By Gretchen Heinze and Scott Becker

On Nov. 20, a New Jersey Superior Court Judge issued an opinion in Garcia v. Health Net, Inc., c-37-96, (N.J. Super. Ct. Nov. 20, 2007), that could adversely impact physician ownership in ambulatory surgery centers in New Jersey. The court ultimately held that Wayne Surgical Center and its physician owners did not violate New Jersey's Insurance Fraud Prevention Act (the IFPA) by submitting claims for services which either were based on referrals in violation of the Codey Act, or for which patient co-insurance payments were routinely waived. However, in reaching this decision, the court analyzed whether a physician making a referral to an ambulatory surgery center in which such physician has an ownership interest is a violation of the Codey Act, N.J.S.A. 45:9-22.5, a criminal statute which prohibits physician self-referrals, and determined the physicians' referral to the center is a violation.

In support of its Codey Act determination, the court primarily looked to the plain language of the statute which prohibits a practitioner from referring a patient to a health care service in which the practitioner has a significant beneficial interest. The Codey Act defines "healthcare services" to include a facility which provides ambulatory surgery, and defines a "significant beneficial interest" as any financial interest, not including ownership of a tenant property or ownership in publicly-traded securities. The Codey Act specifically excludes the following from its referral prohibition:

• the referral to any entity in which the practitioner held interest before 1991;
  
• the referral of a service performed in the practitioner's medical office and for which the patient is billed directly by the practitioner and
  
• the referral of radiation therapy pursuant to an oncological protocol, lithotripsy and renal dialysis.

• the frequency with which the business structure exists
  
• the Board of Medical Examiners' lack of action to declare such practices illegal, and
  
• a 1997 Board advisory opinion which states, "it does not deem a surgeon's referral of his or her own patients to an ASC in which he has an interest an impermissible self-referral."

In reviewing these arguments, the court recognizes frequent non-compliance with the Codey Act by both practitioners and the board, and does its best to distinguish the facts and circumstances of the advisory opinion.

The court's determination that the physicians' conduct violates the Codey law was one arguably unnecessary and not binding step toward the final holding that the physicians and the center did not violate the IFPA. Therefore, the Codey discussion does not subject the physicians in this case to criminal liability, nor does it require the board to take action against the physicians. However, the court's analysis does give additional ammunition to those in the state who are attempting to eliminate physician ownership in ambulatory surgery centers and other health care entities altogether. It may also be used as the basis of an appeal by the insurance company or the basis of other lawsuits.

Ultimately, the board, as a part of the state Attorney General, is charged with enforcing the Codey Act. Thus, it is very important to know the board's position on the issue of physician ownership in ambulatory surgery centers. To date, the board has stated in an advisory opinion that such referrals do not violate the Codey Act and has declined to pursue actions against ASCs or physicians under the act. The board currently states that it is not making any statements on the Garcia case or its position on physician ownership of healthcare entities at this time, but plans to make a statement at the next board meeting in December. The case does create a bit of a cloud over ASCs and similar physician-owned ventures in New Jersey.