United-Oxford merger still facing legal challenge

A state medical society trying to freeze Oxford's buyout in its tracks will argue its case in a New Jersey appellate court.

By Robert Kazel — Posted Sept. 27, 2004

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A judge refused UnitedHealth Group's request to dismiss a lawsuit filed by the Medical Society of New Jersey, which seeks to undo the company's multibillion-dollar merger with Oxford Health Plans.

For the Medical Society of New Jersey, the refusal to dismiss represents the first success in a case based on obscure state law that seemingly allows any "aggrieved" party to challenge a regulatory decision.

The law is so obscure, said Steve Kern, the society's lawyer, it's never been used in its 34 years on the books -- until Aug. 2. That's when the society cited it in its lawsuit against United, Oxford and the New Jersey Dept. of Banking and Insurance. The suit was filed three days after the department became the final regulatory authority necessary to approve the merger.

United says it is fighting the lawsuit and that the society's reliance on a law the health plan says violates New Jersey's constitution. United also disputes the medical society's notion that the lawsuit has legally stopped its merger with Oxford.

The New Jersey state law in question permits persons unhappy with an administrative agency's regulatory decision on insurers to seek help from a superior court judge.

The law provides that "any person aggrieved" by such an action can ask the court to reconsider an agency's decision in a trial.

In its case, the Medical Society of New Jersey argues that the state's Dept. of Banking and Insurance inadequately considered the effects a takeover of Trumbull, Conn.-based Oxford by Minnetonka, Minn.-based United would have on patients, doctors and competition among health plans. The department did its review of the United-Oxford deal in three days, which the doctors said was too little time for an adequate job.

Furthermore, the law appears to state that the administrative decision in contention automatically would be stayed pending a judge's decision on whether to hold a trial, Kern said. As the medical society sees it, such a stay puts the approval of the Oxford takeover on ice.

United disagrees. Spokesman Mark Lindsay said the medical society should have acted before the regulatory process in New Jersey closed.

"The deal was completed," Lindsay said. "You can't stay something that's already happened. ... They're [trying to] unravel a merger that's already been approved by everyone on God's green earth. That's just not going to happen.

"Look up Oxford on the New York Stock Exchange," he said. "It's no longer there. It's done -- it's not me saying it."

Following her refusal to grant United's motion to dismiss, Mercer County Superior Court Judge Linda Feinberg in early September sent the case to a multijudge appellate court panel.

The medical society is hoping the appellate court will send the case back to a trial judge, where the group would have the opportunity to present evidence and witnesses to make a case for the scuttling of the acquisition, Kern said. "This is an odd statute," he said. "We are making the law as we go on in this case."

The medical society likely will ask the appellate court to declare that United and Oxford consummated their union illegally, in spite of the filing of the physicians' lawsuit under the state statute, Kern said.

United is arguing that the medical society is applying the statute incorrectly and also might argue that the statute is unconstitutional -- that New Jersey courts do not have the power to second-guess the regulatory decisions of executive agencies.

The judge's decision to let the case proceed to the appellate court is evidence that the medical society's arguments have passed their first hurdle, said AMA President John C. Nelson, MD, MPH. The Association had urged state and federal officials to investigate the apparent anticompetitive nature of an Oxford acquisition before ruling on the deal.

"A merger that impacts so many New Jersey patients calls for a thorough and meticulous assessment, and allowing the [society] challenge to proceed before the appellate court is critical to this assessment," Dr. Nelson said.

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The strategy

The 1970 New Jersey state law that the Medical Society of New Jersey is using as an underpinning for its lawsuit seeking to overturn the United-Oxford merger states that:

"Any person aggrieved by an act, determination, rule, regulation or order or any other action of the commissioner pursuant to this chapter may appeal there to the Superior Court. The court shall conduct its review without a jury and by trial de novo, except that if all parties, including the commission, so stipulate, the review shall be confined to the record. Portions of the record may be introduced by stipulation into evidence in a trial de novo as to those parties so stipulating.

"The filing of an appeal pursuant to this section shall stay the application of any such rule, regulation, order or other action of the commissioner to the appealing party unless the court, after giving such party notice and an opportunity to be heard, determined that such a stay would be detrimental to the interests of policyholders, shareholders, creditors or to the public.

"Any person aggrieved by any failure of the commissioner to act or to make determination required by this chapter may commence an action in the Superior Court for an order in lieu of a prerogative writ directing the commissioner to act or make such determination forthwith."

Source: New Jersey State Statute NJSA 17:27A-12

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