SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-6787-00T2
IN THE MATTER OF THE
COMMISSIONER'S FAILURE TO
ADOPT 861 CPT CODES AND TO
PROMULGATE HOSPITAL AND
DENTAL FEE SCHEDULES.
______________________________
Argued: January 15, 2003 - Decided: March 7,
2003
Before Judges King, Wecker and Lisa.
On appeal from the New Jersey Department of
Banking and Insurance, Division of Insurance.
Susan Stryker argued the cause for appellant
American Insurance Association (Ms. Stryker
and Mitchell A. Livingston, on the brief).
Doreen J. Piligian, Deputy Attorney General,
argued the cause for New Jersey Department of
Banking and Insurance (David Samson, Attorney
General of New Jersey, attorney; Patrick
DeAlmeida, Deputy Attorney General, of
counsel; Ms. Piligian and Karyn G. Gordon,
Deputy Attorney General, on the brief).
The opinion of the court was delivered by
KING, P.J.A.D.
In this case, American Insurance Association (AIA), a national
insurance trade association of property and casualty insurance
companies licensed to do business in every state, appeals from the
adoption of a physicians' fee schedule by the Commissioner of
Banking and Insurance (Commissioner), N.J.A.C. 11:3-29 Appendix
(Exhibit 1), and from the failure to adopt a hospital fee schedule.
AIA appeals on behalf of its member insurers writing private
passenger automobile insurance in New Jersey. AIA contends that by
adopting a fee schedule for benefits payable under personal injury
protection (PIP) laws which included only 92 Current Procedural
Terminology (CPT) codes, after having proposed 953 codes, the
Commissioner violated the Administrative Procedures Act (APA),
N.J.S.A. 52:14B-1 to -25. AIA contends that the rule adoption
should be invalidated because it departed substantially from the
rule proposal. AIA also contends that the Commissioner failed to
promulgate 861 additional CPT codes and to promulgate a hospital
fee schedule, as required by N.J.S.A. 39:6A-4.6. We reverse the
adoption of the Appendix, Exhibit 1, because of deficient notice
and substantial deviation from the rule proposal. We remand to the
agency for reproposal.
On December 18, 2000, pursuant to N.J.S.A. 39:6A-4.6(a), the Department of Banking and Insurance (Department) published proposed new rule N.J.A.C. 11:3-29 Appendix, Exhibits 1 through 5; proposed repeal of N.J.A.C. 11:3-29.6; and proposed amendments N.J.A.C. 11:3-29.1, -29.2, -29.3, -29.4 and -29.5. 32 N.J.R. 4332 (a) (December 18, 2000). The proposal set forth medical fee schedules for automobile insurance PIP and motor bus medical expense insurance coverage, including a physicians' fee schedule (Exhibit 1), a home care services fee schedule (Exhibit 3), an ambulance services fee schedule (Exhibit 4), and a schedule for durable medical equipment and prosthetic devices (Exhibit 5). 32 N.J.R. at 4333, 4337-77. Exhibit 2, a dental fee schedule, was reserved. There was no proposed hospital fee schedule. Id. at 4357.
N.J.S.A. 39:6A-4.6 provides:
a. The Commissioner of Banking and Insurance
shall, within 90 days after the effective date
of P.L.1990, c. 8 (C.17:33B-1 et al.),
promulgate medical fee schedules on a regional
basis for the reimbursement of health care
providers providing services or equipment for
medical expense benefits for which payment is
to be made by an automobile insurer under
personal injury protection coverage pursuant
to P.L.1972, c. 70 (C.39:6A-1 et seq.), or by
an insurer under medical expense benefits
coverage pursuant to section 2 of P.L.1991, c.
154 (C.17:28-1.6). These fee schedules shall
be promulgated on the basis of the type of
service provided, and shall incorporate the
reasonable and prevailing fees of 75% of the
practitioners within the region. If, in the
case of a specialist provider, there are fewer
than 50 specialists within a region, the fee
schedule shall incorporate the reasonable and
prevailing fees of the specialist providers on
a Statewide basis. 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.
b. The fee schedule may provide for
reimbursement for appropriate services on the
basis of a diagnostic-related (DRG) 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.
c. No health care provider may demand or
request any payment from any person in excess
of those permitted by the medical fee
schedules established pursuant to this
section, nor shall any person be liable to any
health care provider for any amount of money
which results from the charging of fees in
excess of those permitted by the medical fee
schedules established pursuant to this
section.
In the Medicaid context, DRGs (Diagnosis Related Groupings) are
described as "specified diagnostic categories for which hospitals
receive a predetermined fixed amount for inpatient services."
Atlantic City Med. Ctr. v. Squarrell,
349 N.J. Super. 16, 22 (App.
Div. 2002).
According to the Department summary, the proposal increased
the number of CPT codes for physicians' services from 746 to 953,
and implemented the requirement of N.J.S.A. 39:6A-4.6 to
"incorporate the reasonable and prevailing fees of 75% of the
practitioners" within a region.
32 N.J.R. 4332 (a), 4333 (December
18, 2000). In accordance with a 1997 amendment to N.J.S.A. 39:6A-
4.6(a), the Department had contracted with a proprietary purveyor
of fee schedules to develop the new schedule. Ibid. Although the
fee schedule adopted in 1990 had been based on billed fees .. the
charges set forth on the bills submitted to health insurers .. the
revised fee schedules were based on paid fees .. the amounts
actually paid as reimbursements to providers. Ibid. This change
reflected the increasing disparity between billed fees and paid
fees. Ibid.
On January 25, 2001 the Department held a hearing to receive
public comments.
33 N.J.R. 1590(a) (May 21, 2001). On May 21,
2001 the Commissioner adopted these portions of the proposal:
textual amendments to N.J.A.C. 11:3-29.1, -29.2, -29.4 and -29.5,
and the repeal of N.J.A.C. 11:3-29.6(b). Id. at 1596.
On June 22, 2001, effective July 16, 2001, the Commissioner
adopted the final portion: amendments N.J.A.C. 11:3-29.3 and -29.4
(remaining part); repeal of N.J.A.C. 11:3-29.6 (remaining part);
and new rules N.J.A.C. 11:3-29 Appendix, Exhibits 1, 3, 4 and 5.
33 N.J.R. 2507(a) (July 16, 2001). In contrast to the proposal to
increase the number of CPT codes for physicians' services from 746
to 953, the adoption set forth in Exhibit 1 listed just 92 CPT
codes, setting the limit of an insurer's liability for the
remaining 861 proposed codes at the providers' usual, reasonable
and customary fee. The Department explained this dramatic
quantitative departure from the proposal this way:
The physicians' fees adopted cover the CPT
codes that are the most commonly used for
treatment of auto accident injuries and
represent approximately 85 percent of all
codes billed for PIP reimbursement. For those
CPT codes that are no longer on the fee
schedule, the insurer's limit of liability is
the providers' usual, reasonable and customary
fee as provided at N.J.A.C. 11:3-29.4(e).
The Department has reviewed the frequency that
[sic] individual CPT codes are billed for PIP
reimbursement and has determined that by
adoption of a physicians' fee schedule at this
time that contains the 92 most commonly used
CPT codes, the Department is minimizing the
regulatory burden while carrying out the cost
containment objectives of the Automobile
Insurance Cost Reduction Act of 1998
("AICRA").
[
33 N.J.R. 2507(a), 2507 (July 16, 2001).]
The Department asserted that the filing was made " with substantive
and technical changes not requiring additional public notice and
comment (see N.J.A.C. 1:30-6.3)." Id. at 2507.
On August 22, 2001 AIA filed an appeal from the final
adoption, R. 2:2-3(a)(2), and sought a court order for the
Commissioner to adopt the remaining proposed CPT codes for the
physicians' fee schedule and to adopt fee schedules for all medical
expenses reimbursable under PIP, including hospital and dental
expenses. The dental fee schedule was later adopted.
34 N.J.R. 1032(a) (March 4, 2002). That aspect of this appeal is moot. On
September 24 and November 1, 2001 we denied AIA's motions for a
stay and for summary disposition.
This appeal presents two issues:
I. DID THE COMMISSIONER VIOLATE THE APA
AND DUE PROCESS BY ADOPTING A RULE
THAT DEPARTED SUBSTANTIALLY AND
SUBSTANTIVELY FROM THE RULE
PROPOSAL?
II. DID THE COMMISSIONER VIOLATE
N.J.S.A. 39:6A-4.6 BY FAILING TO
ADOPT MEDICAL FEE SCHEDULES
ADDRESSING ALL MEDICAL EXPENSE
BENEFITS PAYABLE UNDER PIP,
INCLUDING HOSPITAL FEE SCHEDULES?
AIA first contends that the adoption of Appendix Exhibit 1 violated the APA and fundamental principles of due process because the adoption departed substantially and substantively from the proposed Exhibit 1. The Department responds that reproposal was not required under N.J.A.C. 1:30-6.3(a), because the changes to Exhibit 1 were not significant. We agree with AIA.
The APA requires that an agency, before adopting, amending or repealing a rule, "[a]fford all interested persons reasonable opportunity to submit data, views or arguments, orally or in writing." N.J.S.A. 52:14B-4(a)(3). The purpose of the APA guidelines is "to give those affected by the proposed rule an opportunity to participate in the rule-making process not just as a matter of fairness but also as 'a means of informing regulators of possibly unanticipated dimensions of a contemplated rule.'" Matter of Adoption of Regulations Governing Volatile Organic Substances, 239 N.J. Super. 407, 411 (App. Div. 1990) (quoting Am. Employers' Ins. Co. v. Comm'r of Ins., 236 N.J. Super. 428, 434 (App. Div. 1989)). See generally 37 New Jersey Practice, Administrative Law and Practice § 3.13 at 120 (Lefelt, Miragliotta and Prunty (2d ed. 2000) ("Lefelt") ("Rule Changes Upon Adoption"). AIA also points to constitutional guarantees of due process but impliedly concedes that compliance with the APA satisfies the constitutional standard.
The codified rules for agency rulemaking describe the circumstances in which changes in a proposed rule require new notice and opportunity to be heard before promulgation:
Variance between the rule as proposed and as
adopted
(a) Where, following the notice of proposal,
an agency determines to make changes in the
proposed rule which are so substantial that
the changes effectively destroy the value of
the original notice, the agency shall give a
new notice of proposal and public opportunity
to be heard.
(b) In determining whether the changes in the
proposed rule are so substantial,
consideration shall be given to the extent
that the changes:
1. Enlarge or curtail who and what will be
affected by the proposed rule;
2. Change what is being prescribed, proscribed
or otherwise mandated by the rule;
3. Enlarge or curtail the scope of the
proposed rule and its burden on those affected
by it.
(c) Where the changes between the rule as
proposed and as adopted are not substantial,
the changes shall not prevent the adopted rule
from being accepted for filing. Changes which
are not substantial include:
1. Spelling, punctuation, technical, and
grammatical corrections;
2. Language or other changes, whose purpose
and effect is to clarify the proposal or
correct printing errors; and
3. Minor substantive changes which do not
significantly enlarge or curtail the scope of
the rule and its burden, enlarge or curtail
who or what will be affected by the rule, or
change what is being prescribed, proscribed or
mandated by the rule.
[N.J.A.C. 1:30-6.3.]
According to AIA, the rule, as proposed, was welcomed by it
and its member insurers because the 953 codes in Exhibit 1
represented an increase from 746 codes and an articulation of
covered procedures. The 92 CPT codes actually adopted, in
contrast, represented a drastic decrease in number, more than 85%.
AIA claims that the regulated community was deprived of the
opportunity to contest the Department's contention that the rules
as adopted represent the significant majority of costs and
procedures incurred by PIP providers (about 85%) and eased the
regulatory burden.
As noted, the Department admits that the adoption was made
with substantive, as well as technical changes, but asserts that,
under N.J.A.C. 1:30-6.3, the changes did not require additional
public notice and comment.
33 N.J.R. 2507(1), 2507 (July 16,
2001). The Department now contends that the substantive changes
fell into the exception set forth in N.J.A.C. 1:30-6.3(c)(3)
because they were minor and did not significantly enlarge or
curtail either the scope of the rule and its burden or the things
or persons affected, nor did they change what was prescribed,
proscribed or mandated.
The Department distinguishes this case factually from Matter
of Adoption of Regulations Governing Volatile Organic Substances,
239 N.J. Super. at 414. There, we found that the changes "struck
at the heart" of a proposed Department of Environmental Protection
(DEP) rule and destroyed the value of the original notice. Ibid.
In Volatile Organic Substances, the rule as adopted reduced the
intended regulatory efficacy by dramatically lessening the
projections of the DEP for reduction of volatile organic substances
(VOS) tonnage. It also narrowed the scope, because the adoption
was limited to only four consumer products out of the broad
chemical consumer market originally targeted, thus eliminating
industry-wide incentives for reformulation. Id. at 413.
In contrast, in Matter of Adoption of N.J.A.C. 9A:10-7.8(b),
327 N.J. Super. 149, 158 (App. Div. 2000), we found that reproposal
was not required where the Higher Education Assistance Authority
(Authority), in response to comments, changed a proposed rule
governing the treatment of individual trust accounts established
under the 1997 New Jersey Better Education Saving Trust Act
(NJBEST). N.J.S.A. 18A:71B-35 to -46. We observed that too
restrictive a construction of the principles of N.J.A.C. 1:30-4.3,
since recodified at subsection -6.3, would discourage an agency
from making changes in response to comments. Id. at 155. We found
that the changes constituted clarification, and did not destroy the
value of the original notice. Id. at 157.
The initial proposal provided for an application fee of no
more than $100, reasonable administrative fees, investment fees and
service charges, and an investment fee and service charge not to
exceed four percent of the earnings of the trust. The Authority
responded to a comment by clarifying that there would be an annual
account maintenance fee and an annual investment fee and service
charge. Id. at 153. The Authority then consulted the Office of
Administrative Law (OAL), asked whether reproposal was required,
and was advised that it was not. Ibid. The Authority adopted a
$15 annual account maintenance fee and annual investment fees and
service charges of one percent of the earnings of the trust, or
actual earnings if earnings are less than one percent. Id. at 156-
57. The original commenter challenged the rule adoption, arguing
primarily that the Authority first proposed fees and charges based
on earnings, but then adopted fees and charges based on a
percentage of assets or investment yield. Id. at 157. We found
the advice of the OAL significant and held there was no substantial
change in the method of calculating the fees and charges. Id. at
157-58. We did not require reproposal.
The Department does not here contend that it sought or
received advice from the OAL. It contends that the reduction from
953 codes to 92 codes did not alter either the application of the
rule or its burden. The Department contends that the rule as
adopted contained the treatment codes which represented 85% of all
codes billed for PIP reimbursement; no new codes were added, and no
dollar amounts changed. Moreover, though many fewer codes were
enumerated, for the remaining codes, the insurer's limit of
liability is the usual, customary and reasonable fee, as provided
in N.J.A.C. 11:3-29.4(e).See footnote 11 Thus, the Department claims there is no
danger of precipitous increases in costs, and the obligations of
the regulated community .. providers of PIP services and insurance
companies .. were neither enlarged nor curtailed by the change.
We find AIA's argument more persuasive. The reduction from
953 to 92 CPT codes was surely not minor, quantitatively speaking.
The magnitude of the change suggests that it was major and
substantive, substantial enough to destroy the value of the
original notice. N.J.A.C. 1:30-6.3(a). It did "[c]hange what
[was] being prescribed, proscribed or otherwise mandated by the
rule," and did "curtail the scope of the proposed rule and its
burden on those affected by it." N.J.A.C. 1:30-6.3(b)(2) and (3).
The rule as adopted not only eliminated more than 800 proposed CPT
codes, but repealed more than 600 of the CPT codes formerly in
effect.
The Department's response to us, that the procedures included
represent 85% of billing and that a sensible residual rule,
N.J.A.C. 11:3-29.4(e), covers the remaining procedures, actually
constitutes argument on the merits of the proposal. This was an
argument the challengers here were entitled to confront during the
comment period. As AIA contends, it lacked the opportunity to
counter those arguments and was misled by the original proposal.
We agree with AIA that this case is quite like Matter of Adoption
of Regulations Governing Volatile Organic Substances,
239 N.J.
Super. 407, and that the severe reduction in the number of CPT
codes destroyed the value of the original notice.
Where the standards of N.J.A.C. 1:30-6.3(a), facially applied,
demonstrate a rule adoption as a substantial change from the
proposal, to the extent that the changes destroyed the value of the
notice, republication is required. See In re Adopted Amendments
N.J.A.C. 7:15-8,
349 N.J. Super. 320, 327-31 (App. Div. 2002)
(requiring reproposal of DEP rule). Obviously, our ruling does not
pertain to the entire adoption, but only to the adoption of Exhibit
1. We hold that reproposal of the rule is necessary for that
portion only; we reverse and remand for new notice and public
hearing.
We do not void the present rule for procedural irregularity.
The present system should remain in effect pending agency action.
See Lefelt, § 3.14 at 124 ("Curative Remand of Invalid Rules"); see
also K.P. v. Albanese,
204 N.J. Super. 166, 180 (App. Div.),
certif. denied,
102 N.J. 355 (1985). A regulatory void would serve
no purpose and invite disorder.
AIA next argues that the Department, by addressing only a small percentage of the medical expenses reimbursable under PIP and not adopting a hospital fee schedule, failed to follow the directives of N.J.S.A. 39:6A-4.6. The Department responds that its decision represents an exercise of sound discretion.
We repeat the pertinent part of N.J.S.A. 39:6A-4.6(a):
The Commissioner of Banking and Insurance
shall, within 90 days after the effective date
of P.L.1990, c. 8 (C.17:33B-1 et al.),
promulgate medical fee schedules on a regional
basis for the reimbursement of health care
providers providing services or equipment for
medical expense benefits for which payment is
to be made by an automobile insurer under
personal injury protection coverage pursuant
to P.L.1972, c. 70 (C.39:6A-1 et seq.), or by
an insurer under medical expense benefits
coverage pursuant to section 2 of P.L.1991, c.
154 (C.17:28-1.6). These fee schedules shall
be promulgated on the basis of the type of
service provided, and shall incorporate the
reasonable and prevailing fees of 75% of the
practitioners within the region.
AIA asks us, based on this statutory mandate, to direct the
Commissioner to develop medical fee schedules for all medical
expenses reimbursable under PIP, including hospital fees.
The Legislature enacted N.J.S.A. 39:6A-4.6 in 1988 as a cost
containment measure. Matter of Failure by Dep't of Banking and
Ins.,
336 N.J. Super. 253, 256 (App. Div. 2001). In its original
version, the statute required the Commissioner to promulgate
medical fee schedules on a regional basis for PIP reimbursement to
health care providers, based on the type of service provided. L.
1988, c. 119, § 10. The Fair Automobile Insurance Reform Act of
1990 (FAIR Act), N.J.S.A. 17:33B-1 to -64, which revised the motor
vehicle insurance laws with the goal of lowering insurance costs,
included an amendment to N.J.S.A. 39:6A-4.6. 336 N.J. Super. at
256; L. 1990, c. 8, § 7. The FAIR Act added the requirements in
subsection (a) that the reimbursement rates "incorporate the
reasonable and prevailing fees of 75% of the practitioners" within
the region, and that the fee schedule be reviewed biennially by the
Commissioner; it also prohibited health care providers from
demanding or requesting any payment in excess of that permitted by
the fee schedule (now subsection c). 336 N.J. Super. at 256-57; L.
1990, c. 8, § 7.
In 1997, the Legislature again amended N.J.S.A. 39:6A-4.6,
authorizing the Commissioner in subsection (a) to "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"; it also added the
current subsection (b). 336 N.J. Super. at 257; L. 1990, c. 8, §
7. The Automobile Insurance Cost Reduction Act of 1998 (AICRA),
L. 1998, c. 21 and c. 22, which mandated rate rollbacks, authorized
the Department to adopt regulations defining standard treatment
protocols and diagnostic tests and services reimbursed under PIP
policies. 336 N.J. Super. at 258. Those regulations, N.J.A.C.
11:3-4, were adopted in December 1998. Ibid. "AICRA intended to
reduce costs to the insurance system by reducing unnecessary
insurance company expenses." Ibid.
The customary method for review of agency action or inaction
is direct appeal to the Appellate Division. Matter of Failure, 336
N.J. Super. at 261. The exceptional remedy of "[m]andamus is
usually appropriate only where the right to performance of a
ministerial duty is clear and certain." Id. at 262. Mandamus may
compel the exercise of a discretionary function, but it may not be
used to control the exercise of discretion. Ibid. An agency has
broad discretion in deciding how to accomplish tasks assigned by
the Legislature. Ibid.
This court will overturn an administrative determination only
if it was arbitrary, capricious, unreasonable, or violated express
or implied legislative policies. Id. at 263 (citing Campbell v.
Dep't of Civil Serv.,
39 N.J. 556, 562 (1963)). This court allows
substantial deference to the interpretation of the agency charged
with enforcing an act. New Jersey Tpk. Auth. v. Amer. Fed. of
State, Cty. and Mun. Employees,
150 N.J. 331, 351 (1997).
Particularly in the insurance field, the expertise and judgment of
the Commissioner may be allowed great weight. Matter of Aetna Cas.
and Sur. Co.,
248 N.J. Super. 367, 376 (App. Div.), certif. denied,
126 N.J. 385 (1991), certif. denied,
502 U.S. 1121,
112 S. Ct. 1244,
117 L. Ed.2d 476 (1992). We will overturn an agency's
interpretation of a statute it implements only when it is "plainly
unreasonable." Merin v. Maglaki,
126 N.J. 430, 437 (1992). The
party challenging agency action bears the burden of overcoming
these presumptions. Med. Soc'y of N.J. v. Div. of Consumer
Affairs,
120 N.J. 18, 25 (1990). The Department stresses that
the medical fee schedules established at N.J.A.C. 11:3-29 never
contained every possible treatment code, that the CPT codes enacted
represent 85% of all codes billed, and that the "usual, customary
and reasonable" fee standard satisfies the statutory cost-
containment objective. The agency also stresses that no hospital
fee schedule has ever existed, and that AIA did not object on this
basis in its public comments to the December 2000 rule proposal.
In the hospital fee situation, the agency told us at oral argument
that there have been "few disputes," the existing industry
standards are practical guidelines, and there is no need for a
schedule. The Department observed that AIA presents no evidence to
support its claim that the reduction in treatment code
designations, and consequent reliance on the "usual, customary, and
reasonable" standard, will result in higher expenses for insurers.
We agree with the Department that mandamus could not be used
to direct the adoption of a particular form of fee schedule, or the
inclusion of particular fees, such as hospital fees. This would be
an impermissible attempt to control the exercise of administrative
discretion. Matter of Failure, 336 N.J. Super. at 262. However,
in substance what AIA alleges here, particularly with respect to
the medical fee schedule, is that by adopting too few CPT codes,
the Department exercised its discretionary powers arbitrarily and
unreasonably. We agree with the AIA and find that reproposal is
necessary. This will allow for fair comment on the great reduction
in codes and refusal to promulgate a hospital fee schedule. If the
Department continues to decline to adopt a hospital fee schedule,
the reproposal should so specify. Articulated reasons then can be
given for this decision before new rules are issued or eschewed.
We reverse as to the adoption of Exhibit 1 because of defective notice, as discussed in II above. We do not reverse on the refusal to promulgate a hospital fee schedule. But we do conclude that the Department should give notice of its intention to decline to promulgate a hospital fee schedule, to allow the regulated community the ability to comment or make counter proposals.
Reversed and remanded.
Footnote: 1 1N.J.A.C. 11:3-29.4(e) states:
The insurer's limit of liability for any medical expense benefit for any service or equipment not set forth in or not covered by the fee schedules shall be a reasonable amount considering the fee schedule amount for similar services or equipment in the region where the service or equipment was provided or, in the case of elective services or equipment provided outside the State, the region in which the insured resides. Where the fee schedule does not contain a reference to similar services or equipment as set forth in the preceding sentence, the insurer's limit of liability for any medical expense benefit for any service or equipment not set forth in the fee schedules shall not exceed the usual, customary and reasonable fee.