N.J. court rules that ASC violated state law prohibiting physician self-referrals

Lawyers look to the board of medical examiners' legal interpretation to reverse the decision.

Issue: January 2008

A New Jersey court recently ruled that a local ambulatory surgical center violated a state law banning physician self-referrals. In response, healthcare attorneys have filed a motion to intervene in the decision, which they say could place all of the state's ambulatory surgical centers in jeopardy.

In Garcia v. Health Net, a New Jersey judge ruled that the physicians' referral to an ambulatory surgical center (ASC), in which the physician owns an interest in the ASC violated the Codey Act (N.J.S.A. 45:9-22.5), which prohibits physician self-referrals. The almost 2-decade-old state statute bans self-referrals and includes an exception that allows physicians to refer to entities in which they have a financial interest if the entity is another medical office of the referring physician.

Mark E. Manigan, a partner in WolfBlock LLP, the law firm representing various state associations including the Orthopedic Surgeons of New Jersey and the New Jersey Ambulatory Surgery Center Association, told Orthopedics Today that the administrative agency entrusted to interpret and enforce the act — the New Jersey State Board of Medical Examiners — has long interpreted the act and the exception to permit physicians to refer to ASCs in which they have an ownership. However, the state judge ruled that the New Jersey ASC unknowingly violated the law.

Robert J. Cimasi, the president of Health Capital Consultants of St. Louis, told Orthopedics Today that he was shocked and disappointed by the ruling.

"My first concern is for the patients in the state of New Jersey," he said. "A significant portion of access to surgical care is something that is being provided by physicians invested in ambulatory facilities. This bizarre interpretation and misapplication of the Codey Act in trying to prevent what has, in fact, been established over a number of years by the BME in its advisory opinion. This has ominous implications for the provision of care in New Jersey in terms of patient access. It's extremely disruptive and does not service the public interest."

Affecting access to care

If the ruling stands, Manigan said that insurance carriers could try to deny payment to the centers, and the decision could result in a decline in patient access to care, jobs and revenue.

"The threat here, notwithstanding the administrative sanctioning of the industry over the past 15 to 20 years, is that the carrier community now has an excuse not to pay," Manigan said.

"And if they use that opportunity to deny payment, you could create significant problems in New Jersey, not just for the industry participants. But more importantly, I think that we'll have a significant access to care issue," he said. Although the case deals with a state law, he said the ruling could also give hope to special interest groups in other jurisdictions.

WolfBlock has since made a motion to intervene in the case.

"Our position is that the State of New Jersey has sanctioned physician ownership of surgery centers in a number of ways," Manigan said. "The board of medical examiners has, in various advisory opinions, indicated that — in a manner consistent with federal law — physician ownership of surgery centers does not violate the Codey law."

The firm will also cite the department of health's licensing applications, which list ownership information and the state's 3% tax on the gross revenue of ASCs which is used to fund the state's charity care system.

"It's our position that the state, like every other state in the union, and the federal government has not only sanctioned this businesses model but has openly embraced it, and there are good public policy reasons to do that in terms of access to high quality efficient care," Manigan said.

Repealing the law

David M. Glaser, JD, said the key to solving the issue is to repeal the Codey Act.

"What I would try to do is get the legislature to repeal the law. The judge basically says this law doesn't make a lot of sense, but it's the law," Glaser told Orthopedics Today.

In addition to moving to intervene in the case, Manigan said that the physicians and ASC community are seeking legislative relief. "We're hopeful that the board of medical examiners steps in and brings some clarity to this situation, but ultimately there's always another judge out there and another lawsuit," Manigan said.

While the initial motion was unsuccessful, the firm will attempt to appeal the decision. "We're hopeful that upon participating in the litigation, we'll present a compelling case as to why the judge's analysis of the Codey law was misguided," Manigan said.

"We're working on both a legislative and administrative level to bring some clarity to the market, with the overriding concern here being that the only practical effect of this confusion would be to give carriers an excuse not to pay for medically necessary services that were provided. And that's just not good public policy," he said.

Physicians: Pay attention

Glaser said the case highlights the need for physician involvement in the legislative process.

"Here's the lesson for physicians: You need to pay attention to what happens in your legislature because there are a fair number of laws in every state that are ill-advised, and people weren't paying a lot of attention when they were passed," he said. Glaser said the case is another example of a law that remained ignored for years and suddenly was enforced.

"Sometimes physicians think of other physicians in their specialty or in other specialties as competitors," Glaser said. "You've got to bury that hatchet and recognize that you've got a common interest in avoiding bad regulation, because bad regulation screws things up."

For more information:
Robert J. Cimasi, is the president of Health Capital Consultants, 9666 Olive Blvd, Suite 375, St. Louis, MO 63132; 314-994-7641; e-mail: rcimasi@healthcaptial.com.
David M. Glaser, JD, is a health care attorney at Frederikson & Byron, P.A., 200 South Sixth Street, Suite 4000, Minneapolis, MN 55402; 612-492-7143; e-mail: dglaser@fredlaw.com.
Mark E. Manigan is a partner at WolfBlock LLP, 101 Eisenhower Parkway, Roseland, NJ 07068; 973-228-5700; e-mail: mmanigan@wolfblock.com.