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Alliance for Quality Care, Inc. v. New Jersey Department of Banking and Insurance


August 26, 2010


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

Per curiam.


Argued April 27, 2010

Before Judges Carchman and Ashrafi.

Appellants are organizations representing ambulatory surgery centers and orthopedic surgeons and two named ambulatory surgery facilities. They appeal from a final decision of the Commissioner of Banking and Insurance (the Commissioner) approving an option for small businesses to reduce costs of their health care coverage by purchasing plans that cap at $2,000 per year per patient benefits for out-of-network ambulatory surgery facilities. We reject the appeal and affirm the final decision of the Commissioner.

Since 1992, statutes enacted as the Small Employer Health Benefits Program (SEHBP) have provided the framework for health care coverage available to employees of businesses in New Jersey with two to fifty employees. See N.J.S.A. 17B:27A-17 to -56. The SEHBP establishes five standard plans for medical benefits, providing certain basic medical coverage and varying in actuarial value by differences in amounts of deductibles and co- payments assigned to the employee or patient. N.J.S.A. 17B:27A-19a. Medical insurance carriers are required to provide at least three of the five basic plans, and those plans must include at a minimum coverage for:

(1) Basic inpatient and outpatient hospital care;

(2) Basic and extended medical-surgical benefits;

(3) Diagnostic tests, including X-rays;

(4) Maternity benefits, including prenatal and postnatal care; and

(5) Preventive medicine, including periodic physical examinations and inoculations. [Ibid.]

The SEHBP does not require that the plans provide coverage for ambulatory surgical facilities, although the basic plans established under SEHBP include such coverage.

Since legislation enacted in 1994, the SEHBP permits health insurance carriers to offer riders to the basic plans revising the level of benefits. N.J.S.A. 17B:27A-19i(1). Proposed riders must be filed for informational purposes with the SEHBP Board, and those riders that decrease rather than increase the level of benefits must first be approved by the Commissioner. Ibid. The statute requires that the Commissioner disapprove any proposed rider "that is unjust, unfair, inequitable, unreasonably discriminatory, misleading, contrary to law or the public policy of this State[,]" or that reduces benefits below the mandatory coverages listed above. Ibid.

In this case, Horizon Blue Cross Blue Shield of New Jersey (Horizon), which is the largest health insurance carrier in this State, submitted a proposed rider to the Commissioner on April 30, 2009, that would provide an option for small business employers to purchase a plan with decreased benefits for out-of-network ambulatory surgery facilities. The rider would cap the coverage for such services at $2,000 per patient per year. The employer would have the option of purchasing the standard plan with no cap on such services or adding the rider to reduce the employer's costs.

After reviewing the proposed rider, staff at defendant New Jersey Department of Banking and Insurance (DOBI) notified Horizon of certain revisions DOBI requested. Horizon submitted a revised rider on June 10, 2009. By letter dated June 12, 2009, the Chief of the Health Insurance Unit at DOBI, on behalf of the Commissioner, notified Horizon that the revised rider had "been filed pursuant to statute." The letter further provided that forms to be used for the rider could not be changed without further approval.

Upon learning of the rider, appellants filed an application with the Commissioner seeking a stay of the approval and also referral of the matter to the Office of Administrative Law for either a contested or an uncontested hearing. By written opinion dated July 23, 2009, the Commissioner denied appellants' application for a stay and a hearing. Appellants then filed motions before us and in the Supreme Court seeking an emergent stay. Those motions were denied. Horizon was permitted to offer the rider as of August 1, 2009.

On this appeal, appellants make several procedural and substantive arguments challenging the Commissioner's approval of Horizon's rider.

Our standard of review from a decision of an executive branch agency is strictly limited. In re Musick, 143 N.J. 206, 216 (1996). "[A]n appellate court will reverse the decision of the administrative agency only if it is arbitrary, capricious or unreasonable or it is not supported by substantial credible evidence in the record as a whole." In re Taylor, 158 N.J. 644, 657 (1999) (quoting Henry v. Rahway State Prison, 81 N.J. 571, 581 (1980)). We may review the agency's decision in three areas of inquiry:

(1) whether the agency's action violates express or implied legislative policies, that is, did the agency follow the law; (2) whether the record contains substantial evidence to support the findings on which the agency bases its action; and (3) whether, 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. [Musick, supra, 143 N.J. at 216 (citing Campbell v. Dep't of Civil Serv., 39 N.J. 556, 562 (1963)).]

We begin by rejecting DOBI's contention that appellants lack standing to pursue this appeal. Appellants have a sufficient "stake" and a substantial likelihood of harm in the loss of patients who will turn away from their facilities as a result of their health care plans adopting the reduced benefits of the rider. See Home Builders League of S. Jersey, Inc. v. Twp. of Berlin, 81 N.J. 127, 134 (1979); In re Application for Project Authorization Under the N.J. Register of Historic Places Act, 408 N.J. Super. 540, 555-58 (App. Div. 2009), certif. denied, 201 N.J. 154 (2010); N.J. Citizen Action v. Riviera Motel Corp., 296 N.J. Super. 402, 409-10, 415-16 (App. Div.), certif. granted, 152 N.J. 13 (1997), appeal dismissed as moot, 152 N.J. 361 (1998).

Turning to appellants' procedural challenges, appellants argue first that the June 12, 2009 letter written on behalf of the Commissioner does not constitute an approval of the rider because the letter only states that the rider would be "filed."

The clear implication of the filing, however, viewed in context of the prior submission and DOBI's request for revisions, was that Horizon's revised rider had been approved and could be implemented.

Next, appellants argue that the Commissioner merely "rubber-stamped" the proposed rider, approving it two days after its submission, and he did not undertake the review of the proposal required by N.J.S.A. 17B:27A-19i(1). As already stated, the proposed rider was originally submitted on April 30, 2009, and it was reviewed by DOBI staff and revisions were requested. The submission on June 10 apparently satisfied the requests of DOBI, and another lengthy review period was not needed. The procedural history of the submission and approval does not suggest a "rubber-stamping" and circumvention of administrative review required by the statute.

Appellants argue that they had no opportunity to comment on the proposal before approval, but nothing in the statute or other law required that Horizon give notice to appellants or the public before submitting its proposal, or that the Commissioner conduct a public hearing before making his decision. DOBI's internal review procedure is authorized by the Administrative Procedure Act, which expressly provides that "a mode of administrative review within an agency . . . shall remain unimpaired." N.J.S.A. 52:14B-12. Furthermore, the Commissioner's decision was in the nature of legislative rather and adjudicative action, and therefore, proceedings before the Office of Administrative Law were not required. See N.J. Builders Assoc. v. Sheeran, 168 N.J. Super. 237, 248 (App. Div.), certif. denied, 81 N.J. 293 (1979).

Appellants also argue that the Commissioner violated the statute by failing to provide written reasons for his approval. They rely upon the provision of N.J.S.A. 17B:27A-19i(1) stating that "[t]he commissioner's determination shall be in writing and shall be appealable." Citing our decisions arising out of quasi-judicial matters, see In re Valley Hosp., 240 N.J. Super. 301, 306-09 (App. Div. 1990), certif. denied, 126 N.J. 318 (1991), and In re Bloomingdale Convalescent Ctr., 233 N.J. Super. 46, 55 (App. Div. 1989), appellants argue that the Commissioner was required to state in writing his reasons for approving Horizon's proposed rider.

DOBI responds that some 330 proposed riders have been approved since permitted by the SEHBP, and such approvals do not require an extensive statement of reasons. The statute requires a written decision only when the Commissioner disapproves a rider submitted for review. The provision of N.J.S.A. 17B:27A-19i(1) requiring a "determination . . . in writing" that is "appealable" follows immediately after the provisions pertaining to disapproval. The only party to the application is the health insurance carrier that has submitted the proposal, and that carrier has no basis or interest to appeal a rider that is approved by the Commissioner.

Even if a written statement of reasons is needed for each rider submitted, whether approved or disapproved, appellants' argument is moot because they received a detailed written decision from the Commissioner in the ruling on their application for an emergent stay. The Commissioner has fully set forth his reasons for rejecting appellants' contentions and approving Horizon's proposed rider.

We conclude that no procedural defects tainted the Commissioner's decision approving the rider.

On the merits of the Commissioner's decision, appellants argue that the rider violates the law and public policy of this State by reducing benefits for ambulatory surgery centers, and it interferes with the medical decisions of doctors who choose to perform surgery in such facilities.

Initially, appellants mistakenly argue that the $2,000 cap will swiftly be exhausted because fees for surgeons, anesthesiologists, and other health care professionals are included in calculation of the cap. Health care professionals who charge separately for their services at ambulatory surgery facilities will continue to be subject to other provisions of the plans that apply to their services. Horizon's rider applies only to the costs of the ambulatory surgery facility itself.

Appellants argue that the rider should have been disapproved as contrary to law because it reduces benefits below those required by statute and regulation. They argue that the rider violates N.J.A.C. 11:21-7.13 because it refers to "allowed charge" instead of "reasonable and customary" charges in determining the amount of reimbursement available to a patient under Horizon's coverage. Not only do the two phrases mean essentially the same in the context of calculating covered benefits, but Horizon apparently used the phrase "allowed charge" in anticipation of a revision of N.J.A.C. 11:21-7.13, which had been proposed in December 2008 and was approved in November 2009, five months after the Commissioner's approval of Horizon's rider. The current regulation uses the phrase "allowed charge."

Appellants argue next that the $2,000 cap violates N.J.A.C. 11:21-3.1, which sets a maximum of $15,000 out-of-pocket expenses that the SEHBP plans may require for out-of-network charges and fees. By this argument, appellants suggest that any expenditure directly by a patient is an out-of-pocket expense, including amounts that the patient must pay when expenses exceed the cap. But the term "out-of-pocket maximum" has a specific meaning in the regulations implementing the SEHBP, and that meaning does not include expenses that are not covered by a plan and that are the sole responsibility of the patient. The term "out-of-pocket maximum" applies only to deductible and coinsurance payments. N.J.A.C. 11:21-1.2. Any amounts exceeding the cap for ambulatory surgery facilities are not deductible or coinsurance payments. Therefore, they are not calculated toward the $15,000 maximum for such out-of-pocket expenses.

Appellants also argue that the Commissioner should have disapproved the rider because it violates the public policy of this State to provide health care benefits to employees of small businesses. We know of no public policy that prohibits making available options to small businesses so that they can in fact provide medical benefits at costs that allow them to stay in business. The optional rider proposed by Horizon and approved by the Commissioner caps benefits payable only for out-of-network ambulatory surgery facilities. It is a cost-containment measure that is not against any public policy of this State established by the Legislature or otherwise. Cf. Somerset Orthopedic Assocs. v. Horizon Blue Cross and Blue Shield of N.J., 345 N.J. Super. 410, 421 (App. Div. 2001) (statutory mandate to contain health care costs).

Finally, we decline to address the potential effect of the recently-enacted federal health care legislation on Horizon's rider. The parties have only tangentially argued in supplemental submissions whether the Patient Protection and Affordable Care Act, Pub. L. No. 111-148, signed into law on March 30, 2010, applies to the disputed rider, and that issue was not before the Commissioner. We will not consider a ground or argument raised for the first time on appeal. See Nieder v. Royal Indem. Ins. Co., 62 N.J. 229, 234 (1973); State v. Krause, 399 N.J. Super. 579, 583 (App. Div. 2008). Any contention arising out of the federal legislation must first be determined by the Commissioner.



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