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K.H.M. v. State Health Benefits Commission

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


April 27, 2010

K.H.M., PETITIONER-APPELLANT,
v.
STATE HEALTH BENEFITS COMMISSION, RESPONDENT-RESPONDENT.

On appeal from a final administrative determination of the Board of Trustees, State Health Benefits Commission.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Submitted November 9, 2009

Before Judges Rodríguez and Yannotti.

K.H.M. appeals from a final determination of the State Health Benefits Commission (Commission), which found that she was not entitled to reimbursement pursuant to the State Health Benefits Program (SHBP) for costs incurred by her son, J.M., at Three Springs, a therapeutic boarding school in Huntsville, Alabama. We affirm.

This matter was heard by the Office of Administrative Law (OAL) as a contested case. The record developed in the OAL reveals the following. K.H.M. is a state employee, who is covered pursuant to the SHBP. She selected the traditional plan, believing that it provided the most extensive coverage for her family. J.M. was diagnosed with Attention Deficit Hyperactive Disorder (ADHD) while in grammar school. Upon entering high school, J.M. began displaying behavioral problems, including displays of anger and physically threatening other household members. J.M. also abused alcohol and drugs.

Michael P. Gentile, M.D., an expert in psychiatry with a specialty in the treatment of psychiatric conditions of adolescents, treated J.M. He recommended that J.M. receive more intensive specialized schooling, which would include therapeutic treatment for his psychological and substance abuse problems. Dr. Gentile prepared a "retrospective evaluation" which set forth a diagnosis and treatment plan. K.H.M. contacted Horizon, the administrator of SHBP, to inquire whether the treatment at Three Springs would be covered by the traditional plan. K.H.M. was informed that inpatient treatment would be covered "like any other illness." This conversation and K.H.M.'s testimony is corroborated by notes next to a March 12, 2002 Horizon entry.

K.H.M. placed her son in the inpatient program at Three Springs from May 9, 2002 to January 12, 2004. During J.M.'s stay, Three Springs was not a licensed hospital nor was it licensed to provide a residential drug and alcohol treatment program.

Three Springs provided, among other services: individual and group counseling; participation as a team member in educational and group projects; training and counseling assertiveness and problem solving skills; therapy in dealing with family conflict; counseling for drugs and alcohol use; training in time management and study skills; daily participation in educational, recreational, vocational and group projects. J.M. obtained his high school diploma while at Three Springs. The total cost of the program was $82,890. K.H.M. and her husband paid this amount. The Board of Education that would have provided a public education to J.M. reimbursed them for thirty percent of the cost of the educational component at Three Springs.

After J.M. entered Three Springs, a Horizon representative again advised K.H.M. that the drug and alcohol rehabilitation costs would be covered on an inpatient basis. This conversation is corroborated by notes next to a May 20, 2002 entry in Horizon's record.

Horizon requested the following from Three Springs: a copy of the licenses for the facility; a copy of all accreditations; an itemized list of the services, including lincensure; and a six digit Medicare provider identification number. Three Springs sent a reply letter with an attached copy of the license for the facility, indicating that it was a private school. Wendy Rutan, a Horizon manager in the complaints and appeals department, testified that Horizon would not pay for the facility services because the facility was a school, but it would allow benefits for medical services rendered. Horizon then inquired into the professionals providing service to determine the eligibility of possible medical services.

Horizon made the first payment to Three Springs in January 2003. Horizon made three payments in total. Shortly after these payments, the Commission concluded that J.M.'s stay at Three Springs was not a covered benefit pursuant to the SHBP traditional plan. This decision was based on the determination that Three Springs did not meet the definition of an eligible facility for services rendered prior to June 30, 2003. In particular, Three Springs did not meet the traditional plan's definition of "hospital," which was contained in the traditional plan's Member Handbook (Handbook).

K.H.M was provided a copy of the Summary Program Description (SPD) upon the commencement of her employment. The first page of the SPD provided:

[b]asic benefits include inpatient covered services at an approved acute care hospital, skilled nursing facility or detoxification center facility.

The Commission determined that Three Springs was not licensed as a hospital, ambulatory facility or birth center and did not meet the tests pertaining to an institution for the treatment of alcoholism. The Commission noted that educational services are not covered by the traditional plan. K.H.M. challenged the Commission's determination.

K.H.M. testified that she did not consult the Handbook to determine whether Three Springs was a covered facility. The Handbook provided:

[a] predetermination for any service may be obtained in writing in advance of services being rendered. The written request will need to include the provider's name, address and phone number, diagnosis description of the services to be rendered, and the anticipated charges. Telephone contact with Horizon BCBSNJ or the Division of Pensions and Benefits about coverage does not constitute a predetermination of benefits.

The Handbook dated January 2001, which was in effect at the time the Three Springs services were rendered, provided information regarding benefits that are available pursuant to the traditional plan and contained exclusions and definitions of providers and eligible facilities. The Handbook was prepared by Horizon in consultation with the Division of Pensions and Benefits.

K.H.M. did consult the SPD. The Division of Pensions and Benefits created the SPD to give a general and brief overview of the plans that are available pursuant to the SHBP at open enrollment time. The SPD provided:

[t]he information on the following plan description pages is supplied by each individual health plan and intended to provide a brief overview of the plan and the benefits it offers. If there are discrepancies between the information presented in these pages and the law, regulations or contracts, the latter will govern. If you have questions or concerns about the information presented please write to the [SHBP], Division of Pensions . . . .

K.H.M. testified that she believed the SPD was the contract and did not realize the distinction between it and the Handbook. K.H.M. relied on the SPD to determine which plan would best provide coverage for her family.

The Administrative Law Judge (ALJ) found coverage for the Three Springs cost. He found that there existed sufficient ambiguity among the SPD, the Handbook and Horizon's advice concerning coverage for treatment of J.M. The ALJ also held that equitable estoppel was appropriate in light of K.H.M.'s reliance upon Horizon's representations and the payments made.

The Commission concluded that the ALJ incorrectly identified the legal issue as "whether the [SPD] . . . or the contract language . . . is controlling in determining a plan's coverage for services under the SHBP for state employees and their family members." The Commission held that the correct legal issue was whether Three Springs was a licensed provider within the meaning of the traditional plan and whether the denial of coverage for this reason was proper. The Commission noted that it is the "longstanding practice" that the Handbook is the controlling document that describes coverage and exclusions for the health plans offered by the SHBP. Thus, the Commission rejected the ALJ's initial decision. This constituted a final administrative determination.

On appeal to us, K.H.M. contends that: (1) the SPD controls where there is a conflict between the provisions of the SPD and the Handbook; (2) the SPD given to K.H.M. provides coverage; (3) the Commission's argument that K.H.M. never requested the Handbook lacks merit; (4) K.H.M. did not solely rely on the SPD language; (5) the Commission is estopped from disclaiming coverage; and (6) no exclusion is listed in the SPD. We reject these arguments and affirm.

Our standard of review is settled. We will not upset a final agency determination unless it is shown that it was arbitrary, capricious or unreasonable, or that it violated legislative policies expressed or implied in the act governing the agency. Campbell v. Dep't of Civil Service, 39 N.J. 556, 562 (1963). An agency decision is considered arbitrary, capricious or unreasonable where it is not supported by substantial credible evidence in the record as a whole, offensive to the federal or state law or inconsistent with its statutory mission. Circus Liquors, Inc. v. Middletown Twp., 199 N.J. 1, 9-10 (2009). There is a "particularly strong need for careful appellate review" where the agency's factual findings are contrary to those of the ALJ. In re Lalama, 343 N.J. Super. 560, 565-66 (App. Div. 1998).

An employee is permitted to enroll a dependant for coverage by the contract subject to such regulations and conditions as the Commission and carrier may prescribe. N.J.S.A. 52:14-17.30. Pursuant to this statutory authority, the Commission has created the Handbook, which is "[understood] to embody the terms of the Program as communicated to the employees . . . ." Heaton v. State Health Benefits Comm'n, 264 N.J. Super. 141, 144 (App. Div. 1993). The Commission has adopted the terms of the Handbook, specifically:

[t]he Commission adopts by reference all of the policy provisions contained in the contracts between the health, prescription drug and dental plans and the Commission, as well as any subsequent amendments thereto, to the exclusion of all other possible coverage. The plans handbook supplements the master contracts and contains the specific provisions for services to be covered and those which are excluded. [N.J.A.C. 17:9-2.14.]

Here, the Commission's decision to deny K.H.M.'s claim is based on an accurate construction of the contract as embodied in the Handbook.

We reject K.H.M.'s argument that, in any conflict between the Handbook and the SPD, the latter controls. The New Jersey Legislature established that the health benefits provided by the Commission "may be subject to such limitations, exclusions, or waiting periods as the commission finds necessary or desirable to avoid inequity[.]" N.J.S.A. 52:14-17.29(D). The exclusions of the traditional plan are contained in the Handbook and are deemed controlling. See N.J.A.C. 17:9-2.14.

Further, K.H.M.'s contention that the SPD is controlling lacks merit. First, the opening letter signed by the then governor stated that the SPD is an "overview" of the SHBP and after choosing a health plan, a member will receive a handbook with an "in-depth description of your benefits." In addition, on the first page under "Introduction," the SPD stated that "[a]lthough every effort has been made to ensure the accuracy of this [SPD], if there are discrepancies between the information presented here and your plan handbook, the law or regulations, the latter will govern." Finally, immediately before the "Plan Description" section on page 11 of the SPD, it stated:

[t]he information on the following plan description pages is supplied by each individual health plan and intended to provide a brief overview of the plan and the benefits it offers. If there are discrepancies between the information presented in these pages and the law, regulations or contracts, the latter will govern.

This provision is consistent with N.J.A.C. 17:9-2.14, which establishes that the Handbook "contains the specific provisions for services to be covered and those which are excluded."

K.H.M.'s contention that the SPD trumps the Handbook is therefore erroneous in light of the specific language set forth in the SPD and in the regulation.

K.H.M. relies on Burstein v. Ret. Account Plan, 334 F.3d 365 (3d Cir. 2003), in support of her claim. K.H.M. acknowledged that Burstein involved an employee plan that is covered by ERISA, but argues that the case law associated with the Burstein decision supports her argument. We disagree.

K.H.M.'s reliance on Burstein is misplaced. The health plan in that case was subject to ERISA, which requires employers to honor the wording of any summary plan description that is in conflict with the plan that it summarizes. Burstein, supra, 334 F.3d at 381. This conclusion was reached after the Third Circuit recognized that Congress requires that an SPD be "sufficiently accurate and comprehensive to reasonably apprise . . . participants . . . of their rights and obligations[.]"

Ibid. (quoting 29 U.S.C. § 1022(a)). The Burstein court therefore held that if the SPD language conflicts with a plan document, the SPD controls. Ibid.

Here, the SHBP is controlled by state statute and is exempt from the requirements of ERISA. The New Jersey Legislature has not imposed a statutory requirement that the SPD be "sufficiently accurate and comprehensive." Even if such a requirement had been mandated, K.H.M. cannot demonstrate that the provisions contained in the SPD conflicted with the Handbook. The SPD states that "basic benefits" include "inpatient covered services approved in . . . detoxification facility[.]" The SPD also states that alcohol abuse covered expenses is the "same as any other treatment." However, the definition of "hospital" is contained in the Handbook, not the SPD. The record therefore supports the Commission's finding that Three Springs does not meet this definition.

K.H.M. also argues that she never requested a Handbook, she did not rely "solely" on the SPD language and the Commission is estopped from disclaiming coverage. K.H.M. essentially contends that she reasonably relied upon the provisions contained in the SPD and the assurances from Horizon's representations in concluding that her son's stay at Three Springs would be covered. In particular, K.H.M. argues that she acted with due diligence and reasonably relied on: (1) the language contained in the SPD document; (2) three verbal assurances by the Plan Administrator; (3) payments of approximately $12,000 in claimed benefits; and (4) an April 2003 Explanation of Benefits (EOB) stating that payment was made to Three Springs. K.H.M. contends that the invocation of estoppel and equitable principles is required to avoid manifest injustice. We disagree.

Equitable estoppel is "rarely invoked against a government entity." Wood v. Borough of Wildwood Crest, 319 N.J.Super. 650, 656 (App. Div. 1999) (quoting County of Morris v. Fauver, 153 N.J. 80, 104 (1998)). The doctrine may be invoked, however, in the appropriate circumstances unless the application would "prejudice essential government functions." Ibid. (quoting Vogt v. Borough of Belmar, 14 N.J. 195, 205 (1954)).

The doctrine of equitable estoppel has been defined as: the effect of the voluntary conduct of a party whereby he is absolutely precluded, both at law and in equity, from asserting rights which might perhaps have otherwise existed . . . as against another person, who has in good faith relied upon such conduct, and has been led thereby to change his position for the worse[.] [W.V. Pangborne & Co. v. N.J. Dep't of Transp., 116 N.J. 543, 553 (1989).].

Consequently, the party asserting equitable estoppel must establish that it changed its position or detrimental reliance. Green v. State Health Benefits Comm'n, 373 N.J. Super. 408, 420 n.5 (App. Div. 2004) (citing Middletown Twp. PBA Local 124 v. Middletown Twp., 162 N.J. 361, 367 (2000).

Here, the Commission rejected the ALJ's finding that estoppel was appropriate, noting that in order for K.H.M. to support her claim for estoppel, she "would need to establish that she changed her position or otherwise relied to her detriment upon the State's representation that Three Springs was an eligible provider under the plan." This conclusion rested on the Commission's finding that K.H.M. chose the traditional plan without considering all the information that was readily available and did not take any affirmative steps to obtain the Handbook. The Commission further rejected the ALJ's finding that Horizon's three payments estopped Horizon from denying the claim.

The record contains credible evidence to support the Commission's finding that it is not equitably estopped from denying K.H.M.'s claim. Although K.H.M. contacted Horizon on three separate occasions to inquire whether the inpatient treatment was covered by the traditional plan, she failed to prove that Horizon specifically represented that Three Springs was a covered facility. K.H.M. acknowledged while testifying that she could not recollect if she asked whether Three Springs was a covered facility. Moreover, the record supports the Commission's finding that K.H.M. merely asked whether an inpatient alcohol treatment center is a covered facility.

K.H.M.'s assertion that she acted with due diligence in contacting Horizon is in contravention of the procedure set forth in the Handbook for determining whether coverage will be afforded. In particular, page 18 of the Handbook provided:

[a] pre-determination for any service may be obtained in writing in advance of services being rendered. The written request will need to include the provider's name, address and phone number, diagnosis description of the services to be rendered, and the anticipated charges. Telephone contact with Horizon BCBSNJ or the Division of Pensions and Benefits about coverage does not constitute a predetermination of benefits.

Thus, K.H.M. did not follow the correct procedure set forth in the controlling document in determining whether Three Springs was a covered facility.

K.H.M. also contends that there is no exclusion in the SPD for inpatient alcohol abuse or inpatient drug abuse and the underlying treatment is therefore covered. K.H.M. argues that the SPD states that alcohol abuse and inpatient drug abuse are treated "like any other illness" and are clearly listed in the "Covered Expenses" chart. We reject this argument.

We held in Heaton, supra, 264 N.J. Super. at 151, that the SHBP was not to be considered a commercial insurance policy, because the Commission must balance its obligations of meeting the health care needs of its members with a fiduciary obligation to make the program cost effective. Thus, interpreting the state plan provisions is not analogous as interpreting the language contained in commercial insurance polices. Ibid.

The Handbook clearly sets forth a requirement that alcohol treatment centers must be licensed or recognized as approved treatment centers pursuant to a state procedure. There is no ambiguity created either in the SPD or the Handbook. The SPD states that inpatient treatment for alcohol abuse will be covered at an "approved . . . facility." The Handbook's definition of an approved treatment facility controls whether coverage existed. It is undisputed that Three Springs was unlicensed at the time of J.M.'s treatment. The Commission's application of the exclusion, therefore, cannot be characterized as "arbitrary, capricious, or unreasonable."

Affirmed.

20100427

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