N.J. lawmakers compromise on physician referral

The governor is expected to sign the measure, which would allow self-referrals to doctor-owned ambulatory surgery centers but would freeze new ASC construction.

By — Posted Feb. 23, 2009

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A bill headed to New Jersey Gov. Jon S. Corzine's desk aims to reverse a court decision that threatened to put the roughly 200 physician-owned ambulatory surgery centers there in violation of the state's anti-self-referral law.

The legislation spells out exemptions to the statute that allow physicians, under certain conditions, to refer patients to surgery centers in which they have a financial stake. The bill was conceived after a 2007 trial court ruling that found such referrals illegal despite conflicting regulations by the state medical board.

The new bill, which the state House and Senate approved nearly unanimously, would allow doctors to treat patients in surgery centers they own as long as:

  • The physician who referred the patient personally performs the procedure.
  • Financial compensation is not tied to the volume of patient referrals.
  • All clinical decisions are made by practicing physicians and are in the best interest of patients.
  • Patients are given prior written notice of the physician's financial interest.

The measure, which underwent heavy debate among physicians and community hospitals, would put a moratorium on new ambulatory surgery center construction unless the ASC is jointly owned by a hospital. Single-room surgery centers that are an extension of a private medical practice would be required to register with the state health department and submit to reporting requirements on the number and type of patients served. But these smaller facilities are exempt from an existing tax on licensed, multi-room surgery centers.

Corzine is expected to sign the measure, which would take effect one year after its enactment. Referral exemptions would apply retroactively.

Crafting a compromise

The physician community lobbied to undo the court decision, fearing it would threaten access to care. Medical Society of New Jersey board member John W. Poole, MD, called the bill "a good compromise."

Physician-owned surgery centers have been operating in good faith under state regulations, and the bill "just legally codifies what was already standard practice," said Dr. Poole, a general surgeon. He does not own an ambulatory surgery facility, but he said the smaller centers can offer patients improved quality and convenience over traditional hospital settings. In addition, they can offer a financial benefit to doctors facing decreasing Medicare and Medicaid reimbursements, he said.

Physicians provide their share of charity care, "but in fairness, hospitals are required to take all comers and, as a public service, need to stay in business," he said.

Dr. Poole added that the registration requirement for single-room surgery centers was "a huge victory" in lieu of a burdensome tax.

Attorney Mark Manigan said the bill addresses another possible dangerous repercussion of the court case: Ambulatory surgery centers found in violation of the referral law could have been subject to fraud claims by health insurance carriers. Manigan represented the New Jersey Assn. of Ambulatory Surgery Centers and other physician organizations that pushed for the changes.

Health Net of New Jersey sued Wayne Surgical Center for billing fraud, alleging that the multispecialty facility sought payment for care resulting from illegal referrals, among other claims. Wayne Surgical denied any wrongdoing.

Despite its conclusion that referrals to ambulatory surgery centers violated state law, the court found no evidence that Wayne Surgical knowingly submitted false claims. Health Net appealed the decision to the Superior Court of New Jersey Appellate Division. The Medical Society of New Jersey, along with the Litigation Center of the American Medical Association and State Medical Societies, filed a friend-of-the-court brief supporting Wayne Surgical. The New Jersey Assn. of Health Plans filed an opposing brief.

The appeals court agreed to delay the case in light of the pending legislation. The new law likely would invalidate such claims and other similar pending lawsuits, Manigan said. "Without this bill, the [trial court ruling] threatened to shut the industry down."

A troublesome precedent?

Still, other aspects of the legislation may set a troublesome precedent for other states, said Kathy Bryant, president of the Ambulatory Surgery Center Assn."This type of broad-based restriction [on new surgery centers] is not something we've seen before."

While joint ventures can be beneficial in some cases, such arrangements are better accomplished through negotiation rather than legislative mandate, she said. "Hospitals can build without doctors, but doctors cannot build without hospitals, and that tells you where the balance of power is."

But hospitals viewed the bill as an important step toward leveling the playing field.

"There have been instances where [surgery centers] have been siphoning off paying patients for service lines that could help support the drawdown [hospitals] have from insufficient charity care and Medicaid patients," said Randy Minniear, vice president of legislation and policy for the New Jersey Hospital Assn. "By requiring joint ventures, hospitals' interests will be at the table."

Through separate legislation, the hospital industry is pursuing additional oversight of ambulatory surgery centers. That regulation will put the system in line with more stringent hospital quality cost-reporting requirements, Minniear said.

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