N.J. ruling threatens surgery centers

By Stacey Burling
Inquirer Staff Writer
http://www.philly.com

A recent court decision that doctors who own an outpatient-surgery center in North Jersey were in violation of an old, but unenforced, state law prohibiting self-referrals has lawyers scrambling to protect the burgeoning alternative to hospital treatment.

Lawyers representing the state’s 200 ambulatory-surgery centers yesterday asked the New Jersey Board of Medical Examiners, which is charged with enforcing the law, to clarify its position. Earlier this month, Superior Court Judge Robert Contillo denied a motion to reconsider his November decision.

“Ultimately, we’re going to need a legislative fix,” said Mark Manigan, a partner in Wolf, Block, Schorr & Solis-Cohen L.L.P.’s health-care practice. The firm, which represents the New Jersey Association of Ambulatory Surgery Centers, the Medical Society of New Jersey, and orthopedic surgeon and ophthalmologist groups, is also “evaluating what our appellate course of action could be at this point.”

If the judge’s interpretation of the New Jersey law were enforced, it would cause the surgery centers to shut down, Manigan said.

The recent case, and similar cases still pending, is an attempt by insurance companies to avoid payment, he said.

He said he saw outpatient-surgery centers, which are licensed by the state, as a cheaper, more patient-friendly alternative to hospitals.

But Paul Anzano, a lawyer who represents auto insurer Liberty Mutual Holding Co. Inc. and who also spoke before the board yesterday, said the outpatient centers sometimes charged more than hospitals. The centers, he said, sometimes inflate medical bills with large facility fees.

New Jersey’s outpatient centers, most of which are owned at least in part by doctors who perform procedures there, are unpopular with hospital administrators. They say the centers siphon off the easiest, best-insured patients and, as a result, weaken hospitals financially.

The New Jersey Hospital Association declined yesterday to comment on the court case. Earlier this year, however, it called for tougher regulation of the centers.

In the recent case, which pitted Health Net of New Jersey against doctors who own Wayne Surgical Center, the insurer contended that the center had committed insurance fraud and should not be paid. Contillo concluded that the doctors had not committed fraud, but agreed with Health Net that they had violated the Codey Act, a 1991 law that prohibits doctors from making referrals to facilities in which they have financial interest.

“The facts plainly establish noncompliance with the Codey Act ban on self-referrals,” Contillo wrote.

The law explicitly exempts centers that treat patients who need certain kidney stone, dialysis or radiation oncology treatments, but not centers performing surgical procedures.

Federal law on self-referral allows physician ownership of outpatient-surgery centers, Manigan said.

The state Board of Medical Examiners, he said, has never used the Codey Act to sanction surgery centers, and it has issued statements saying it considers them an extension of a physician’s practice.

A spokesman for the board did not answer a question about whether that accurately describes the board’s policy. Instead, he e-mailed new rules the board proposed earlier this year. The proposal has not moved beyond the first step of the multistep process required for approval.

It allows doctors to refer patients to surgery centers they own, with restrictions. Doctors must tell patients about the ownership interest. Physician income from center ownership cannot be contingent on patient volume. And a center cannot discriminate against Medicare or Medicaid patients.
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