In re Adoption of N.J.A.C. 11:3-29

• Decision Date: 10 August 2009
• Docket Number: DOCKET NO. A-0344-07T3
• Citation: 410 N.J. Super. 6,979 A.2d 770
• Parties: In re ADOPTION OF N.J.A.C. 11:3-29 by the STATE of New Jersey, DEPARTMENT OF BANKING AND INSURANCE.
• Court: New Jersey Superior Court

979 A.2d 770

410 N.J. Super. 6

In re ADOPTION OF N.J.A.C. 11:3-29 by the STATE of New Jersey, DEPARTMENT OF BANKING AND INSURANCE.

DOCKET NO. A-0344-07T3

Superior Court of New Jersey, Appellate Division.

Argued January 26, 2009.

Decided August 10, 2009.

Joseph M. Gorrell, Roseland, argued the cause for appellants Alliance for Quality Care, Inc., New Jersey Association of Osteopathic Physicians and Surgeons, Orthopaedic Surgeons of New Jersey, Interventional Pain Society, Atlantic Orthopedic Associates, Medical Society of New Jersey, New Jersey Association of Ambulatory Surgery Centers, and New Jersey State Society of Anesthesiologists (Brach Eichler, L.L.C., attorneys; Mark E. Manigan and Mr. Gorrell, of counsel; Mr. Gorrell and Richard B. Robins, on the brief).

Kristine A. Maurer, Deputy Attorney General, argued the cause for respondent Department of Banking and Insurance (Anne Milgram, Attorney General, attorney; Lewis A. Scheindlin, Assistant Attorney General, of counsel; Ms. Maurer, on the brief).

Thomas P. Weidner, Princeton, argued the cause for intervenors American Insurance Association, Insurance Council of New Jersey, and Property Casualty Insurers Association of New Jersey (Windels, Marx, Lane & Mittendorf, attorneys; Mr. Weidner, of counsel; Mr. Weidner, Antonio J. Casas and Lisa D. Cornacchia, on the brief).

Before Judges CARCHMAN, R.B. COLEMAN and SABATINO.

The opinion of the court was delivered by

CARCHMAN, P.J.A.D.

N.J.S.A. 39:6A-4.6 requires the Commissioner of the Department of Banking and Insurance (the Department) to set a physicians' fee schedule, pursuant to which providers of medical care to accident victims are paid. The fee schedule "shall incorporate the reasonable and prevailing fees of 75% of the practitioners within the region." N.J.S.A. 39:6A-4.6. To implement the statutory mandate, the Department promulgated new regulations and amendments to N.J.A.C. 11:3-29, as well as a personal injury protection (PIP) physician's fee schedule. Appellants Alliance for Quality Care, Inc., the New Jersey Association of Osteopathic Physicians and Surgeons, Orthopaedic Surgeons of New Jersey, the Interventional Pain Society, Atlantic Orthopedic Associates, the Medical Society of New Jersey, the New Jersey Association of Ambulatory Surgery Centers and the New Jersey State Society of Anesthesiologists, challenge the Department's amendments, rules, regulations and fee schedule as violative of the statute. Respondent the Department, as well as intervenors the American Insurance Association, the Insurance Council of New Jersey and the Property Casualty Insurers Association of New Jersey, assert that the rules, regulations and schedule are statutorily appropriate.

We conclude that the rules, regulations and fee schedule are valid; however, as to N.J.A.C. 11:3-29.4(e)(1), we conclude that the use of the specific Ingenix UCR database for the reasons set forth, infra, should be enjoined pending further action by the Department. In all other respects, we affirm.

I.

A.

We provide a brief procedural synopsis of this appeal. On September 5, 2006, after eliciting pre-proposal comments pursuant to N.J.S.A. 52:14B-4(e) and N.J.A.C. 1:30-5.3(a), the Department proposed new rules and amendments to N.J.A.C. 11:3-29, which would modify the physicians' fee schedule for reimbursement to medical providers, by publishing them in the New Jersey Register. 38 N.J.R. 3437(a) (September 5, 2006).

On August 29, 2007, the Commissioner adopted the new and amended rules, and on August 31, 2007, he filed a notice of adoption of the rule proposal with the Office of Administrative Law, with an effective date of October 1, 2007. Appellants challenged the adoption of the rules,¹ intervenors were granted leave to intervene, and we granted a stay of the implementation of the rules pending our review.

B.

To place this appeal in appropriate context, we provide a history of PIP reimbursement legislation and its implementation. The "No Fault Act," N.J.S.A. 39:6A-1 to -35, was enacted in 1972. It had four objectives: "1) prompt reparation to accident victims[;] 2) cost containment of automobile insurance[;] 3) availability of insurance[;] and 4) easing of the judicial caseload." Cobo v. Market Transition Facility, 293 N.J.Super. 374, 384, 680 A.2d 1103 (App.Div.1996). To meet the objectives, N.J.S.A. 39:6A-4 mandated that every standard automobile liability insurance policy contain PIP benefits for the payment of medical benefits, without regard to negligence, liability or fault, to the named insured and members of his or her household who sustained bodily injury as the result of contact with an automobile.

In 1988, the Legislature enacted N.J.S.A. 39:6A-4.6 as a "cost containment measure." In re the Failure by the Dep't of Banking and Ins. to Transmit a Proposed Dental Fee Schedule to the OAL for Publication in the N.J. Register, 336 N.J.Super. 253, 256, 764 A.2d 494 (App. Div.), certif. denied, 168 N.J. 292, 773 A.2d 1155 (2001); L. 1988, c. 119, § 10. This provision required the Commissioner to promulgate a medical fee schedule on a regional basis for the reimbursement of PIP claims. L. 1988, c. 119, § 10, as amended by L. 1988, c. 156, § 4. As initially adopted, the Commissioner was required to base the claims on "the type of service provided" and was to review the fee schedules biennially. Ibid.

In 1990, the Fair Automobile Insurance Reform Act (FAIRA) was enacted to reform the motor vehicle insurance system to "achieve economy and lower insurance costs." In re Failure to Transmit, supra, 336 N.J.Super. at 256, 764 A.2d 494; L. 1990, c. 8. As part of the reform, N.J.S.A. 39:6A-4 was amended to require, among other things, that the PIP reimbursement rates established within the fee schedule "incorporate the reasonable and prevailing fees of 75% of practitioners within the region." L. 1990, c. 8, § 7. If there were fewer than fifty specialists within a region, the fee schedule would "incorporate the reasonable and prevailing fees of the specialist providers on a statewide basis." Ibid. The law still required that the Commissioner review the schedules biennially. Ibid. FAIRA also prohibited health care providers from demanding or requesting any payment in excess of those permitted in the fee schedules. Ibid.

In 1997, the Legislature amended N.J.S.A. 39:6A-4.6. L. 1997, c. 151, § 33. The new law stated that "the Commissioner may contract with a proprietary purveyor of fee schedules for the maintenance of the fee schedule, which shall be adjusted biennially for inflation and for the addition of new medical procedures." Ibid. Additionally, the new law provided:

The fee schedule may provide for reimbursement for appropriate services on the basis of a diagnostic related (DRG)[²] payment by diagnostic code where appropriate, and may establish the use of a single fee, rather than an unbundled fee, for a group of services if those services are commonly provided together. In the case of multiple procedures performed simultaneously, the fee schedule and regulations promulgated pursuant thereto may also provide for a standard fee for a primary procedure, and proportional reductions in the cost of the additional procedures.

[Ibid.]

In 1998, the Legislature passed the Automobile Insurance Cost Reduction Act (AICRA), N.J.S.A. 39:6A-1 to -35, which was a further attempt to "preserve the no-fault system" and "reduc[e] unnecessary costs." N.J.S.A. 39:6A-1.1(b). Under N.J.S.A. 39:6A-1.2, the Commissioner was given the power to "promulgate any rules and regulations ... deemed necessary in order to effectuate the provisions of this amendatory and supplementary act."

The first PIP physicians' fee schedule was adopted in January 1991, under N.J.A.C. 11:3-29. 23 N.J.R. 536 (Feb. 19, 1991). It listed 1,100 medical procedures identified by Current Procedural Terminology (CPT) codes. 23 N.J.R. 539-71 (Feb. 19, 1991). The reimbursement fees were ceilings; if the provider's usual, customary, and reasonable (UCR) fee was less than the ceiling, the provider had no right to the higher fee set forth in the fee schedule. N.J.A.C. 11:3-29.4(a). An insurer's obligation to pay for any service or equipment not listed on the fee schedule was not to exceed "the [provider's] usual, customary and reasonable fee." N.J.A.C. 11:3-29.4(a). See Cobo, supra, 293 N.J.Super. at 384-85, 680 A.2d 1103.

Several adjustments were made over the next nine years. See 25 N.J.R. 3466 (Aug. 2, 1993), 28 N.J.R. 3962 (Aug. 19, 1996), and 29 N.J.R. 887 (March 17, 1997). In 1997, after the law was changed to allow the Commissioner to "`contract with a proprietary purveyor of fee schedules,'" the Department contracted with Ingenix to revise the fee schedule. 32 N.J.R. 4332(a) (Dec. 18, 2000). "Ingenix assembled New Jersey specific data from both proprietary and public data bases of billed and charged fees to develop the new proposed fee schedules." Ibid.

In December 2000, the Department proposed changes that represented a shift in policy. Up until that time, the fee schedule was based on data regarding "`billed' fees, that [was], the fee charged or set forth on the bill by providers and submitted to health insurers (and ultimately reported by them to commercial compilers of health care fee data)." Ibid. The fee schedules "were created as a statistical reflection of this billed fee data at the 75th percentile ...." Ibid.

The Department noted that during the years the fee schedules had been in effect, it had "become apparent" that there was "an increasing difference between fees billed by health care providers and the fees actually accepted by them as payment for services rendered." Ibid. The Department noted that the amount charged on the Explanation of Benefits (EOB) form was "almost always higher than the payment to the provider by the health benefit carrier." Ibid.

The Department attributed the difference between the billed fees and the paid fees to "several causes...