Hospitals Lose Their Appeal of Horizon’s OMNIA Health Alliance

Capital Health System, Inc. v. New Jersey Dep’t of Banking & Insurance, 445 N.J. Super. 522 (App. Div. 2016).  In September 2015, the New Jersey Department of Banking and Insurance (“the Department”) approved a plan put forward by Horizon Blue Cross Blue Shield of New Jersey to establish the OMNIA Health Alliance network.  The OMNIA plan entailed a two-tiered classification of hospitals and doctors.  Patients who use Tier 1 providers would pay less in deductibles, co-insurance, and co-payments than would those who choose a Tier 2 provider.

Ten hospitals that were assigned to Tier 2 appealed the approval of OMNIA.  Today, however, in an opinion by Judge Haas, the Appellate Division rebuffed the appeal and affirmed the Department.  The hospitals had unsuccessfully sought a stay of the Department’s approval before the Appellate Division.  However, in a fairly unusual move, the court granted appellants’ motion to accelerate the appeals, doubtless due to the significant public import of the issues involved.

At the outset, Judge Haas observed that the Department has been given extensive regulatory powers in this area, and that tiered benefit plans, such as OMNIA, fall within the broad statutory definition of “managed care plans” that the Department has authority to review.  Indeed, Judge Haas stated, tiered benefit plans “have been offered over the past several years by a number of New Jersey carriers, including Horizon.”

The standards of review did not favor appellants.  There is a “strong presumption of reasonableness” given to agency exercise of duties delegated to it by statute.  “Particularly in the insurance field, the expertise and judgment of the [Department] may be allowed great weight.”  Only agency actions that are arbitrary, capricious, or unreasonable, or that “lack fair support in the record,” will be overturned on judicial review, though courts are not bound by an agency’s determination on a purely legal issue.

Appellants claimed that OMNIA failed to comply with a regulation that they said required “signed agreements” between Horizon and the Tier 1 hospitals.  But Judge Haas observed that the regulation cited actually the maintenance of “contracts or other arrangements acceptable to the Department.”  Besides, at the time of the Department’s approval of OMNIA, Horizon had automatically renewable contracts with all hospitals in both Tiers 1 and 2.  The regulation did not require that carriers’ contracts specify “a particular cost-sharing tier for consumers.”

The hospitals asserted that the Tier 1 hospitals did not meet the regulatory network adequacy standards for hospital obstetrical services in Burlington County or for trauma centers.  Judge Haas rejected both of those contentions.

Appellants then argued that the Department was required to “make a specific finding that the public interest would be served by approving Horizon’s proposal.”  Judge Haas disagreed, noting that no provision of any governing statute required such a specific finding.  None of the statutes that appellants cited regarding the “public interest” related to network adequacy.

Judge Haas did recognize, however, that the public interest is “an added dimension in every administrative proceeding.”  But “the public interest is plainly served when an administrative agency follows the governing statutes and regulations, conducts a prompt and timely review of an applicant’s proposal, and renders a fully supported, thoughtful final decision that withstands appellate review.  That is the case here.”

Appellants also contended that the Department “conducted a rushed review of Horizon’s application, did not fully explain its decision, and improperly failed to permit their input.”  The first two arguments, Judge Haas found, were not supported by the facts.  And, “the fact that an entity may be impacted by an agency decision does not, in and of itself, give rise to a right to notice and participation in the administrative process.”  The appellant hospitals failed to show that they had a statutory or constitutional right to a contested case hearing.

Judge Haas concluded by rejecting appellants’ contention that the statutory regime should be amended “to reflect [appellants’] view of how tiered benefit networks should be implemented.”  Such amendments are for the Legislature only, and “courts do not act as a super-legislature.”

The OMNIA network has been the subject of much controversy, and this opinion may not be the last proceeding in this matter.  It seems unlikely, however, that the Supreme Court would review this case, given the facts and law as marshaled by this appellate panel.