Capital Health System, Inc. v. New Jersey, 139 A.3d 134

Background

Horizon Blue Cross Blue Shield applied to the NJ Department of Banking and Insurance to approve a new two-tiered OMNIA network (Tier 1 = lower cost-share), replacing its prior Advance plan; OMNIA projected ~250,000 enrollees statewide.
The Department reviews managed-care networks under the Health Care Quality Act and network adequacy regulation N.J.A.C. 11:24A-4.10, which imposes time/distance and specialty/trauma center standards (e.g., one acute-care hospital within 20 miles/30 minutes for 90% of members).
Horizon submitted extensive materials (provider tables, geo-access reports); the Department found an initial shortfall for obstetrical coverage in Burlington County (88% v. 90%) and requested cure information.
Horizon committed to apply Tier 1 cost-sharing for obstetrical services at a Tier 2 Burlington hospital (Virtua) and confirmed existing automatically-renewable network contracts were already in place with all hospitals.
The Department approved OMNIA statewide (Sept. 15/18, 2015); appellants (ten hospitals designated Tier 2) appealed, arguing the approval was arbitrary and contrary to law/public interest.
The Appellate Division affirmed, holding the Department’s review complied with statutory/regulatory authority and was neither arbitrary nor unreasonable.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Horizon needed signed, tier-specific contracts with Tier 1 hospitals before approval	Appellants: lack of signed, tier-specific agreements prevented the Department from assessing adequacy	Department/Horizon: regulations require a "contract or other arrangement" acceptable to the Department; Horizon had in-network (automatically renewable) contracts covering providers	Held: Contracts in place satisfied N.J.A.C. 11:24A-4.10(b)(3); tier-specific labeling not required
Whether OMNIA met time/distance adequacy for Burlington County obstetrical services	Appellants: OMNIA failed the 90% standard (only 88%) at time of approval	Horizon: cured deficiency by applying Tier 1 cost-sharing to obstetrical services at Virtua, bringing coverage to required level; Department: accepted cure	Held: Adequacy satisfied once Horizon committed to Tier 1 cost-sharing at Virtua; approval proper
Whether trauma center requirements mandate preferred-tier placement	Appellants: trauma centers must be Tier 1 to satisfy rule	Department/Horizon: rule requires trauma centers be in-network and covered at in-network benefit levels, not placement in most-preferred tier	Held: Regulation satisfied by in-network contracts; no rule requires all trauma centers be Tier 1
Whether Department had to make a separate "public interest" finding, evaluate tiering criteria, continuity-of-care, or financial impact on hospitals	Appellants: Department must assess public interest, transparency, continuity, and financial effects of tiering	Department: HCQA limits review to network adequacy (scope/type/access); no statutory authority to second-guess carrier tiering criteria or financial effects; consumers receive required disclosures and continuity protections	Held: No statutory/regulatory mandate for a public-interest or tier-criteria review; Department acted within its delegated authority

Key Cases Cited

In re Stallworth, 208 N.J. 182 (scope of appellate review of agency findings) (standard for reviewing administrative decisions)
Lavezzi v. State, 219 N.J. 163 (agency determinations entitled to strong presumption of reasonableness)
N.J. Healthcare Coal. v. N.J. Dep't of Banking & Ins., 440 N.J. Super. 129 (agency interpretation of own rules given deference)
Somerset Orthopedic Assocs. v. Horizon Blue Cross & Blue Shield of N.J., 345 N.J. Super. 410 (carrier contracting practices and leverage to obtain direct payment)
Radiological Soc. of N.J. v. Sheeran, 175 N.J. Super. 367 (limits on Department control over plan operations and provider selection)
Richardson v. Standard Guar. Ins. Co., 371 N.J. Super. 449 (Department's statutory obligation to protect insurance consumers)