October 3, 2011
Practice Group:
Health Care
Insurance Coverage
Bayonne Medical Center Wins Insurance
Fraud Case Against New Jersey’s Largest
Health Insurer
A New Jersey chancery court recently held that an out-of-network provider hospital’s open and
published policy of waiving patient deductibles, coinsurance and other patient cost sharing amounts is
not unlawful. As a result, the chancery court dismissed claims for fraud, concealment, negligent
misrepresentation and tortious interference asserted by New Jersey’s largest private health insurer,
Horizon Blue Cross Blue Shield of New Jersey (“Horizon”), against an out-of-network community
hospital located in the City of Bayonne.
In January 2008, Bayonne Medical Center was purchased in bankruptcy by a privately held for-profit
entity. Bayonne Medical Center, now under new ownership, immediately attempted to negotiate
reimbursement rates with its various insurers, including Horizon. Bayonne Medical Center sought
rates that would allow it to sustain itself and avoid the same financial fate of the hospital’s prior
owners. When these negotiations failed, Bayonne Medical Center terminated its in-network
commercial insurance agreements and became an out-of-network provider. As part of this move outof-network, Bayonne Medical Center began to publicly advertise that it did not intend to collect
patient deductibles, coinsurance and other patient cost sharing amounts if insurers paid Bayonne
Medical Center what they were obligated to pay under the law. Bayonne Medical Center later
discontinued this billing policy in September 2009.
Bayonne Medical Center contends that it went to great lengths to publicize the nature of its former
billing policy, taking out advertisements in local papers and sending letters to patients. Bayonne
Medical Center even printed a statement informing health insurers of this policy on the industry
standard reimbursement claim form, known as the UB-04 claim form.
On May 13, 2009, Horizon filed suit against Bayonne Medical Center alleging various fraud claims,
including allegations that Bayonne Medical Center’s former billing policy constituted insurance fraud
and concealment under New Jersey’s Insurance Fraud Prevention Act. Horizon also asserted claims
against Bayonne Medical Center for common law fraud, negligent misrepresentation and tortious
interference. Horizon alleged that Bayonne Medical Center’s charges submitted to Horizon via the
UB-04 form were fraudulent because those charges contained patient cost sharing amounts that
Bayonne Medical Center did not intend to collect from its patients. In other words, Horizon
maintained that Bayonne Medical Center’s former billing policy required the hospital to submit
charges net of patient coinsurance and deductibles, not the hospital’s total charges. Horizon
maintained these allegations even after Bayonne Medical Center changed its billing policy in
September 2009.
After engaging in discovery, the parties cross-moved for summary judgment. Bayonne Medical
Center argued, among other things, that Horizon’s fraud allegations were belied by the plain language
of the standard UB-04 claim form, which merely asks providers to set forth their “Total Charges.”
The hospital emphasized that the UB-04 form neither asks a provider to set forth what it intends to
collect from patients nor does it even contain a category within which a provider could list
information regarding coinsurance, deductibles and other patient cost sharing amounts. As a result,
Bayonne Medical Center Wins Insurance Fraud Case
Against New Jersey’s Largest Health Insurer
Bayonne Medical Center argued that its completed UB-04 claim forms submitted to Horizon neither
misrepresented patient cost sharing amounts nor represented that these amounts have been or will be
collected.
What is more, Bayonne Medical Center argued that it could not have known at the time it submitted
the UB-04 claim forms the amount of coinsurance, deductibles or other patient responsibility for a
given patient. The hospital contended that this is information that was uniquely within Horizon’s
possession at the time that Bayonne Medical Center submitted its UB-04 forms.
On August 12, 2011, Essex County Judge Harriet Farber Klein, J.S.C. granted summary judgment in
Bayonne Medical Center’s favor and denied Horizon’s cross-motion. Judge Klein dismissed all of
Horizon’s claims under the New Jersey Insurance Fraud Prevention Act, for common law fraud,
negligent misrepresentation, and tortious interference, with prejudice. Judge Klein agreed with
Bayonne Medical Center that its charges submitted to Horizon via the UB-04 claim form were not
false or misleading in any way. She stated that the UB-04 form only asks a provider to set forth its
“Total Charges.” Judge Klein noted that this is an objective question contained in an industry
standard form that Bayonne Medical Center answered truthfully by setting forth its total charges.
Judge Klein concluded that the submission of total charges by Bayonne Medical Center in the context
of its announced former billing policy did not make its submitted charges false or misleading.
Judge Klein further agreed with Bayonne Medical Center that it could not have submitted its charges
to Horizon net of any coinsurance or deductible, as Horizon argued it should have, because hospitals
do not have access to such benefit plan terms and, therefore, cannot submit net charges with any
definitiveness.
The court further held that Horizon could not demonstrate that Bayonne Medical Center knowingly
made a false statement, which was also an essential element of Horizon’s fraud claims. Judge Klein
reasoned that there was no law, regulation, directive, caution or warning from any authority or agency
that apprised Bayonne Medical Center that its former billing policy was in any way unlawful or
wrong. As a result, Bayonne Medical Center could not have knowingly made any false statement as
required by the New Jersey Insurance Fraud Prevention Act and common law fraud.
Lastly, Judge Klein dismissed Horizon’s concealment claim under the New Jersey Insurance Fraud
Prevention Act, finding that Horizon actually knew of Bayonne Medical Center’s former billing
policy for a long period of time despite Horizon’s claims to the contrary.
Judge Klein’s result reaffirms that there is no law in New Jersey prohibiting out-of-network hospitals
in New Jersey from waiving coinsurance, deductibles and patient responsibility for the out-of-network
services they provide to their commercially insured patients. It strikes another blow against insurers
that have sought to use the courts as a means of preventing New Jersey hospitals from engaging in a
practice that the legislature and regulators have not seen fit to prohibit.1 Under Judge Klein’s ruling, a
New Jersey hospital’s widely disseminated policy of waiving patient responsibility will not, in and of
itself, amount to insurance fraud.
Of course, given out-of-network hospitals’ often complex relationships with their commercial
insurance carriers, hospitals that choose to have waiver policies must proceed with caution. Counsel
should be involved in both the drafting and implementation of such policies to help ensure that a
1
In 2010, a bill was introduced in the New Jersey Senate and Assembly that would have prohibited the waiver of patient
responsibility and established the practice as a form of insurance fraud in violation of the New Jersey Insurance Fraud
th
th
Prevention Act. S-1753, 214 Legis., § 4 (introduced Mar. 11, 2010); A-2511, 214 Legis., § 4 (introduced Mar. 16,
2010). The legislature has taken no action on this bill since its introduction over one year ago.
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Bayonne Medical Center Wins Insurance Fraud Case
Against New Jersey’s Largest Health Insurer
waiver policy will survive legal scrutiny in the face of the ever changing legal landscape in New
Jersey.
The case is Horizon Blue Cross Blue Shield of New Jersey v. IJKG, LLC, et al., Case No. C-125-09,
in the New Jersey Superior Court, Essex County, Chancery Division.
Bayonne Medical Center is represented by Anthony P. La Rocco, Mark D. Marino, George P.
Barbatsuly, Andrew S. Zimmerman, and Stephen A. Timoni of K&L Gates LLP.
Authors:
George P. Barbatsuly
george.barbatsuly@klgates.com
+1.973.848.4104
Anthony P. La Rocco
anthony.larocco@klgates.com
+1.973.848.4014
Mark D. Marino
mark.marino@klgates.com
+1.973.848.4013
Stephen A. Timoni
stephen.timoni@klgates.com
+1.973.848.4020
Andrew S. Zimmerman
andrew.zimmerman@klgates.com
+1.973.848.4140
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