Consolidating two related cases, the New Jersey Superior Court Appellate Division reversed a series of trial court discovery orders mandating that Horizon Healthcare Services, Inc. (Horizon) produce six categories of confidential and proprietary documents to seven of its in-network hospitals regarding Horizon’s creation of its new OMNIA provider network.

Horizon established its two-tier OMNIA provider network in 2015, seeking approval of the network from the New Jersey Department of Banking and Insurance on June 25, 2015. Horizon publicly announced the launch of the network on September 10, 2015. The OMNIA network created two tiers of providers – Tier 1 and Tier 2 – and created incentives for members to select Tier 1 providers by offering lower premiums, deductibles, co-insurance, and co-payments. In consultation with McKinsey & Company, Horizon established the selection criteria for Tier 1 providers. After identifying seven hospitals that met those requirements, Horizon entered into agreements with those Tier 1 providers.

The plaintiffs – seven hospitals that Horizon designated as Tier 2 providers – subsequently filed suit, claiming that Horizon’s creation of the OMNIA network, as well as their Tier 2 designations, violated the terms of the plaintiffs’ network agreements with Horizon. The Tier 2 hospitals claimed, inter alia, that Horizon failed to provide 60 days’ advance notice of the OMNIA network (as required by contract); failed to disclose the criteria used to select the Tier 1 hospitals; failed to select them as Tier 1 hospitals or provide an opportunity to demonstrate their eligibility for Tier 1 status; improperly established criteria that favored their competitors and larger hospital systems; and improperly marketed Tier 1 hospitals as better than Tier 2 hospitals.

In challenging their Tier 2 status, the plaintiff hospitals sought six categories of documents in expedited discovery: (1) a report prepared by McKinsey & Company regarding the Tier 1 selection criteria; (2) Horizon’s agreements with the Tier 1 hospitals and a Letter of Intent with a specific Tier 1 hospital; (3) the template agreement that Horizon used for the Tier 1 hospitals; (4) information regarding the formulation of the Tier 1 selection criteria; (5) the “scores” of the Tier 1 hospitals under the criteria; and (6) communications between Horizon and the Tier 1 hospitals.

Horizon alleged that the documents the plaintiffs sought were irrelevant to the plaintiffs’ claims, as well as confidential and proprietary under the terms of the various network contracts and protected under the trade secret privilege. Despite Horizon’s arguments, the trial courts in both cases ordered that Horizon produce unredacted or minimally redacted versions of the documents, mandating the disclosure of business-sensitive rate information, financial projections, contract terms, and the proprietary Tier 1 ranking criteria for the OMNIA network.

The Appellate Division ruled that all of the documents the plaintiffs sought were marginally relevant to their claims – if at all – and that Horizon’s production of unredacted or minimally redacted documents would give plaintiffs an unfair business advantage over Horizon and other provider competitors. Moreover, the court ruled that when balancing any alleged relevance against Horizon’s interest in maintaining the confidential and proprietary nature of the documents, Horizon’s interests undoubtedly prevailed. The court thus allowed Horizon to redact the confidential and proprietary business information contained in the requested documents.