(Photo: Carmen Natale/New Jersey Law Journal)

Lawyers squared off before the New Jersey Supreme Court on Tuesday over whether Horizon Blue Cross Blue Shield, the state’s largest health insurer, can proceed with its planned rollout of its two-tiered Omnia Health Alliance Insurance Plan.

The court had agreed to hear an appeal from a group of hospitals that had been relegated to Tier 2 under the plan. Horizon’s plan offers lower premiums and deductibles to patients who use Tier 1-designated hospitals.

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The Tier 2 hospitals are seeking discovery of Horizon’s consultant’s evaluation of which hospitals should be designated as Tier 1 or Tier 2, and how the designations would affect the transfer of business to Tier 1 hospitals.

Lawyers representing the Tier 2 hospitals complained that Horizon has kept its selection criteria secret and has moved to squeeze smaller hospitals out of the market in favor of larger, regional hospitals.

“We are against a closed, secretive system that decides which hospitals survive,” said Michael Furey, who represents three would-be Tier 2 hospitals—CentraState Medical Center in Freehold, Holy Name Medical Center in Teaneck and The Valley Hospital in Ridgewood. The plan is “designed to favor the largest hospitals in the state.”

“Are you hoping to show this was all fixed?” asked Justice Barry Albin.

“That’s correct,” said Furey, of the Parsippany office of Day Pitney. “This was not a good-faith evaluation.”

Jeffrey Greenbaum, the attorney for another Tier 2 hospital, St. Peter’s University Hospital in New Brunswick, suggested that the case should not be before the Supreme Court at this moment.

“Why are we at the Supreme Court for a discovery dispute?” said Greenbaum, of Sills Cummis & Gross in Newark. “We normally defer to the trial courts and their sound discretion.”

In this case, trial judges had ordered wide-ranging discovery, but the Appellate Division reversed in its published decision.

“The appellate division erred in fundamentally changing the standard of discovery,” Greenbaum said.

As to the objections to the Omnia plan itself, Greenbaum said there already is evidence that patients are saying they don’t want to go to St. Peter’s because they cannot afford the higher copayments.

And, he alleged, Horizon has been telling doctors that they need to refer more patients to Tier 1 hospitals if they want to remain in the network.

Another of St. Peter’s attorneys, Dennis Drasco, said the trial judges had conducted proper relevance and balancing tests, and determined that the documents should be subject to discovery, provided that there were protective orders to ensure that proprietary information was kept confidential.

The Tier 2 hospitals need documents from Horizon because they need to examine the criteria Horizon used to designate hospitals as Tier 1 or Tier 2, he said.

“This is a bad-faith case,” said Drasco, of Lum, Drasco & Positan.

Horizon’s attorney, Michael Kassak, said it was vital that the documents the Tier 2 hospitals are seeking remain confidential and not subject to discovery.

“They involve new products and new strategies,” said Kassak, of White and Williams in Cherry Hill.

In an effort to combat rising health care costs, Horizon is entering into agreements with multiple hospitals that set varying rates of compensation, and discovery would violate its right to maintain proprietary information.

“The appellate division applied a long-standing balancing test,” Kassak said. “The documents have nothing to do with why they were not chosen” to be in Tier 1.

“You have to take into account the extreme sensitivity of this information,” he said.

Even protective orders would be insufficient since the information would necessarily have to be shared with officials at various plaintiff hospitals, and “there is a tendency in this industry to move around,” Kassak said.

Those officials, who may have moved to other hospitals, “would still be able to use what they know. You can’t unlearn what you know,” he said.

Edwin Chociey Jr. represented Hackensack University Health Network and Inspira Health Network, and he agreed with Kassak.

There is hospital-specific information in those documents which must remain secret, said Chociey, of Morristown’s Riker Danzig Scherer Hyland & Perretti. “This is highly sensitive proprietary information,” he said.

William Maderer, representing Tier 1 Robert Wood Johnson University Hospital, also agreed.

The documents contain rate information and professional relationships with other insurers that should not be made available to its competitors, said Maderer, of Saiber LLC in Florham Park.

The Tier 2 plaintiffs are seeking to overturn a ruling by the state Department of Banking and Insurance approving the Omnia plan.

The challengers have argued that the DOBI failed to consider whether Horizon’s proposal would serve the public interest and complained that the tiering decision process was not transparent.

— Check out N.J. Blue Cuts 2 Hospitals From Networkon ThinkAdvisor.