NEWARK FIRE OFFICERS UNION, ETC. v. CITY OF NEWARK, ETC. (C-000081-20, ESSEX COUNTY AND STATEWIDE) ( 2022 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-4535-19
NEWARK FIRE OFFICERS
UNION, LOCAL 1860, IAFF,
AFL-CIO,
Plaintiff-Respondent,
v.
CITY OF NEWARK,
A MUNICIPAL CORPORATION
OF THE STATE OF NEW JERSEY,
Defendant-Appellant.
______________________________
Submitted September 20, 2021 – Decided October 6, 2022
Before Judges Messano and Accurso.
On appeal from the Superior Court of New Jersey,
Chancery Division, Essex County, Docket No.
C-000081-20.
Carmagnola & Ritardi, LLC, attorneys for appellant
(Sean P. Joyce and Jessica A. Merejo, on the briefs).
Zazzali, Fagella, Nowak, Kleinbaum & Friedman,
attorneys for respondent (Paul L. Kleinbaum, of
counsel and on the brief; Sheila Murugan, on the
brief).
The opinion of the court was delivered by
ACCURSO, J.A.D.
The City of Newark appeals from a July 9, 2020 Chancery Division
decision confirming a public interest arbitration remedy award in favor of
plaintiff, Newark Fire Officers Union, Local 1860, IAFF, AFL-CIO. We
reverse. The trial court failed to consider whether the remedy, which directed
the City "to eliminate the Formulary drug list" in its self-insured retiree
prescription drug program, was even possible much less reasonably debatable.
Accordingly, for the reasons that follow, we remand to the trial court for entry
of an order remanding the matter to the arbitrator to render an appropriate
remedy.
This matter has an unusual procedural history, which undoubtedly
contributed to the problem we see with the remedy award. The City and the
Union are parties to a collective negotiations agreement that provides for a
pre-paid prescription plan for retired employees. Although the co-pay rates
differ depending on the employee's date of retirement, all eligible employees
retiring after January 1, 1998, have paid higher rates for brand name drugs
than they have for generics. For those eligible retirees with twenty-five years
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of service retiring on or after January 1, 2007, for example, the co-pay per
prescription is $5.00 for generic drugs and $10.00 for non-generic drugs.
Section 12.10 of the CNA expressly reserves to the City "the right to change
insurance carriers during the term of this Agreement so long as substantially
similar benefits but no less than those presently in effect are provided by the
new carrier."
For many years, both active members of the Union and retirees were
covered by a Horizon plan. The City apparently switched from the Horizon
Traditional Plan to the Horizon Direct Access Plan in 2016, and later
terminated that plan and enrolled in the State Health Benefits Plan. The State
Health Benefits Commission subsequently allowed Newark to withdraw its
retirees from the Plan in 2017 on the condition the City enroll them in an
Employer Group Waiver Plan, essentially a Medicare Part D plan for retiree
prescription drug benefit coverage. On January 1, 2018, the City transitioned
those retirees to its Group Waiver Plan, a self-funded prescription drug plan
administered by Navitus Health Solutions.
Within three weeks of the move to Navitus, the Union filed a grievance
complaining Navitus had "issued a booklet to retirees outlining restrictions and
a formulary list," and seeking the immediate restoration of "the negotiated
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level of prescription benefits to all retirees." On the first day of the arbitration
in July 2018, the City learned the Union considered "the negotiated level of
prescription benefits" to be the Horizon plan the City terminated in 2016, not
the State Health Benefits Plan in place for nearly eighteen months, which the
Navitus plan replaced. The City moved to dismiss the grievance, arguing it
was prepared to compare the prescription plan provided by the State Health
Benefits Program to its successor, the Navitus plan, not plans the City had by
then terminated two years before. The City claimed a grievance objecting to
the move away from Horizon in 2016 was untimely, and the Union should not
be permitted to pick and choose among prior plans to which to compare the
current Navitus plan.
After initially denying the motion without prejudice to the City
presenting its arguments at the hearing, the arbitrator ultimately determined
the City waived a timeliness defense by having failed to respond to the Union's
grievance before the matter proceeded to arbitration. At the hearing, the Union
presented the testimony of its president and an expert, Dominick Fanuele, who
specializes in reviewing benefit plans for public unions.
The president conceded the co-pays and out-of-pocket expenses incurred
by retirees under the Navitus plan were the same as those under the Horizon
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plans,1 and thus no retiree had suffered any monetary damage in the shift to
Navitus. He testified, however, that immediately after the shift, retirees began
calling him to complain about Navitus denying them their prescribed
medicines. He presented evidence of seven retirees or their dependents who
had been denied medications, almost all of which they had been receiving
under the Horizon plan. Although conceding the retirees eventually received
the medications following an appeal process, the witness testified the process
was "burdensome" and that the prior authorizations, "step therapy, quantity
limits" and formulary lists in the Navitus plan were never a part of the Horizon
plan. The witness testified he was not aware "that drugs that are on
formularies change between generic and branded," and that he "didn't even
know what a formulary was before this all started to happen."
Fanuele, who compared the 2016 booklet provided to retiree members of
the Horizon benefit plan with the pharmacy benefit management agreement
and employer group contract between the City and Navitus and an addendum
to that contract, the employer group waiver plan agreement, opined "that the
Navitus plan made access to certain medications more restrictive than the
1
The arbitrator refers to the two Horizon plans interchangeably, making no
distinction between them.
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original Horizon contract." He testified that although Horizon described the
difference between a brand name prescription drug and a generic formulation
in its member booklet and referenced a formulary, it "did not refer to a specific
formulary or provide a listing therein." He opined the Navitus plan was thus
not "substantially similar" or "at least equal to" the Horizon plan.
The City's expert, Eric B. Labaska, a New Jersey public sector
consultant who assisted the City in transitioning its retiree prescription drug
program from the State Health Benefits Plan to Navitus, testified the Navitus
plan was "substantially similar" or "at least equal to" the Horizon prescription
drug program the City previously provided its retirees. He explained the
member co-pays and out-of-pocket costs of the Navitus plan were matched
identically to the Horizon plan and both contained "utilization review type
programs." Specifically, he presented information from the City's Blue Cross
account executive in September 2018, stating the City of Newark used
Horizon's "classic formulary," which could be accessed on Horizon's website,
noting "the drug list will change periodically as drugs come on and off the
market and switch tiers."
Labaska testified that drug formularies are typically not established by
the plans but by their pharmacy benefit managers (PBMs), third-party vendors
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that assemble the network of pharmacies and negotiate with the drug
manufacturers for prescription drug compounds. He also explained that both
Horizon and the State Health Benefits Program used PBMs, 2 and that all
prescription drug plans have utilization review programs built into their
formularies, that is, "cost-savings measures ensuring that members are taking
the medications that are required based upon the FDA guidelines of condition
or illness," thereby determining medical necessity. He also explained that
while the precise terms of the various programs differ, they are generally
organized under the categories of current drug review, retrospective drug
review, treatment alternatives and quantity limitations to ensure not only that
the member is taking the proper drug, but that he or she is not taking more of a
drug than is necessary.
Labaska also noted that a self-funded plan contract has "a lot more
moving parts" than would be described in a summary plan description member
booklet in a fully insured plan such as Horizon, because it is the City , or other
self-funded source, that is receiving the rebates and discounts that would go to
the PBM in a fully insured plan, requiring a more detailed contract. He
2
See Matter of Request for Proposals #17DPPP00144, 454 N.J. Super. 527,
535 (App. Div. 2018) (explaining the State's use of a PBM in its self-funded
prescription drug plans).
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explained that a number of the programs built into a formulary, such as
quantity limits and incompatible drug restriction safety edits, are invisible to
the member. And some that are visible, such as for a prior authorization,
medical necessity drug, for instance, often require authorization only once,
meaning a member maintained on the drug for years might not recall their
doctor having gone through the process. Finally, Labaska expressed his
understanding that Horizon's formulary changed quarterly even without a
change in the PBM, as drugs changed tiers as brand name drugs came off
patent and other drugs were removed from the formulary. Because the
formulary changed so regularly, he noted that even had the City remained in
the Horizon plan, members would not have available the same formulary
today.
In response to Labaska's assertions, Fanuele continued to maintain that
the Navitus plan was not substantially similar to the City's former Horizon
plan "because of the additional restrictions as to what medications could be
obtained." Although conceding that formularies are created by PBMs and not
providers such as Horizon, that "large entity public sector" plans have
formularies, that quantity limits, although not spelled out in the 2016 Horizon
member booklet, are "pretty standard" to ensure individuals do not take more
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of a drug than necessary or don't take it longer than necessary "if it's
something that could lead to different side effects over an extended period,"
that the 2016 Horizon summary plan description referenced a formulary, and
even identifying the formulary he believed would have applied to an employer
such as the City, Fanuele refused to concede the formulary identified by the
City's Blue Cross representative as applying in 2018 was in place in 2016 ,
because he "saw, again, no reference to a specific formulary" in the booklet
provided to the City's retirees in 2016. The Union further maintained the City
had the ability to have negotiated a less restrictive formulary with Navitus.
At the conclusion of the hearing the arbitrator issued an opinion and
award rejecting, as already noted, the City's claim the grievance was untimely.
The arbitrator found the City waived its timeliness defense by not raising it
"during the grievance procedure, and permitting the Union to file for
arbitration without ascertaining the basis for the Union's grievance." The
arbitrator thus defined the substantive issue to be whether the prescription
benefits for retirees under the Navitus plan were substantially similar to the
benefits provided to retirees by Horizon.
Noting the Union's concession that the co-pays and out-of-pocket
expenses were the same under both plans, the arbitrator found the "proceeding
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concerns the different administrative requirements between the longstanding
Horizon Traditional Plan and the Navitus Plan implemented on January 1,
2018." The arbitrator noted the City's unsuccessful efforts to obtain the 2016
plan documents from Horizon resulted in there being "no documentary support
for the City's contention that the Navitus plan's restrictions governing
formulary drugs, step therapy and quantity limits are similar to the Horizon
Traditional Plan's purported restrictions." And while acknowledging the
burden was on the Union to prove the benefits under the Navitus plan were not
substantially similar to those provided under the Horizon plan, because those
documents were not produced, the arbitrator drew "an adverse inference
against the City and conclude[d] that the Horizon Plan and the Navitus Plan
were not substantially similar."
The arbitrator concluded the Union established "the additional
administrative requirements imposed on the retirees" by the change to Navitus
"had a direct impact on the ability of the retirees to easily secure their
prescriptions," and thus that "the changes imposed by Navitus have altered the
benefits of the retirees in a material way." The arbitrator entered an award
directing the City "to restore the previous level benefits provided under the
Horizon Plan in the period before January 1, 2018."
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The City did not object to the Union's motion to confirm that award and
instead took steps to comply by eliminating from the Navitus plan any
requirements for pre-authorization for specific drugs and step therapy, i.e.,
requiring a member to first try a certain drug to treat their condition before
covering the prescribed alternative. The Union complained the City had not
complied with the award. When the parties were unable to resolve their
dispute over the City's compliance, the Union asked the arbitrator to convene a
hearing to resolve it.
After hearing argument on the City's compliance, the arbitrator issued an
opinion and award "concerning remedies." The arbitrator recapped the Union's
request that he "direct the City to eliminate the formulary drug list, step
therapy, prior authorization and quantity limitations in the Navitus plan," and
the City's contention it had removed "the administrative hurdles" to retirees
receiving their prescriptions and provided the Union with the Horizon 2016
formulary Fanuele claimed he'd never seen. The arbitrator found the City had
removed the requirements for prior authorization and step therapy from the
Navitus plan.
The arbitrator, however, deemed "the formulary issue was conclusively
decided in the Merits Award." Acknowledging the City had introduced in the
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remedy proceeding "documents which purportedly show that the Horizon Plan,
in fact, had a formulary when Horizon was under contract with the City in
2016," the arbitrator found "the City has not shown how the formulary
program was administered by Horizon or if retirees were in fact ever denied
coverage because of the application of the Horizon Plan's formulary."
(Emphasis is ours). Determining he did not "have the power to revisit issues
raised by the City concerning the merits of this case," the arbitrator barred the
City "from introducing evidence that it had a viable and operational formulary
drug list in 2016 when the retirees were covered by the Horizon Plan," and
concluded "the Navitus Formulary should not be applied to the retirees
because the City has not proven that the benefits under the Navitus Plan were
substantially similar to the benefits provided under the Horizon Plan ."
(Emphasis is ours). The arbitrator entered an award directing the City "to
eliminate the Formulary drug list and quantity limitations contained in the
Navitus Plan."
The Chancery judge granted the Union's motion to confirm the remedy
award and denied the City's cross-motion to vacate it, finding the arbitrator's
award from January 2019 "very clear" and the remedy "reasonably debatable."
This appeal followed.
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Our Supreme Court explained what a drug formulary is in 2007 in
International Union of Operating Engineers Local No. 68 Welfare Fund v.
Merck & Co.:
Whenever a plan member receives a prescription
and takes it to be filled, the plan member must first
demonstrate that he or she is covered by a third-party
payor plan. In general, the plan member submits
membership information, such as a prescription
insurance card, to the dispensing pharmacy for
verification and approval by the third-party payor.
Once the plan member has done so, the dispensing
pharmacy verifies that the prescribed medication is
one that the third-party payor has authorized for
purchase. The drugs that each third-party payor has
authorized are included within that third-party payor's
approved purchase listing, known as a formulary.
Third-party payors do not independently select
medications for inclusion in their formularies.
Instead, each third-party payor relies on Prescription
Benefit Managers (PBMs) whose functions include
placing prescription drugs on the individual third-
party payors' formularies. PBMs, in turn, utilize
specialized committees of pharmacists, physicians,
and healthcare professionals, which are known as
Pharmacy and Therapeutics Committees (P & T
Committees), to develop and maintain the formularies.
The P & T Committees do so by conducting their own
evaluation of the effectiveness, safety, and cost of
each available medication.
[192 N.J. 372, 378-79 (2007).]
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The Court explained that even "open" formularies that include
essentially all prescription medications approved by the FDA "involve
decisions by P & T Committees that determine how any specific medication
will be treated for purposes of placement. Those decisions may result in
conditions relating to how a third-party payor will cover the cost of a
medication." Id. at 380. The Court concluded that "[a]s a practical matter,
each PBM, through the work performed by the P & T Committee and its
creation of the formulary, sets the terms under which the third-party payor
agreed to be responsible for the costs of its members' prescriptions." Ibid.As we understand it, a formulary is, in essence, the blueprint for ho w a
prescription drug benefit plan operates. Ordering the City "to eliminate the
Formulary drug list and quantity limitations contained in the Navitus Plan"
because "the City has not proven that the benefits under the Navitus Plan were
substantially similar to the benefits provided under the Horizon Plan" not only
miscast the party with the burden of proof, but gutted the retirees' prescription
benefit plan with no direction, and apparently no care, as to how the remedy
could be implemented.
Although the arbitrator's 2019 opinion and award is not before us, the
problem we perceive with the remedy award obviously has its genesis there.
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We do not address the wisdom of drawing an adverse inference against a party
without a burden of proof for failing to produce a formulary drug list of a plan
the City had twice replaced following its termination two years before, in a
case where there is no dispute that such lists change frequently as generics
become available and drugs move on and off the list. We cannot, however,
overlook that the arbitrator defined the proceeding as one concerning "the
different administrative requirements between the longstanding Horizon
Traditional Plan and the Navitus Plan," concluded the change to Navitus
resulted in "additional administrative requirements imposed on the retirees"
having "a direct impact on the ability of the retirees to easily secure their
prescriptions" but only ordered the City "to restore the previous level benefits
provided under the Horizon Plan" without further direction.
Now faced with a situation in which the City has attempted to implement
the award by removing requirements for prior authorization and step therapy
from its Navitus plan — and proof the Horizon plan in 2016 utilized the
"classic formulary" as the City's Blue Cross executive advised in 2018 in a
document in the record of the first arbitration, which the arbitrator tacitly
acknowledged by noting the City had still "not shown how the formulary
program was administered by Horizon or if retirees were in fact ever denied
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coverage because of the application of the Horizon Plan's formulary" — the
arbitrator has ordered the City to eliminate any formulary drug list from the
Navitus plan, along with any quantity limitations, without any analysis as to
what either will mean for the retirees' prescription drug plan.
Although courts ordinarily accord public sector arbitration awards "a
wide berth," mindful that it's the arbitrator's interpretation of the contract the
parties have bargained for, Borough of E. Rutherford v. E. Rutherford PBA
Loc. 275, 213 N.J. 190, 201 (2013), we think it clear this remedy award cannot
stand. We have no quarrel with the arbitrator determining that the Navitus
plan did not provide "substantially similar benefits" to Horizon's Traditional
Plan; it is the arbitrator's ordered remedy to "eliminate the formulary drug list
and quantity limitations" from the Navitus plan where we find the arbitrator
exceeded or imperfectly executed his powers. See N.J.S.A. 2A:24-8(d).
Because the subject of the arbitration was the different administrative
requirements of the prescription drug plans offered by Horizon and Navitus,
the arbitrator, in our view, had less room to fashion his own remedy than he
might in other contexts. See Cnty. Coll. of Morris Staff Ass'n v. Cnty. Coll. of
Morris, 100 N.J. 383, 397 (1985) (recognizing "an arbitrator's power to decide
what is fair and just is at all times limited by the intent of the parties as
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manifested by the terms of their contract"). The problem as we see it is the
arbitrator's failure to define what a formulary is and what it does. If Horizon
utilized an "open" formulary as stated in Horizon's January 2016 "Classic Drug
Guide," supplied by the City in the remedy proceeding, then a directive to
eliminate any formulary in the Navitus plan clearly exceeded the arbitrator's
powers. Similarly, we find no sound basis for the arbitrator to have ordered
the elimination of quantity limits in the Navitus plan, also clearly employed in
the 2016 Horizon "Classic Drug Guide," in light of the previous testimony of
both experts that such limits are a standard safety measure and, as the Union's
expert testified, are employed to ensure individuals don't take more doses of a
drug than necessary or don't take it longer than necessary "if it's something
that could lead to different side effects over an extended period."
We cannot fail to recognize that the terms of this remedy will in large
measure dictate the medicines provided to the Union's retirees. Without a
formulary list, the PBM presumably will not be permitted to use a P & T
Committee to conduct "their own evaluation of the effectiveness, safety, and
cost of each available medication," see Int'l Union of Operating Eng'rs Loc.
No. 68, 192 N.J. at 379, to limit coverage of experimental or investigational
drugs or "off-label" use, or any drug contraindicated for the treatment for
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which it is prescribed, nor without quantity limits identify gender or age
restrictions associated with a drug or the maximum amount of medicine safely
dispensed per prescription. As we do not believe that this is what the parties
bargained for in submitting their dispute to arbitration, we reverse the order
confirming the arbitration award and remand for entry of an order remanding
the matter to the arbitrator to enter an appropriate remedy after consideration
of the Horizon plan documents in place in 2016, including the Horizon 2016
plan description book and Horizon's 2016 "Classic Drug Guide." We do not
retain jurisdiction.
Reversed and remanded.
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