Down on the Farm The Attack on Physician Ownership

New Jersey ASC “Codey Act” Decision

On Nov. 20, 2007, a New Jersey court handed down a decision in the matter of HealthNet of New Jersey, Inc. v. Wayne Surgical Center, LLC, holding that physicians who refer their patients to an ASC in which they have an ownership interest violates the 1989 Codey Act self-referral prohibitions against self-referral. In its ruling, the court distinguished the current case (in which the ASC was physician owned) from the situation which includes a hospital owner. This decision has critical implications for the ASC community in that the court not only held that an ASC is not an extension of a physician’s office, but also rejected a widely relied upon 1997 New Jersey Board of Medical Examiners advisory opinion, which stated that a surgeon’s referrals of his own patients to a surgery center of which he is an owner does not constitute an impermissible referral.

“Out-of-Network” Reimbursement Disparities

Many third-party payors have implemented restraints on payments to facilities not within their network of preferred (discounted) providers. Physician investors have fought back, and in April 2005, Heartland Surgical Specialty Hospital, a Kansas City area hospital, filed an anti-trust lawsuit against several area hospitals and insurance carriers alleging that the acute care hospitals colluded with the managed care insurers to prevent Heartland from gaining access to managed care network contracts. In its lawsuit, Heartland asserted that this collusion has resulted in severe financial damage to Heartland. Subsequent to the lawsuit, United Healthcare settled with Heartland.

It should also be noted that the HealthNet case, discussed above, appears to have arisen because Wayne Surgical Center was not a participating network provider with HealthNet of New Jersey, Inc. HealthNet refused payment for services performed by the ASC, reasoning that this was a violation of their provider contracts, as well as the fact that the physicians had engaged in the practice of routinely waving deductibles and co-pays patients would have had to pay by going to an out of network facility for treatment. Recent legislative bills related to restricting the flexibility of out-of-network providers have been initiated in several states including: Connecticut, Idaho, Illinois, Indiana, Kansas, Massachusetts, Minnesotta, Missouri, North Carolina, New Jersey, New York, Oklahoma, Pennsylvania, Rhode Island, Tennessee and Texas.

State Tax Initiatives

Several states have now considered legislation similar to the New Jersey ASC tax enacted in 2004. Under this tax (applicable only to ASCs, IDTFs, and cancer treatment centers) physicians are subsidizing care provided in hospitals.