N.J. Ruling: A Dilemma For All ASCs

On November 20, 2007, in the case of Health Net of New Jersey, Inc. v. Wayne Surgical Center, LLC, a New Jersey court ruled that physicians who refer their patients to an ambulatory surgery center (ASC) in which they have an ownership interest, violate the Codey Act’s ban against self-referrals.

The case involved surgeons who referred their patients to a physician-owned facility for surgery in which they possessed an ownership interest. At issue were Health Net insurance claims for procedures performed at the ASC by surgeons who referred the patients from their own private practices. While the physicians were within the Health Net coverage network, the surgery center was not. The Court also examined the ASC’s practice of not collecting co-insurance payments from patients, but instead accepting as payment in full the assignment of each patient’s right to reimbursement from Health Net.

On Nov. 30, 2007, Wolfblock law firm, acting on behalf of the New Jersey Association of Ambulatory Surgery Centers; Medical Society of New Jersey; Orthopedic Surgeons of New Jersey; Alliance for Quality Care; New Jersey Academy of Ophthalmologists; and Orthopedic Surgery Center of Northwest Jersey, LLC; filed an order to show cause to intervene. The New Jersey Association of Osteopathic Physicians and Surgeons has since joined this list.

In addition, a motion for the judge to reconsider his decision with regard to his position that the physicians who referred patients to the surgery center were violating the provisions of the Codey law also was filed, according to John D. Fanburg, Esq., chair of the healthcare and hospital law department at Wolfblock.

In a hearing on Dec. 5, 2007, the judge reserved judgment, Fanburg reports. Then, on Dec. 13, 2007, the N.J. court denied the opportunity to intervene in the lawsuit. According to Wolfblock law firm, who filed the motion, court officials state that the ruling is believed to be in error and court officials were evaluating an appeal.

“We have reached out to the Board of Medical Examiners (BME) to get them involved and to take a position that referral to the surgery center is not in violation of the Codey Law and we are waiting to hear back from them as to what they will do.”

“In light of the impact this decision is having on this industry, I believe it is imperative that they (weigh in on this decision).”

The BME did weigh in, and according to Wolfblock, a BME ad hoc committee promised the development of an emergency regulation to deal with this “crisis” surrounding the topic of physician ownership in ASCs in N.J.

“That judge I feel, just clearly didn’t get it,” states ASC veteran attorney, Lorin E. Patterson, JD, partner with Reed Smith. “Why would he? He wouldn’t. He doesn’t know. The advisory opinion he was reading was done prior to the time of the ASC safe harbor.

He is saying it is not an extension of the practice, and it clearly is. That’s the way the federal government looks at it, and the federal government and Office of Inspector General (OIG) has been bombarded with calls on this too.”

Fanburg reiterates that ownership of a surgery center is indeed an extension of the physician’s private practice, and therefore does not violate the Codey Law. “I don’t believe that was part of what Codey intended. That law was passed in 1991, and based upon a whole host of communications that we have had with the Board of Examiners over the years as well as other unrelated actions by the legislature; I do not believe there was any intent to prohibit this type of ownership and referral relationship.”

Patterson notes that this is a classic case of a court interpreting an area in which a regulatory body is more equipped and qualified to address. “The advisory opinion and the regulatory authorities in N.J. have already addressed this, so that’s really the surprise in this instance. On the other hand, I view the N.J. case as a law school exam example on how a payor can react to what I would call ‘aggressive out-of-network billing practices’ by ASCs. All of this occurred not because a court thought there was some illegal activities going on, but because a payor felt it was being improperly billed by an ASC.”

Patterson continues, “It’s very illustrative, and I hope people take that away from the case. There is a predictable response that you will get from doing things such as billing people on an out-of-network basis and not attempting to collect co-pays. They are going to allege certain things — and they are pretty predictable what they are going to allege.”

Fanburg says more will be known on the case when all the dust settles. “We have to convince the judge that he made a mistake. If not, then we will appeal further.”

“We believe that the provision of services in ASCs are less costly than in a hospital setting,” Fanburg asserts. “They are much more patient-friendly, they are very efficient in terms of its operations and it’s an important service for the patients and frankly insurance companies and the paying public.”

Supplementary information and regular updates on this case are available at www.surgicenteronline.com. 

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