Workers' Compensation: NJ's Fee Schedule Gap

New Jersey's Medical Billing Problem: When "Reasonable and Customary" Costs You a Fortune

One of every five claim petitions filed in New Jersey's Division of Workers' Compensation is a medical provider claim. That stunning statistic reveals a fundamental problem unique to the Garden State: New Jersey remains one of only seven states without a workers' compensation medical fee schedule, relying instead on a "reasonable and customary" payment standard that has become a lightning rod for controversy, litigation, and skyrocketing costs.

While 44 states have adopted medical fee schedules to control workers' compensation costs and provide payment predictability, New Jersey's commitment to the "reasonable and customary" standard under N.J.S.A. 34:15-15 has created a system where the same medical procedure can cost two, three, or even five times more than in neighboring New York—and everyone pays the price.

The Statutory Framework: What New Jersey Law Requires

New Jersey's workers' compensation statute mandates that medical fees "shall be reasonable and based upon the usual fees and charges which prevail in the same community for similar physicians', surgeons' and hospital services." N.J.S.A. 34:15-15.

This seemingly straightforward language has spawned decades of litigation over three critical questions:

What constitutes "reasonable"?
What is "usual and customary" in a given community?
Who decides—the provider, the insurance carrier, or the courts?

The New Jersey Appellate Division answered the third question decisively in Cobo v. Market Transition Facility, 293 N.J. Super. 374, 389 (App. Div. 1996): "The provider, in submitting the billings, makes the initial determination as to what his or her usual, customary and reasonable fee is… thus, the scheme envisions that the health care provider will set its own customary fee, not the insurer or the insurer's auditor."

This ruling fundamentally shifted power to medical providers and created the framework for today's billing disputes.

The Cost Differential: A Tale of Two States

New Jersey's lack of a fee schedule creates dramatic cost disparities with neighboring states. Consider these examples:

Arthroscopic knee surgery:

New York workers' comp fee schedule: $2,800
New Jersey "reasonable and customary": $8,500-$12,000
Difference: 300-400% higher

MRI of lumbar spine:

New York workers' comp: $650
New Jersey "reasonable and customary": $1,800-$3,200
Difference: 275-492% higher

Physical therapy session:

New York workers' comp: $125
New Jersey "reasonable and customary": $250-$400
Difference: 200-320% higher

These disparities have created powerful incentives for medical providers to open facilities in New Jersey or encourage patients to cross state lines for treatment—a practice that has spawned significant litigation over extraterritorial jurisdiction.

The Extraterritorial Phenomenon: Border-Crossing for Higher Fees

The 2012 amendments to New Jersey's Workers' Compensation Statute granted the Division of Workers' Compensation exclusive jurisdiction over disputed medical charges under N.J.S.A. 34:15-15. This change, intended to streamline dispute resolution, has instead triggered an avalanche of medical provider claims from facilities treating out-of-state workers in New Jersey.

The pattern is consistent: A worker injured in New York or Pennsylvania receives authorization for surgery or treatment. A medical provider directs them to a New Jersey satellite office. The provider then bills at New Jersey's "reasonable and customary" rates, which can be 300% higher than the worker's home state fee schedule.

Insurance carriers balk at paying the premium. Litigation ensues. And injured workers often find themselves caught in the middle, sometimes facing treatment delays while the parties fight over fees.

Key Case Law on Extraterritorial Treatment:

Bowman v. J & J Log & Lumber Corp., 758 N.Y.S.2d 852 (App. Div. 2003) - New York's Appellate Division ruled that a claimant could receive treatment in a neighboring state for a New York workers' compensation claim, but medical providers would be subject to the New York fee schedule. While persuasive authority, this case has not been definitively adopted in New Jersey.

Marconi v. United Airlines, 460 N.J. Super. 330 (App. Div. 2019) - The New Jersey Appellate Division applied a six-factor jurisdictional test (examining place of injury, employment contract, work location, industry localization, employee residence, and contractual choice of law) to determine workers' compensation jurisdiction. The court held that simply being a New Jersey resident or having minimal contacts with the state was insufficient to establish jurisdiction.

The extraterritorial issue remains contested at the trial court level, with conflicting decisions from Judges of Compensation across New Jersey vicinages.

The Six-Year Statute of Limitations: A Provider Windfall?

In a decision that sent shockwaves through the workers' compensation insurance industry, New Jersey courts ruled that medical provider claims are governed by a six-year statute of limitations—the same as contract claims under N.J.S.A. 2A:14-1—rather than the two-year period applicable to injured worker claims under N.J.S.A. 34:15-51.

This ruling creates significant exposure for insurance carriers who may face bills for services rendered up to six years prior, with interest accruing. The Legislature never addressed the statute of limitations question when it granted exclusive jurisdiction to the Division of Workers' Compensation in 2012, and the courts concluded that the traditional two-year workers' compensation bar "simply doesn't fit" medical provider contract claims.

Pending Legislative Response:

Senate Bill S2757 would reduce the statute of limitations for medical fee disputes from six years to two years. Introduced in January 2026, the bill remains in committee. If enacted, it would provide carriers with greater certainty and reduce long-tail exposure—but would also limit providers' ability to pursue older unpaid claims.

The Pros and Cons: Examining Both Sides

ADVANTAGES OF NEW JERSEY'S CURRENT SYSTEM:

1. Provider Flexibility and Innovation Without rigid fee schedules, providers can invest in cutting-edge technology and techniques without waiting for regulators to update reimbursement rates. New procedures and advanced equipment can be fairly compensated from day one.
2. Quality-Based Differentiation Fee schedules treat all providers identically—the most experienced specialist and the newest practitioner receive the same payment. New Jersey's system theoretically allows market forces to reward quality and experience.
3. Trauma Center Sustainability Level I and Level II trauma centers face significantly higher overhead costs (24/7 staffing, specialized equipment, maintaining readiness for mass casualty events). Fee schedules often fail to adequately compensate these facilities, potentially threatening their viability. New Jersey's "reasonable and customary" standard better reflects these genuine cost differences.
4. Reduced Administrative Burden Providers don't navigate complex fee schedule rules, modifiers, bundling requirements, and annual updates. Billing is straightforward: charge your usual fee and demonstrate it's customary in your community.
5. Local Market Sensitivity Healthcare costs genuinely vary by region. Northern New Jersey near New York City faces dramatically higher real estate, labor, and operational costs than rural Sussex County. Fee schedules typically apply statewide, while "reasonable and customary" accounts for legitimate geographic variation.

DISADVANTAGES OF NEW JERSEY'S CURRENT SYSTEM:

1. Lack of Cost Predictability Employers, insurers, and self-insured entities cannot accurately estimate claim costs. The same surgery at different facilities might cost $8,000 or $25,000, with both providers claiming their charges are "reasonable and customary." This uncertainty undermines actuarial soundness and rate-setting.
2. Litigation Explosion Twenty percent of all claim petitions in New Jersey are medical provider fee disputes. This floods the Division of Workers' Compensation with billing cases rather than substantive injury claims, delaying resolution for injured workers with legitimate disputes over causation, disability extent, or treatment necessity.
3. Upward Cost Spiral Without statutory fee caps, each provider sets fees based on what others charge. If Hospital A bills $10,000 for a procedure, Hospital B can bill $11,000 and claim it's "customary" because others charge similar amounts. This creates perpetual upward pressure with no natural ceiling.
4. Gaming the System The extraterritorial phenomenon demonstrates how providers can strategically exploit New Jersey's high-reimbursement environment. Out-of-state workers are directed to New Jersey facilities specifically to generate premium billings—a practice that would be impossible under a fee schedule regime.
5. Provider Determination of "Reasonable" Cobo established that providers essentially set their own rates. While carriers can challenge reasonableness, they bear the burden of proof and must engage expert witnesses, conduct market surveys, and litigate—often for years. The deck is stacked toward provider-favored rates.
6. Six-Year Exposure Window The six-year statute of limitations means carriers face unprecedented tail risk. A provider can submit a bill five years and 364 days after treatment and still have a viable claim. This creates accounting nightmares and incentivizes providers to "age" claims to avoid early denials.
7. Barrier to Provider Access Ironically, while New Jersey's system theoretically pays providers more, many simply refuse to treat workers' compensation patients. Billing disputes, delayed payments, and litigation risk drive providers to accept health insurance patients instead, thereby reducing access to care for injured workers.
8. Employer Premium Impact All these costs ultimately flow to employers through workers' compensation insurance premiums. New Jersey consistently ranks among the most expensive states for workers' compensation coverage, with medical costs driving much of the difference. Small businesses particularly struggle with these elevated costs.

How the System Actually Works: Establishing "Reasonable and Customary"

Under current New Jersey law, medical providers establish usual and customary fees through several methods:

1. Provider's Billing History The most powerful evidence is the provider's own consistent billing practices. If a facility consistently bills $12,000 for a specific procedure across all payers and collects that amount (or accepts it after negotiations), that establishes its "customary" rate.
2. Explanation of Benefits (EOB) Forms Providers submit EOBs from private insurance carriers, Medicare, and other payers showing:

Amounts billed for specific CPT codes
Amounts paid (at 100% or reduced percentages)
Any write-offs or adjustments
Consistency across multiple payers and dates of service

3. Community Comparison Data Evidence of what other providers in the same geographic area charge for comparable services. This can include:

Surveys from commercial databases (FAIR Health, MDR, Ingenix)
Fellow providers' fee schedules
Regional billing data

4. Facility Type and Overhead Courts consider whether services were provided at:

Level I or II trauma centers (higher overhead justified)
Academic medical centers (teaching costs)
Community hospitals
Ambulatory surgery centers
Physician offices

5. Specialty and Complexity Reimbursement properly varies based on:

Provider training and credentials
Procedure complexity and duration
Equipment and supply costs
Risk and skill level required

The insurance carrier can rebut the provider's showing with evidence that charges are inflated, inconsistent, or unreasonable compared to market norms. However, carriers bear the burden of proof—an expensive proposition requiring expert testimony and extensive discovery.

The Impact on Injured Workers

While medical provider billing disputes are technically between providers and carriers, injured workers suffer real consequences:

Treatment Delays: When providers and carriers dispute prospective authorization, workers may face delays in receiving surgery or other critical interventions. Providers may refuse to proceed until payment is guaranteed.
Balance Billing Fears: Although New Jersey law prohibits providers from balance billing workers' compensation patients for amounts exceeding the "reasonable and customary" rate, workers often receive confusing bills and collection notices while disputes are pending.
Carrier Denials: When carriers categorize treatment as "not related" to the work injury or "not medically necessary" to avoid high New Jersey bills, workers are left without care.
Provider Reluctance: Many top specialists won't accept workers' compensation patients due to billing disputes and payment delays. Workers receive lower-quality care from the limited pool of providers willing to participate.
Settlement Pressure: Both sides sometimes pressure injured workers to settle claims quickly to resolve fee disputes, potentially sacrificing future medical care for immediate resolution.

What Injured Workers Should Know

If you're caught in a medical billing dispute:

1. You're Not Personally Liable For authorized treatment related to your accepted workers' compensation claim; you should not pay medical bills. The dispute is between your employer's insurance carrier and the provider.
2. Get It in Writing Before any non-emergency treatment, obtain written authorization from the carrier. Keep copies of all authorization forms, medical records, and communications.
3. Don't Ignore Bills Contact both the provider's billing office and your insurance adjuster immediately if you receive bills. Request billing holds while disputes are resolved.
4. Document Treatment Necessity Work with your treating physician to document why treatment is medically necessary and work-related. This evidence is critical if carriers deny authorization.
5. Know Your Appeal Rights If treatment is denied, you can file a Motion for Emergent Medical Treatment under N.J.S.A. 34:15-15.3 if your physician states that delay will cause irreparable harm.
6. Consider Legal Representation Workers' compensation attorneys work on contingency (no upfront fees) and can advocate for treatment authorization while you focus on recovery.

Potential Solutions: Where Do We Go From Here?

Several reform proposals have been discussed:

Option 1: Adopt a Fee Schedule Join the 44 states with fee schedules. Set rates based on Medicare RBRVS plus a reasonable percentage (e.g., 125% of Medicare). This would provide cost certainty and end most billing litigation.

Challenges: Determining appropriate rates is politically fraught. Set them too low and providers exit the system; too high and costs remain inflated. Geographic variations complicate statewide schedules.

Option 2: Hybrid System Implement fee schedules for common procedures (the 80% of treatments that drive 20% of disputes) while preserving "reasonable and customary" for complex, unusual, or new procedures.

Challenges: Defining which procedures fall under each regime creates new disputes. Providers might upcode to "complex" categories.

Option 3: Mandatory Fee Dispute Mediation Require parties to attempt mediation before litigation, with retired judges or industry experts serving as mediators. Many disputes settle when parties face neutral evaluation.

Challenges: Adds time and cost. Providers might view mediation as another hurdle before inevitable litigation.

Option 4: Binding Arbitration for Small Claims For disputes under $10,000, mandate binding arbitration within 60 days. This would resolve most physical therapy, imaging, and minor surgical billing disputes quickly.

Challenges: Defining threshold amounts and arbitration procedures. Provider groups might oppose limitations on their litigation rights.

Option 5: Transparency Requirements Require providers to publish their "customary" charges for common workers' compensation procedures. Carriers and employers could make informed authorization decisions upfront.

Challenges: Providers resist publishing rates. Market-based pricing might simply establish higher "customary" rates as providers benchmark against each other.

Option 6: Reduce Statute of Limitations Enact S2757 to impose a two-year statute of limitations on medical provider claims, providing finality and reducing carrier tail exposure.

Challenges: Provider groups strongly oppose this change, arguing it's unfair when carriers delay payment decisions.

The Bottom Line

New Jersey's "reasonable and customary" medical billing system creates a unique environment where:

Workers face treatment access issues and get caught between providers and carriers
Providers set their own rates but face lengthy litigation to collect
Carriers lack cost predictability and constantly litigate
Employers pay premium rates for workers' compensation coverage
Courts are overwhelmed with billing disputes

The system serves virtually no one well—except perhaps the attorneys litigating these disputes.

Whether New Jersey will join the 44 states with medical fee schedules or chart a different reform path remains to be seen. What's certain is that the current system is unsustainable. The extraterritorial phenomenon, six-year statute of limitations exposure, and explosion of medical provider claims signal a system in crisis.

For injured workers, the message is clear: understand your rights, get authorizations in writing, and don't hesitate to seek legal assistance when providers and carriers battle over your medical care. You deserve treatment, not to be a pawn in billing wars.

Legal Authority & Resources:

Statutes:

N.J.S.A. 34:15-15 - Medical and hospital services payment standard
N.J.S.A. 34:15-15.3 - Motion for emergent medical treatment
N.J.S.A. 34:15-51 - Statute of limitations for workers' compensation claims
N.J.S.A. 2A:14-1 - Six-year statute of limitations for contract actions

Case Law:

Cobo v. Market Transition Facility, 293 N.J. Super. 374 (App. Div. 1996) - Provider sets own customary rate
Bowman v. J & J Log & Lumber Corp., 758 N.Y.S.2d 852 (App. Div. 2003) - Out-of-state treatment subject to home state fee schedule
Marconi v. United Airlines, 460 N.J. Super. 330 (App. Div. 2019) - Extraterritorial jurisdiction factors

Pending Legislation: