead of reducing that amount.

For example, Horizon's deputy general counsel, Michael L.B. Kaplan, asserted in an affidavit that Horizon had decided to decrease its total claimed losses for the two years because [Horizon] was concerned that its losses were so high that claiming them in their entirety would create a hostile atmosphere among other carriers and thus endanger the future of the Program. [Horizon], in reading the IHC Board's Regulations, decided that it could not just reduce its claimed losses without providing some sort of explanation as to why it was doing so but for the same reason it decided to reduce its losses, it did not believe that it could express the true reason.

[Horizon] decided to reduce its total claimed reimbursable losses by excluding from its net loss calculation two specific types of administrative expenses, employee incentive expenses and amortized deferred system development costs. The decision [Horizon] made to exclude these expenses was based on [Horizon]'s belief and understanding that any audit of [Horizon]'s paid losses would be made on the accounting system which [Horizon] has used for years and which has been accepted by its present and past independent auditors.

. . . [Horizon]'s decision to reduce its claim for reimbursable net paid losses was made exclusively in that context and was never intended to waive [Horizon]'s entitlement to reimbursement for these expenses under changed circumstances.

The [D&T] audit of [Horizon]'s 1993 and 1994 loss reports and the IHC Board's resulting challenge to [Horizon]'s reported loss and expense figures changed all of the circumstances and assumptions under which [Horizon]'s previous submissions had been made. If [Horizon] had known that the auditors were going to create a new accounting system for [Horizon], instead of using the accounting system with which D&T was familiar, one which D&T had approved when it was [Horizon]'s own independent auditor, and thereby reduce [Horizon]'s paid losses, [Horizon] would not have attempted to reduce those claimed losses further by excluding the two items of reimbursable expenses noted above.

In that same vein, Horizon's Assistant Vice President and Controller, William Frantel, stated in an affidavit that Horizon made the decision in March, 1994 to decrease its 1993 claimed net paid losses to $54.2 million because [Horizon] desired the continued success of the IHC Board program, and was cognizant that to claim losses in excess of $57 million might cause something akin to "sticker shock[,"] and thereby potentially harm the entire IHC program.

Also, there was a recognition that because the IHC Board required that claims be reported on a paid rather than incurred basis, and given that [Horizon]'s individual enrollment was declining during the relevant time period, the individual paid claims and net paid losses would be (and were) significantly higher than the incurred amounts for the same periods, so every effort was made to lower expenses so that the net amount of loss claimed - here $54.2 million - would be acceptable to the IHC Board and the other insurers within the State.

Acting as a responsible corporate citizen, therefore, [Horizon] asked the IHC Board to reimburse net losses of $54,178,827 . . . [and] to leave out of its loss calculation certain 1993 expenses that [Horizon] believed members of the IHC Board might find objectionable. But total losses would not have been decreased had [Horizon] known that it would be subject to a flawed audit which lowered its claim loss numbers.

. . . [Additionally,] it did not want to jeopardize the IHC program. As a result, [Horizon] backed out certain items from its total loss calculation to reduce the reported paid loss to $54.2 million.

At the time [Horizon] prepared its Schedule K and Certification of the Allocation Methodologies for its 1994 losses, [Horizon] did not know that the total amount it claimed for 1994 losses would be challenged. Based upon the assumption that the IHC Board would reimburse [Horizon] its total claimed paid losses for 1994 . . . [Horizon] again claimed lower net paid losses by excluding expenses the IHC Board might find controversial.

Note that the IHC Board delayed the selection of an auditor to review the 1993 paid loss filing. Had an audit been performed prior to the 1994 paid loss filing, the expenses in question would most likely have been included in the 1994 paid loss filing.

Finally, Pures, Horizon's Vice President of Finance and Treasurer (who signed the certifications that Horizon had submitted to the IHC Board in 1993 and 1994 with its Exhibit Ks), submitted an affidavit explaining the certifications. Pures contended that

First, [Horizon] had voluntarily excluded its employee incentive expenses from its reported administrative expenses. Second, [Horizon] had voluntarily excluded the amortization of deferred system development costs from its reported expenses as well.

[Horizon] made these two decisions based on our understanding at the time such Certifications were filed that [Horizon] would receive the full $54,178,827 as reimbursement for 1993 total claimed net losses and the full $39,976,798 for 1994 total claimed losses. [Horizon]'s decision not to seek reimbursement for two specific items of administrative expenses in 1993 and 1994 was made exclusively in that context, and was not intended in any way to become an irrevocable, blanket waiver of reimbursable expenses. Statements made on the Certifications were the reasons given for excluding these expenses and were never intended to be waivers of these expenses.

The [D&T] audit . . . changed all of the circumstances and assumptions under which [Horizon]'s previous submissions had been made. If [Horizon] had known it would not receive reimbursement for the full $54,178,827 in total claimed net losses for 1993 and the full $39,976,798 for 1994, it would not have attempted to voluntarily reduce those claimed losses further by foregoing the two items of reimbursable expenses noted above.

These affidavits were supplemented with testimony of three witnesses before ALJ Hurd. On its own behalf, Horizon presented two witnesses: Frantel, who commented upon the matters set forth in his prior affidavit, and Sandy Kelly, who was employed by Horizon as a director in the actuarial department of an underwriting unit, and who had been involved with the ICH Board since its inception and became Horizon's representative in June of 1996.

As Frantel's testimony explained, he was "primarily responsible for the financial reporting for the company and all of its subsidiaries." He first discussed the industry climate at the time the Legislature passed the IHCA. Frantel stated that when Horizon and its subsidiaries closed their books in 1985, there was a surplus of about $60,000, but by 1988, they had a deficit of almost $278 million. According to Frantel, the new statute "eliminated the onus that Blue Cross had of being the insurer of last resort." In fact, for the first few years under the IHCA, Horizon was the only carrier to seek reimbursement. Frantel explained that even though Horizon's losses "were very large," it only sought "a small" reimbursement in 1992, the first year of the program. Indeed, Horizon had previously revised its Exhibit K in calendar year 1992 in order to ask the IHC Board for a smaller reimbursement.*fn2

Frantel next explained why Horizon had not included all of its expenses and costs as reimbursable losses in the following years. He stated that in 1993 and early 1994, there were "very limited" instructions provided by the IHCP about what to include on the Exhibit Ks, other than reference to things reported in the insurer's annual report. Frantel explained that Horizon had omitted about $2.4 million of its reimbursable losses in 1992 in order to be "a good corporate citizen and just let it pass." He noted that Horizon did the same good deed in the next two years. As to 1993 and 1994, Frantel stated:

So, this is our full year on a paid loss basis. When we saw -- we worked up the original numbers and saw that our paid losses were over $57 million, we are trying to say "Geesh," you know, we're trying to be good corporate citizens and say I don't know that we want to necessarily kill the entire program, so we're looking for ways of potentially saying well, is there any way we could possibly bring down the net paid losses, because, you know, we [were] trying to -- as being a good corporate citizen.

So, we looked at -- we really couldn't change premiums earned or claims, but we could look at [administrative] expenses. And we identified two items in [administrative] expenses where there was a question, at least in our minds, as to whether these were appropriate allocations. And there was no regulatory guidance as to were these allowed or not. The two items were "incentive in the compensation," you know, the -- a share of the bonuses given to our employees for the results, as well as "deferred computer costs," because we have had -- we had put in a new computer system and had received Department of Insurance approval to capitalize these costs, put them on the balance sheet, since, at the time, we were in a deficit/surplus position. So, they were trying to help our reserve. So, they allowed us to capitalize a large number of computers called CARS, C-A-R-S. That was the computer system's name. So, they had deferred CARS costs that we were then amortizing over five years. But these costs -- so, when we're looking at that, we're saying well, geesh, this amortization really was not paid in 1993. So, the question was -- so, we weren't sure whether we should allow it or not. So, to try to bring down the losses a little bit, we elected to defer that number as well. I think the numbers in '93 were -- I think it was $373,000 for compensation, for bonuses, and somewhere around $2.5 million for deferred CARS costs. [Emphasis added.]

Frantel recounted that there had been "several" internal discussions about the new IHCP regulations in meetings that he attended with Horizon's Vice President of Corporation Communications and Regulatory Affairs, General Counsel, Chief Financial Officer, and company actuaries. During those internal meetings, Horizon's upper management discussed "what do we want to do here to try to, you know, insure that this [IHCP] program does not get killed in the first year of operation." Frantel recalled that the participants in these meetings "felt" that claiming the full expense figure would "cause a lot of uproar" from other members of the new IHC Board:

So, when we came up with this $57 million, we initially came up with a paid loss of $57 million. We looked and said geesh, are we going -- if we file this, is this going to jeopardize the entire, you know legislation? Would this get all the other insurance companies up in arms, and they'd force the elimination of the legislation or whatever.

So, we were saying okay, what could we do to possibly temper the assessments, and so, we looked at what we could do. We really couldn't touch anything on revenues or claims, because those are pretty hard and fast numbers. What we could -- we then looked at well, in our [administrative] expenses, is there anything in [administrative] expenses that could potentially be, you know, adjusted with some rationale as to saying okay, how do I bring down the number. So, we looked at, and as I mentioned before, we felt that there was potentially a rationale to justify, not that we had to, but if we were trying to justify why were we to do -- we're changing these numbers, we at least felt we had some rationale in those two areas. So we used that as a justification for saying okay, here's the one place we can, you know, adjust the numbers to try to reduce the paid losses to keep the program from blowing up in our faces, because this was very important to us that we had this individual regulation. [Emphasis added.]

Frantel explained that he and others within Horizon assumed that D&T was likely to accept their claimed loss figures for the IHC Board's audit, because D&T coincidentally had audited Horizon's books for the past twenty years. However, D&T had new employees conducting the audit for the IHC Board, and they arrived at smaller losses than Horizon had estimated.

Consequently, according to Frantel, Horizon decided after the audit results were released to accept the audit amounts, including the expenses that Horizon had originally left out, since D&T had found that those expenses were actually reimbursable. Horizon therefore decided to attempt to amend its Exhibit K to add in those losses. Frantel explained that Horizon knew that other carriers had amended their Exhibit Ks in the past; indeed, even Horizon had amended its Exhibit K for calendar year 1992. Frantel explained that if Horizon had known in advance that the IHC Board would deduct the amounts in question from a lowered reimbursement caused by the audit, Horizon "would not have backed out any expenses from the numbers" in the first place.

In her own testimony for Horizon, Kelly acknowledged that she had recused herself from the IHC Board's voting on her company's matters. Kelly asserted that the IHC Board had never previously taken the position that a carrier's original submission of an Exhibit K had constituted a waiver of any right to amend that form. Kelly recalled that the IHC Board had allowed other carriers, for instance, Travelers, to amend an Exhibit K in order to conform to the findings of a post-filing independent audit. Kelly also pointed out that Horizon itself had amended its Exhibit K for calendar year 1992 down to $4.2 million from $15.9 million. As Kelly explained:

Generally, carriers will amend their [E]xhibit K because they misreported the premium for their individual and group health benefit plan premium, which is the basis for the assessments. Oftentimes, a carrier will just provide a number from their annual statement and not realize that there are categories of premium that they don't have to include, like Medicare supplement or dental. And when they realize that, when they get an assessment, and they get a higher assessment than they expected, they'll scrutinize the premium a little bit and realize that they could submit a lower premium, and they'll do that.

Kelly also noted that the amounts in dispute here were being held by the IHC Board in escrow. Consequently, she contended that other carriers would not have to be reassessed for calendar years 1993 and 1994 if Horizon's appeal were successful. If Horizon lost its appeal the monies would go back to the other carriers in the same proportion as they had initially paid.

The IHC Board presented to ALJ Hurd testimony from Ellen DeRosa, its Deputy Executive Director. DeRosa first provided the ALJ with background concerning the IHCA and its regulations, the IHCP, the IHC Board, and the Exhibit K form. DeRosa then noted that Horizon was the only carrier to ask for reimbursements in 1992 through 1994, which were the initial years of the IHCP.

DeRosa could not recall any conversations with Horizon's management team about its Exhibit K submissions prior to their filing. Nevertheless, she acknowledged that the total 1993 and 1994 reimbursement to Horizon would have been the amount found by the auditors had Horizon not explicitly and validly waived reimbursement of some of its expenses.

DeRosa noted that there was nothing in the IHCP regulations that would preclude a carrier from voluntarily waiving reimbursement of its losses. She explained:

If Horizon had never sent certifications, had never backed the numbers out, there would have been no basis for the Board to subsequently say oh, I don't believe you should be getting money for the management incentives or the systems costs.

But for the fact that Horizon did make those statements, the Board just accepted the statements that Horizon made for what they said. [Emphasis added.]

In addition to the testimony of Frantel, Kelly and DeRosa, the parties also presented to the ALJ a stipulation of certain facts. Through that stipulation, the parties agreed, among other things, to the following significant items:

23. The net paid losses reported by Horizon for 1993 and 1994, although ultimately subject to audit pursuant to N.J.S.A. 17B:27A-11 and N.J.A.C. 11:20-8.8, formed the basis for substantially all of the IHC Program's assessment scheme for 1993 and 1994. [footnote omitted.]

24. The 1993 and 1994 audit was the first of its kind for the Individual Health coverage Program.

32. The audited . . . financial statements noted that [Horizon] had included the employee incentive expenses and amortization of deferred system development costs on its Annual Statements for 1993 and 1994 and, accordingly, could have included these items in the Exhibit Ks pursuant to the applicable IHC[P] regulations, N.J.A.C. 11:20-8.5(d), as well as the applicable principles of statutory accounting.

In his written decision dated August 6, 2004, ALJ Hurd supplemented the joint stipulation with his own findings of fact. The ALJ noted that Frantel's specific testimony that Horizon was aware there could have been an audit of its expenses was "inconsistent" with Frantel's earlier affidavit, which had intimated that Horizon did not know that the total amount it claimed in expenses would be challenged. Nevertheless, pointing out that Kaplan's affidavit confirmed that Horizon had been audited in the past, the ALJ found that Frantel's overall testimony was credible, and that Horizon was indeed aware that there could have been an audit of its net paid losses.

As an evidential matter, the ALJ determined that proofs of other carriers' ability to amend their Exhibit Ks, as well as specific evidence of such amendments, were "not relevant." The ALJ found that no other carriers' amended Exhibit Ks had included certifications intentionally excluding certain net paid losses as in Horizon's situation. Hence, the ALJ concluded that those amendments had "no relevancy to the issue remanded by the Appellate Division regarding waiver."

On the substance of the waiver issue, the ALJ found "that the IHC Board has satisfied its burden of proving that Horizon did waive its right to seek reimbursement for the MICP and CARS expenses in connection with its 1993 and 1994 Exhibit K certifications." Pointing to what he perceived as the "plain language" of the certifications, and the fact that they contained "no language qualifying or conditioning" Horizon's decision, ALJ Hurd concluded that "[t]he evidence clearly demonstrates that Horizon knowingly and voluntarily waived its right to reimbursement of the MICP expenses and the CARS costs."

The ALJ further concluded that there was no "mistake of fact" here. Rather, Horizon made "a business decision based on [its] flawed judgment." The ALJ determined that Horizon knew "all relevant, material facts" and "knew that its net paid losses were subject to an independent audit," and "knew that the MICP expenses and CARS costs were statutorily reimbursable." Thus, the ALJ found:

Horizon made the decision to exclude the MICP expenses and CARS costs based on its understanding that an audit, if any, would not change the requested reimbursement amounts. Horizon claims its mistake of fact was "assuming that its loss figures would not be subjected to the unorthodox and incorrect assumptions used" by the auditor . . . . This is not a mistake of fact. Horizon knew the audit would be independent and, thereby, should have known it would not be a rubber stamp of its net paid losses. Horizon had no basis to assume that the auditor would follow a methodology that it used in the past when it served as Horizon's auditor. Indeed, at no time no auditor had conducted an audit under the IHC Act. Also, according to the Appellate Division it turned out that the methodology used by the auditor was valid. Horizon simply made a flawed assumption that the audit would rubber stamp the Exhibit Ks. This is not a mistake of fact, but a business decision based on Horizons flawed judgment at the time. [Emphasis added.]

The ALJ also concluded that the evidence had demonstrated that Horizon's waiver "was supported by consideration." As the judge observed:

Horizon anticipated a benefit when it knowingly and voluntarily chose to exclude the MICP expenses and CARS costs from its net paid losses. Horizon excluded these expenses because it "desired the continued success of the IHC Board Program," and was cognizant that to claim higher losses might cause "sticker shock." There is no question that Horizon desired the continued success of the IHC Board program because it provided reimbursements for its considerable losses.

Horizon simply excluded the two expense items to ensure the continued operation of the program. Thus, the waiver was supported by valuable consideration. [Emphasis added.]

Lastly, the ALJ declined to address another issue raised by Horizon, namely that the IHC Board allegedly violated the IHCA by disallowing items found statutorily reimbursable by the auditors. The ALJ found that this newly-raised issue was "beyond the scope of the remand."

Accordingly, the ALJ recommended that the IHC Board affirm its original administrative order, which had reduced Horizon's net paid losses for 1993 and 1994 combined by approximately $8 million, including the approximate $6 million in waived expenses. The ALJ also ordered certain hearing exhibits and related testimony and excerpts from these documents to be placed under seal because they contained privileged material.*fn3

In a final administrative decision issued on November 4, 2004, the IHC Board adopted ALJ Hurd's decision "in its entirety." The IHC Board addressed each of the ALJ's factual findings and conclusions of law. It determined that the ALJ had "properly analyzed the credible evidence in the record," and concluded that "the evidence shows that Horizon intentionally and deliberately chose to exclude approximately $6 million in MICP expenses and CARS costs from its net paid loss amounts for 1993 and 1994." Consequently, the IHC Board stated that it concur[red] with the ALJ's well-founded findings of fact and conclusions of law that

[(1)] Horizon did waive its right to seek reimbursement for the MICP and CARS expenses in connection with its 1993 and 1994 Exhibit K filings; [(2)] that Exhibits P-16 and P-17 contained privileged material and therefore, the exhibits as well as excerpts therefrom should be held under seal; and [(3)] that the issue of whether the IHC Board violated the enabling statute, N.J.S.A. 17:27A-12, by disallowing items expressly found reimbursable under the statute by the independent auditors was beyond the scope of the issue before the OAL.

Horizon moved before the IHC Board to settle and supplement the record with the excluded documents. The IHC Board denied that motion on September 15, 2005, ruling that those hearing exhibits "were properly excluded from the IHC Board's Statement of Items Comprising the Record." The IHC Board explained, among other things, that the exhibits "memorialize meetings that took place more than four years after Horizon's actions" and "[a]s such . . . shed no light on the issue of whether Horizon waived its right to reimbursement for its 1993 and 1994 MICP expenses and CARS costs."

Horizon then renewed its appeal before this court, challenging the IHC Board's reaffirmation of its determination that it had waived reimbursement of the $6,092,000 in expenses for 1993 and 1994. Specifically, Horizon argues that the IHC Board erred by improperly concluding that (1) Horizon had received valuable consideration in return for its alleged waivers; (2) Horizon knew that it was entitled to reimbursement for those expenses and costs excluded from its Exhibit Ks, and still intentionally and voluntarily waived that right; and (3) Horizon's exclusion of those expenses and costs from its Exhibit Ks was predicated on a mistake of judgment as opposed to a mistake of fact.

In essence, Horizon claims, as it did in its first appeal, that waivers cannot be based on a mistake of fact. It maintains that the certifications submitted with its Exhibit Ks reflect such mistakes of fact, based upon its erroneous belief that Horizon was not entitled to the monies; that the auditors would use the same methodology it had used in the past and would not arrive at lower loss figures; and that Horizon would not be allowed to amend its Exhibit Ks.

Horizon therefore argues that the requisite intent necessary for a waiver was not present when it submitted the certifications attached to its Exhibit Ks. It further argues there was no evidence indicating that it received any consideration for its waiver or that the IHC Board or any other party relied to its detriment on the alleged waivers.

In addition to these central points on appeal, Horizon also contends that the IHC Board violated the IHCA and its regulations by not remitting all of Horizon's statutorily reimbursable losses. Further, Horizon urges that the IHC Board erred in failing to consider as relevant its acquiescence to other insurers amending their Exhibit K forms.

Having considered all of these arguments, and now with the benefit of the detailed fact-finding of the ALJ, we are satisfied that the IHC Board did not err in rejecting Horizon's claim for the $6,090,000 in additional reimbursements. We do so substantially for the reasons detailed in ALJ Hurd's decision of August 6, 2004, as adopted by the IHC Board in its orders dated November 4, 2004 and September 15, 2005.

We now amplify our reasons for affirmance.

II.

As our courts have repeatedly acknowledged, the judiciary has a limited function in reviewing final decisions of administrative agencies. In re Taylor, 158 N.J. 644, 656 (1999). The judicial role is restricted to four inquires, namely whether: (1) the agency's decision offends the State or Federal Constitution; (2) the agency's action violates express or implied legislative policies; (3) the record contains substantial evidence to support the findings on which the agency based its action; and (4) in applying the legislative policies to the facts, the agency clearly erred in reaching a conclusion that could not reasonably have been made on a showing of the relevant factors. George Harms Constr. Co. v. New Jersey Tpk. Auth., 137 N.J. 8, 27 (1994).

Although a court is not bound by an agency's determination on a question of law, In re Distrib. of Liquid Assets Upon Dissolution of the Union County Reg'l High Sch. Dist. No. 1, 168 N.J. 1, 11 (2001), the agency's factual decisions carry a presumption of reasonableness. In re Taylor, supra, 158 N.J. at 659. Thus, courts "may not vacate an agency's determination because of doubts as to its wisdom or because the record may support more than one result." Univ. of Med. & Dentistry v. Grant, 343 N.J. Super. 162, 169 (App. Div. 2001) (citing Henry v. Rahway State Prison, 81 N.J. 571, 579-80 (1980)). If the evidence supports the agency's factual findings, a reviewing court must uphold them, even if it might have reached a different result. Greenwood v. State Police Training Ctr., 127 N.J. 500, 513 (1992). See also Worthington v. Fauver, 88 N.J. 183, 204-05 (1982).

The central issue on Horizon's renewed appeal is whether or not it waived potential reimbursement from the IHCP of its 1993 and 1994 expenses for MICP and CARS. That determination is a mixed question of fact and law, involving the application of legal principles concerning the doctrine of waiver to the facts adduced in the administrative record. Although we apply a de novo standard of review to the legal aspects of the waiver analysis conducted by the ALJ and the IHC Board, see In re Distrib. of Liquid Assets, supra, 168 N.J. at 11, we still accord deference to the administrative factual determinations germane to that issue.

The elements of a valid, legally-binding waiver are well-established in our law. Waiver is "the voluntary relinquishment of a known right evidenced by a clear, unequivocal and decisive act from which an intention to relinquish the right can be based." Country Chevrolet, Inc. v. N. Brunswick Planning Bd., 190 N.J. Super. 376, 380 (App. Div. 1983). It is an intentional act that "'implies an election by the party to dispense with something of value, or to forego some advantage which he might at his option have demanded and insisted on.'"

W. Jersey Title & Guar. Co. v. Indus. Trust Co., 27 N.J. 144, 152 (1958) (quoting George F. Malcolm, Inc. v. Burlington City Loan & Trust Co., 115 N.J. Eq. 227, 232 (Ch. 1934)). Accordingly, waiver "presupposes a full knowledge of the right and an intentional surrender . . . ." County of Morris v. Fauver, 153 N.J. 80, 104-05 (1998). "[W]aiver cannot be predicated on consent given under a mistake of fact." Id. at 105. Accord Belfer v. Merling, 322 N.J. Super. 124, 139 (App. Div.), certif. denied, 162 N.J. 196 (1999).

As the ALJ correctly noted, a party asserting waiver, here the IHC Board, has the burden of proof. Brown v. Royal Battery Corp., 181 N.J. Eq. 345, 349 (Ch. 1942). The proponent must show that the waiving party knew of its legal rights and deliberately intended to relinquish them. Shebar v. Sanyo Bus. Sys. Corp., 111 N.J. 276, 291 (1988).

An intention to waive need not be manifested expressly. Merchants Indemnity Corp. of New York v. Eggleston, 68 N.J. Super. 235, 254 (App. Div. 1961), aff'd, 37 N.J. 114 (1962). Such intention may be inferred from the surrounding facts exhibiting full knowledge of the circumstances producing a right and continuing indifference to the exercise of that right. Id. Consequently, "waiver operates unilaterally without regard to the rights of others or to reliance by others." Belfer v. Merling, supra, 322 N.J. Super. at 139.

In the present case, Horizon's intent to eschew recovery of its 1993 and 1994 expenses for MICP and CARS is explicit, and can also be reasonably inferred from the surrounding circumstances. As to the MICP costs, the Exhibit K certifications for 1993 and 1994 signed by Pures on behalf of Horizon expressly attested that "[e]mployee incentive expenses . . . have been taken out of the reported expenses, since [Horizon] believes that they should not be subsidized by other carriers[.]" (emphasis added). These words are quite deliberate and unambiguous. They signal that Horizon knew exactly what it was doing, and did not leave out the MICP costs by accident.

With respect to the CARS expenses, the Exhibit K forms also reflect a conscious recognition by Horizon that those sums would not be subject to recoupment. Again, the certified assertions of Pures on the Exhibit Ks, in 1993 and 1994 were quite explicit: "[a]mortization of deferred system development costs . . . have been taken out of the reported expenses since they pertain to expenditures incurred prior to 1993." (emphasis added). These straightforward words are not qualified, conditioned or hedged in any manner.

Horizon's deliberate reasons to have the MICP and CARS expenses "taken out" of its 1993 and 1994 reimbursement claim was clearly shown in the administrative proofs. As the ALJ found, Horizon excluded these expenses because it wanted the newly-established IHCP program to succeed. Horizon was the major beneficiary of the statutory program in its start-up years, and enjoyed the benefits of sizable reimbursements funded by other health care providers. As Frantel's affidavit bluntly put it, the company's senior management was concerned that presenting the IHC Board with a very large reimbursement request might cause "sticker shock." In his testimony before the ALJ, Frankel elaborated that there were several high-level discussions within the company about how to "insure that this program does not get killed in the first year of operation." That corporate objective to not jeopardize the IHC program is repeated in Kaplan's affidavit, explaining that Horizon "decided to decrease its total claimed losses for the two years because [it] was concerned that its losses were so high that claiming them in their entirety would create a hostile atmosphere among other carriers . . . ."

Given Horizon's admitted long-range business objective to sustain the benefits of the IHCP, it consequently tried, as Frantel explained in his OAL testimony, "to bring down the losses a little bit" and see what it "could . . . do to possibly temper the assessments." That review of possibilities led Horizon, after careful deliberation, to delete its 1993 and 1994 expenses for MICP and CARS from its Exhibit K certifications.

Horizon attempts to characterize its decision to refrain from seeking MICP and CARS reimbursements for 1993 and 1994 as a "mistake of fact." The ALJ was not persuaded by that contention, finding instead that Horizon's conduct more appropriately should be regarded as a mistake of "judgment" rather than a mistake of "fact." The IHC Board agreed, and so do we.

Horizon maintains that it did not expect that the auditors from D&T would have disallowed some $2 million of its claimed 1993 and 1994 expenses. Had it known this, Horizon asserts, it would not have excluded the MICP and CARS expenses from its Exhibit K forms, as the auditors' reductions sufficed to keep Horizon's overall reimbursement below what might be thought of by others as exorbitant. We concur with the ALJ and the IHC Board that Horizon's overly-optimistic assumptions concerning the audit do not amount to a mistake of fact cognizable under the law of waiver.

As a sophisticated enterprise with a designated member on the IHC Board, Horizon should have known that the audit required by the new agency's regulations, involving millions of dollars, would not be a rubber-stamp endeavor. As it turned out, Horizon's expense claims were almost completely verified in the audit, except for the $2 million disallowance representing a small fraction of Horizon's $94 million in overall reimbursement claims for the two-year auditing period.*fn4 The fact that the auditors ultimately concluded that Horizon could have justifiably included the MICP and CARS costs does not require the agency to ignore Horizon's conscious waiver of those costs. The agency was well within its prerogatives to reject Horizon's "never-mind" posture after the audit results were released.

Horizon suggests, principally based upon Kelly's testimony, that it had a right to expect that the IHC Board would permit it to amend the Exhibit K certifications at a later time. In this regard, Horizon points to the fact that at least two other carriers had amended their Exhibit K forms in the past. Even if amendments had been allowed for other carriers, it is of no moment because no company had ever sought to amend its Exhibit K in circumstances similar to those here, in which Horizon consciously disclaimed expenses as a strategic decision to avoid placing the whole IHCP program in jeopardy.

Horizon also stresses that there was no bargained-for consideration exchanged for its omission of the MICP and CARS costs from its Exhibit K certifications. We agree that no such bargained-for consideration was present here. However, under the law of waiver, the absence of consideration is inconsequential. Similarly, the alleged absence of reliance by the IHC Board is also inconsequential, due to the unilateral nature of waiver. See Belfer v. Merling, supra, 322 N.J. Super. at 139.

Furthermore, we join the ALJ and the IHC Board in rejecting Horizon's contention that Horizon gained nothing by deleting the MICP and CARS expenses from its 1993 and 1994 reimbursement claims. As Horizon recognized, the IHCP is an industry-funded program. Horizon's voluntary reduction of its expenses by over $6 million tempered the future need for other New Jersey providers to replenish the IHCP's resources. That is true whether or not the sums in dispute were escrowed. Moreover, Horizon has been a major beneficiary of the program, which continues into existence today. Although the IHC Board may not have specifically depended upon Horizon's disavowal of its MICP and CARS expenses during the interval between Horizon's submission of its Schedule K forms and D&T's audit reports, the agency nonetheless had the prerogative, in the orderly administration of the program, to leave Horizon's original submission unaltered.

In sum, we affirm the agency's determination of waiver, supported by the considered factual findings of the ALJ. Having disavowed the expenses in question in order to be perceived, as Frantel aptly put it, as a "good corporate citizen," Horizon was fairly required to bear the consequences of its chosen sacrifice.

III.

We briefly address Horizon's remaining arguments, which lack sufficient merit to be discussed at length. R. 2:11-3(e)(1)(D). In particular, we reject Horizon's contentions that the IHC Board's disallowance of certain of its expenses is fundamentally unfair and contravenes the pertinent statute, N.J.S.A. 17B:27A-12a, and the associated regulations. We already examined the full panoply of Horizon's reimbursement claims in our 2002 decision, and we discern no reason to reconsider our prior rulings. Nor do we construe the statute as precluding a provider's waiver of otherwise-reimbursable expenses. Additionally, we discern no reversible error in the IHC Board's determination that the experience of other carriers is not relevant to Horizon's own decision to waive certain reimbursements. As the agency fairly recognized, Horizon's unique circumstances are simply distinguishable. Horizon has not been, as it portrays itself, a victim of regulatory discrimination.

For all of these reasons, we affirm the final agency decision.

Affirmed.

STERN, P.J.A.D. (concurring).

I join the opinion of the court with one caveat. My colleagues convincingly demonstrate that the record supports the finding that Horizon knowingly and intentionally understated what it now claims to be its MICP expenses and CARS costs for 1993 and 1994 and that there is a sound basis in the record to affirm the final administrative determination of the Individual Health Coverage Program Board finding a waiver of the present claim seeking reimbursement of those expenses. Our experience over the last decade with IHCP cases underscores that Horizon's business decision was sound in that no other carrier successfully lobbied to eliminate the program, and other carriers have not left the market.

I write only to state that I have no problem affirming the judgment because the Board adopted the initial decision of the Administrative Law Judge as embodied in his August 6, 2004 determination, and there is no issue before us as to the proper scope of review. However, in light of comments made at oral argument, I address concerns that do not alter the result in this case but that may warrant attention in another case.

In In re Individual Health Coverage Program's Readoption of N.J.A.C. 11:20-1 et seq., 353 N.J. Super. 494 (App. Div. 2002), aff'd in part, rev'd in part, 179 N.J. 570 (2004), we described the composition of the Board as consisting of nine representatives, including four "industry members." Id. at 501; see also N.J.S.A. 17B:27A-10 (describing who is eligible for election and "approval of the commissioner"). This flows from the Legislature's determination of a need for expertise in self-governance and because the program is self-funded. Id. at 512. As the court explains in this case, Horizon's actuarial director, witness Sandy Kelly, has been on the Board, along with three other health carrier-members of the program, passing on the issues before us. Hence, even if Horizon's representative did not participate in votes relating to Horizon's claims, as the record makes clear for the 1996 resolution,*fn5 representatives of its competitors and potential competitors did. And because of the self-funding by members, exceptions and adjustments granted to one carrier affect the remainder.

We have previously addressed this potential conflict, which the Legislature has the right to authorize. See In re Individual Health Coverage Program's Readoption of N.J.A.C. 11:20-1 et seq., supra, 353 N.J. Super. at 514 n.8. I emphasize, however, that there is a difference between the case at hand and the one in which we addressed the issue of conflict. In In re Individual Health Coverage Program's Readoption of N.J.A.C. 11:20-1 et seq., we addressed regulations which apply uniformly to all carrier members of the program. Here, we address a specific claim involving dollars. I simply note that no record was made showing how Board members voted on the November 2004 final administrative determination, no issue of possible conflict was raised in the briefs, and this matter does not involve a decision by the Board that is at odds with the ALJ's findings of fact and conclusions of law.*fn6 If the appeal involved any of those issues, I would not necessarily adhere to, or accept, the scope of review described at pages 25-26 of the opinion, nor feel it necessary to accord the normal deference to which the agency is entitled, as here, where certain members of the Board may represent carriers with a monetary interest in the outcome. See Steinmann v. State, Dep't of Treasury, 116 N.J. 564, 576 (1989) ("accord[ing] little deference" to a Board's evaluation of the propriety of its own action).


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