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In re State & School Employees' Health Benefits Commissions' Implementation of I/M/O Philip Yucht

Supreme Court of New Jersey

May 8, 2018

IN THE MATTER OF STATE AND SCHOOL EMPLOYEES' HEALTH BENEFITS COMMISSIONS' IMPLEMENTATION OF I/M/O PHILIP YUCHT.

          Argued Date: February 26, 2018

          On certification to the Superior Court, Appellate Division.

          Ira W. Mintz argued the cause for appellants Communications Workers of America, AFL-CIO and Clinical Social Workers Guild 49 (Weissman & Mintz, attorneys; Ira W. Mintz, on the briefs).

          Eileen S. Den Bleyker, Deputy Attorney General, argued the cause for respondents State Health Benefits Commission and School Employees' Health Benefits Commission (Gurbir S. Grewal, Attorney General, attorney; Melissa H. Raksa, Assistant Attorney General, of counsel, and Danielle P. Schimmel, Deputy Attorney General, on the briefs).

          Flavio L. Komuves argued the cause for amicus curiae New Jersey Education Association (Zazzali, Fagella, Nowak, Kleinbaum & Friedman, attorneys; Richard A. Friedman, of counsel, and Flavio L. Komuves and Marissa A. McAleer, on the brief).

          LaVECCHIA, J., writing for the Court.

         This appeal involves review of administrative action by the State Health Benefits Commission (SHBC) and the School Employees' Health Benefits Commission (SEHBC) (collectively, the Commissions). The Commissions administer the State Health Benefits Program (SHBP) and the School Employees' Health Benefits Program (SEHBP), respectively. The Court considers the reasonableness of the Commissions' notice to members who may have been affected by the application of erroneous reimbursement rates.

         On May 4, 2009, the Commissions established adjusted reimbursement rate percentages for out-of-network behavioral health services. Under the new reimbursement scheme, the Commissions determined a usual and customary charge reimbursement rate (the UCR) for outpatient behavioral health services from medical doctors and agreed to pay medical doctors one-hundred percent of that UCR. However, they determined to reimburse other behavioral health service providers at lesser percentages of that UCR. An SEHBP member, Philip Yucht, who received behavioral health services, challenged the reimbursement he received for his out-of-pocket expenses. The SEHBC denied Yucht's challenge. Yucht appealed and the Appellate Division held that the tiered rates of reimbursement for non-medical-doctor behavioral health services were contrary to the legislative policies expressed in NJ.S.A. 52:14-17.46.7.

         After the Appellate Division decision, the Commissions each determined to reimburse plan members- those who did not receive proper reimbursement for incurred out-of-pocket expenses-retroactive to May 2009. The Commissions attempted to notify members of the reimbursement opportunity in two ways. The Commissions placed a link (the link) on the website of the Division of Pensions and Benefits (the Division), which was labeled with a notice that stated simply, "Behavioral Health Services Claim Reconsideration-for SHBP and SEHBP members." The Commissions also sent a letter, dated July 22, 2014 (the letter), to certifying officers, human resources directors, and benefits administrators for public employers participating in the SHBP and SEHBP. The subject of the letter stated "Behavioral Health Claim Reimbursements Reconsidered." The letter advised the officers that members "who received reimbursement for behavioral health claims for services provided by an out-of-network provider between May 4, 2009 and March 23, 2014, may be entitled to a reconsideration of their claims." The letter instructed that plan members should complete a specific form to request adjustment and submit it with supporting documents to Horizon no later than December 31, 2014. It also stated that requests received after that date would not be considered. The second page of the letter, under the heading "EMPLOYER RESPONSIBILITIES, " stated: "Please make this information available to your location's employees and forward this letter and attachment to your human resources staff, benefit administrators, and any other staff members responsible for the administration of health benefits for your location's employees." It is undisputed in the record before us that the Commissions themselves did not send any form of individualized notice to potentially affected members.

         In December 2014, the Communication Workers of America, AFL-CIO and the Clinical Social Work Guild 49 (the Unions) petitioned the Commissions to extend the deadline for the submission of requests for reimbursement. The Unions asserted that the notice provided was neither adequate nor meaningful and that the Commissions should either send individualized notice to all potentially affected members or to all SHBP and SEHBP members. The Commissions informed the Unions that their petition was denied. The Appellate Division affirmed the Commissions' refusal to extend the deadline and provide further notice to affected members. In reaching its conclusion, the panel applied a highly deferential standard of review and held that the Commissions' notice was adequate both in form and substance. The Court granted the Unions' petition for certification to consider whether the Commissions' method of implementing reimbursement for the involved out-of-network charges "provided adequate notice to potentially affected members." 231 N.J. 414 (2017).

          HELD: Because significant questions exist concerning the extent of the notice actually provided, either by the Commissions or through their agents to active employees, former employees, and retirees, a hearing is necessary. The hearing is to be conducted in accordance with the principles outlined in this opinion and, at the hearing, the adequacy of the content of the notice can be raised.

         1. Agency action will not be overturned unless the action is arbitrary, capricious, or unreasonable. The arbitrary, capricious, and unreasonable standard is generally understood to involve inquiry into whether the decision conforms with relevant law, whether there is substantial credible evidence in the record as a whole to support the agency's decision, and whether in applying the relevant law to the facts, the agency clearly erred in reaching its conclusion. When the challenged agency action arises in a setting where the record is too meager to permit meaningful review, supplementation of the record may be necessary. The Court Rules provide that a reviewing court may remand, on its own motion, for supplementation of the record in order to permit meaningful review. IL2:5-5(b). (pp. 14-16)

         2. Whenever an administrative agency acts, be that act mandatory or strictly voluntary, it must do so reasonably and in a manner calculated to achieve the policies expressed in the agency's organic statute. Therefore, because the Commissions determined to reimburse affected members, they were necessarily required to do so reasonably and in a non-arbitrary manner. Here, that means that the Commissions were required to provide reasonable notice in order that the retroactive benefit would fairly be made known and, thus, made available in a non-arbitrary manner to affected members. As with most agency action, there is room for debate over what is reasonable. To be reasonable, an agency's choice of action for providing notice does not require adoption of a perfect practice. Here, the intended purpose of the action challenged-the Commissions' attempted notice-was to reach persons who might have been affected by the wrongfully calculated reimbursement rate, to notify those persons of the availability of supplemental reimbursement, and to inform them of the procedures for requesting supplemental reimbursement, (pp. 16-19)

         3. The problem in this dispute over the adequacy of notice is that the evidence thus far produced has the capacity to support the claim that the methods of notice-the letter and website link-were not reasonably designed to likely reach the categories of members who may have been affected by the erroneous reimbursement rates. The Unions have advanced some evidence on which there could be based a finding that the notice was not reasonably designed to give notice to the proper universe of individuals affected. Against that presentation, based on the present record, the Court cannot conclude that either the website's ten-word, cryptically described notice and link or the letter to the certifying officers provides sufficient evidence to support deferring to the agency's choice of notice as reasonable. With the thin record available, it is not known what action, if any, certifying officers generally took in response to the Commissions' letter. Nor does the record disclose what notice, if any, former employees and retirees received of the potential for supplemental reimbursement in light of the Commissions' apparent reliance on the link. Accordingly, the Court orders a remand for the development of a proper record to permit meaningful judicial review. In that remand hearing, both the form and substance of the notice may be examined, (pp. 19-23)

         4. The Court directs that the parties bear the following burdens in the remand to take place following issuance of this decision. Because the Unions have come forward with some evidence to support questioning the reasonableness of the notice, the burden of moving forward with the evidence has shifted to the Commissions to respond. Therefore, the Commissions shall be required on remand to respond with evidence of efforts made by certifying officers, or others with responsibility to provide notice, on behalf of participating employers to publish the required notice to members. The Court notes that the Commissions are in a superior position to produce the necessary information for creation of a meaningful record and emphasizes that the record need not plumb the efforts of each and every certifying officer to share the substance of the letter with members. No doubt, the Commissions have various means at their disposal to use in order to paint a picture of employer responsiveness through their letter to certifying officers since that is, in part, what the Commissions rely upon. Finally, although the burden of moving forward has shifted to the Commissions for the remand proceeding, the ultimate burden of persuasion remains squarely and solely on the Unions' shoulders. Because the Unions brought this challenge, it is for the Unions to demonstrate that the notice, as implemented, was not adequate for its purpose and hence unreasonable, (pp. 23-27)

         The judgment of the Appellate Division is REVERSED. The matter is REMANDED for further proceedings consistent with this opinion.

          OPINION

          LaVECCHIA, JUSTICE

         This appeal involves review of administrative action by the State Health Benefits Commission (SHBC) and the School Employees' Health Benefits Commission (SEHBC) (collectively, the Commissions). The Commissions administer the State Health Benefits Program (SHBP) and the School Employees' Health Benefits Program (SEHBP), respectively.

         The subject matter of the appeal involves the method used by the Commissions to correct erroneously tiered reimbursement rates previously applied to members' out-of-pocket expenses for out-of-network behavioral health services. In a separate matter involving a single plan member, the tiered reimbursement schedule was determined to have violated N.J.S.A. 52:14-17.46.7, which addresses the calculation of reimbursement rates for out-of-network health benefit services. Following that decision, the Commissions permitted members who paid for out-of-pocket behavioral health services and did not receive a proper reimbursement to obtain retroactive reimbursement for charges incurred between May 2009 and March 2014. The challenge here is to the reasonableness of the Commissions' notice to members who may have been affected by the application of the erroneous reimbursement rates.

         For the reasons that follow, we reverse the Appellate Division's holding and remand the matter to the Commissions for further proceedings. Because we determine that significant questions exist concerning the extent of the notice actually provided, either by the Commissions or through their agents to active employees, former employees, and retirees, a hearing is necessary. The hearing is to be conducted in accordance with the principles outlined in this opinion and, at the hearing, the adequacy of the content of the notice can be raised.

         I.

         By way of background, we first address the prior decision of the Appellate Division that was the impetus for the Commissions' actions under review. The following facts, gleaned from that unpublished opinion, provide helpful background in this appeal, which comes to us without its own hearing record.

         A.

         On May 4, 2009, the Commissions established adjusted reimbursement rate percentages, calculated from a base rate for usual and customary charges, applicable to SHBP and SEHBP members for out-of-network behavioral health services. Under the new reimbursement scheme, which was made retroactive to January 1, 2009, the Commissions determined a usual and customary charge reimbursement rate (the UCR) for outpatient behavioral health services from medical doctors and agreed to pay medical doctors one-hundred percent of that UCR. However, they determined to reimburse other behavioral health service providers at lesser percentages of that UCR. For example, the Commissions determined that a psychologist with a Ph.D. would be reimbursed at eighty-five percent of the UCR for medical doctors. A range of lower reimbursement-rate percentages were assigned to the charges of other professionals.[1]

         That new tiered rate scheme resulted from a recommendation made to the Commissions by Magellan Health Services (Magellan), the contractor used by the Commissions' third-party administrator, Horizon Blue Cross Blue Shield of New Jersey (Horizon), for health plans pertinent to this action. Horizon forwarded Magellan's recommendation to the Commissions, which approved the change for implementation. Significantly, for purposes of N.J.S.A. 52:14-17.46.7, neither Magellan nor Horizon are nationally recognized databases for purposes of determining UCR. The statute requires that plan participants be reimbursed at eighty percent of reasonable and customary charges, defined as "charges based upon the 90th percentile of the [UCR] fee schedule determined by the Health Insurance Association of America [now Prevailing Healthcare Charges System] or a similar nationally recognized database of prevailing health care charges." N.J.S.A. 52:14-17.46.7.

         An SEHBP member, Philip Yucht, who received behavioral health services after the Commissions' adjusted reimbursement rates took effect, challenged the reimbursement he received for his out-of-pocket expenses. Under the new tiered reimbursement rates, Yucht's treatment by a licensed clinical social worker was reimbursed at sixty-five percent of the UCR described above. The reimbursement rate formerly was one-hundred percent for that service. In a final agency determination, the SEHBC denied Yucht's challenge to the amount of his reimbursement after the new rates took effect.

         Yucht appealed and the Appellate Division held that the tiered rates of reimbursement for non-medical-doctor behavioral health services were contrary to the legislative policies expressed in N.J.S.A. 52:14-17.46.7. In declaring the adjusted reimbursement rates arbitrary, capricious, and unreasonable, the panel stated that "[t]he statute's clear and unambiguous language revealed the Legislature's intent that a [plan] participant be reimbursed" at a statutorily prescribed rate determined by reference to a "nationally recognized database of prevailing health care charges." Here, because the Commissions relied on a non-nationally recognized database as the basis for the new rates, the adopted tiered scheme -- applied in Yucht's case -- imposed a rate of reimbursement for out-of-network professional behavioral health services not permitted under the statute.

         B.

          Importantly for the present appeal, after the afore-described Appellate Division decision, the Commissions each determined by resolution to reimburse plan members -- those who did not receive proper reimbursement for incurred ...


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