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Beaver v. Magellan Health Services, Inc.

Superior Court of New Jersey, Appellate Division

December 11, 2013

IRVIN B. BEAVER, Plaintiff-Appellant,

Argued October 21, 2013

On appeal from Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-3465-12.

Justin Lee Klein argued the cause for the appellant (Wilentz Goldman & Spitzer, and Hobbie, Corrigan & Bertucio, attorneys; Angelo J. Cifaldi and Jacqueline DeCarlo, of counsel and on the brief; Mr. Klein, on the brief).

Thomas F. Quinn argued the cause for respondents (Wilson, Elser, Moskowitz, Edelman & Dicker, LLP, attorneys; Mr. Quinn and Joanna Piorek, on the brief).

Before Judges Parrillo, Kennedy and Guadagno.



Under what circumstances may a litigant pursue common law and statutory causes of action in the Law Division, rather than appeal from State final agency determination, where the merits of the agency determination are at issue? This is the question we address in deciding this appeal.

Plaintiff appeals from an October 12, 2012 order of the Law Division dismissing his complaint against defendants Magellan Health Services, Inc., Magellan Behavioral, Inc., and Horizon Blue Cross/Blue Shield of New Jersey ("defendants" when referenced collectively, "Magellan" or "Horizon" when referenced individually). Plaintiff argues, among other things, that the motion judge erred in applying the standards governing a motion to dismiss under Rule 4:6-2, and in determining that the Law Division lacked subject matter jurisdiction over the matter.

We have considered plaintiff's arguments in light of the record and applicable law. For reasons stated hereinafter, we affirm.


We derive the facts from the record developed in the Law Division and the administrative proceedings which preceded the filing of plaintiff's complaint in the Law Division.

Plaintiff is a former public employee and received health insurance coverage for himself and his family through the N.J. Plus and, later, the N.J. Direct health benefits programs, which at all times relevant to this matter were administered by Horizon on behalf of the State Health Benefits Program (Program). The Program, and its governing body, the State Health Benefits Commission (SHBC), were established by the New Jersey Health Benefits Program Act (the Act), N.J.S.A. 52:14-17.24 to -45. The purpose of the Program is "to provide comprehensive health benefits for eligible public employees and their families . . . . It establishes a plan for state funding and private administration of a health benefits program[.]" Heaton v. State Health Benefits Comm'n, 264 N.J.Super. 141, 151 (App. Div. 1993). "The SHBC contracts with health insurers to provide various benefits plans to program participants." Green v. State Health Benefits Comm'n, 373 N.J.Super. 408, 413 (App. Div. 2004)(citing N.J.S.A. 52:14-17.28). "The State Health Benefits Program is, in effect, the State of New Jersey acting as a self-insurer." Burley v. Prudential Ins. Co. of Am., 251 N.J.Super. 493, 495 (App. Div. 1991). In essence, the State pays the benefits and Horizon administers the claims.

Although the State contracts with health insurers to administer various benefit plans for program participants, the SHBC alone has the authority and responsibility to make payments on claims and to limit or exclude benefits. N.J.S.A. 52:14-17.29(B). Additionally, the SHBC has final authority to adjudicate disputes between plan members and State-contracted claims administrators, and may refer such disputes to the Office of Administrative Law (OAL) for an evidentiary hearing. Green, supra, 373 N.J.Super. at 414; Burley, supra, 251 N.J.Super. at 500.

Horizon hired Magellan to manage mental health and substance abuse benefits for eligible N.J. Plus members. Magellan would conduct "utilization management reviews" of claims submitted by members, and would decide if the treatment was medically needed, and, if so, the level and length of treatment. As noted, however, the SHBC itself had the final authority and responsibility to adjudicate any claim disputes.

On February 10, 2008, plaintiff's son, a minor, was admitted for inpatient, residential care at the Caron Foundation, a residential treatment facility for substance abuse. Initially, Caron prescribed thirty-one days of inpatient care, but later revised its recommendation to include an additional ninety days of inpatient, residential treatment.

Plaintiff submitted a claim for coverage and on February 26, 2008, Magellan advised that it would not authorize residential substance abuse treatment "as of" February 25, because plaintiff's son "no longer shows evidence" that he needs residential treatment. Plaintiff challenged the denial and Magellan undertook a "Level 1 appeal review." On February 28, Magellan advised that its prior denial was proper, and cited a telephone conversation between one of the son's doctors at Caron and its own physician advisor in which the son's doctor allegedly agreed that outpatient care was the appropriate level of treatment.

Plaintiff shortly learned that Magellan's physician advisor had, in fact, not spoken to the particular Caron physician identified in Magellan's notification of February 28, but to another of the son's doctors who alleged he never stated that the son required only outpatient treatment. Accordingly, plaintiff sought further review, and on March 11, 2008, presented a "second level appeal" for coverage to Horizon's Member Appeals Subcommittee.

On March 14, Horizon overturned the denial of coverage for residential treatment for the period of February 26 to March 4, but denied coverage after that date, finding that plaintiff's son "did not show any evidence" of needing residential treatment thereafter. Plaintiff next appealed to the SHBC, which, by letter dated February 17, 2009, upheld the denial of benefits after March 4, 2008. The letter stated, in part:

The denial is based on your presentation at the meeting as well as the documents you provided during and prior to the meeting. Magellan's medical director gave a background summary of the appeal and indicated that he reviewed the additional medical notes received from the Caron Foundation. He indicated that [your son] did not meet the ASAM [American Society of Addiction Medicine] criteria after March 5, 2008 for inpatient residential treatment.
Your written request for appeal of the initial administrative decision must specify the exact reason or reasons that you are using as the basis for the request. It must also include any evidence or material that can be used to support your basis of appeal.
The Commission will decide whether to grant your request for a hearing in the Office of Administrative Law upon receipt of your ...

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