From: Becker Scott <>
Subject: N.J. Board Issues Statement on Codey Act Case, Physician Self-Referral to ASCs; HealthSouth Agrees to $14.2 Million Settlement in Kickback Case


December 18, 2007
In This Issue
N.J. Board Issues Statement on Codey Act Case, Physician Self-Referral to ASCs
News and Notes
Companies to Watch
March April issue ad
N.J. Board Issues Statement on Codey Act Case, Physician Self-Referral to ASCs

Here are excerpts from an interesting release by the New Jersey Board of Medical Examiners as a follow-up to the Codey Case. I thank Mike Schaff, a leading N.J. and national healthcare lawyer, for sending it along to the Becker's ASC Review.

At its regularly scheduled meeting on Dec. 12, the N.J. Board of Medical Examiners reviewed the recent decision in Garcia v. HealthNet and Wayne Surgical Center and entertained application from the Medical Society of New Jersey and other physician organizations seeking he issuance of a Special Advisory Opinion. The Board also heard public comments from a number of interested persons, including representatives of physician groups and two insurers (HealthNet and Allstate). The Board notes that earlier this week, Judge Contillo denied the application request to intervene in the case, on the grounds that the applicant interests were ably represented in the litigation and, in any event, his earlier ruling was intended to affect only the rights of the parties before him.

It is clear from Judge Contillo's decisions of Nov. 20 and Dec. 10 that, based on the record before him, he did not view Wayne Surgical Center as a medical office within the meaning of the term as it appears in NJSA 45:9-22.5. He has noted that the facility was at a different location from the other medical offices maintained by the doctors, the doctors did not control the personnel, and different bills were generated for the professional services rendered and for the facility fees. He distinguished the case before him from a situation addressed in a 1997 letter of the board, suggesting that were an ambulatory surgical center in a joint-venture with a hospital, there might be a different outcome.

The Board recognizes that the healthcare arena has changed substantially since the enactment of the Codey Act in 1989. At the outset, the Board was asked to review business structures in which several physicians pooled their capital to establish an additional practice site at which they could perform services integral to their area of practice. The model then presented appeared to easily resemble a medical office. In the absence of any statutory provision barring physicians from maintaining multiple offices, the Board has always ... [made] certain that it is the doctor himself or herself who is performing the service and a bill is being generated in the name of the practice. The 1997 letter expressly reflected the Board's expectation that the facility fees involved would be nominal. ... [B]ased on the statements before the Board today, there may be ASCs in current operation where a physician investor refers a patient for the performance of surgery by another doctor who may or may not be an investor. To date, the Board has viewed the medical office exception applicable to such situations. Further, based on the statements provided to the Board today and Judge Contillo's observations, the facility fees that may be involved are not nominal. In light of these developments, it is time for more clarification of the indicia that an entity should have in order to view it as a medical office, and thus excepted from the self-referral ban of the Codey Act. While Judge Contillo found it compelling that the center at issue was in a different location, that the doctors did not employ the personnel directly, and that separate bills were generated, we do not see these criteria as dispositive in all cases.

We are ... very concerned that the uncertainty that the applicant has described as more fully documented in the certifications -- presented in support of its motion to intervene before Judge Contillo -- has a significant potential to affect patient access to healthcare services. Judge Contillo has acknowledged the positive benefits of such centers and the important role they play in the delivery of healthcare in New Jersey. Were ASCs to close or cut back on the services provided, it is not clear that alternative providers -- hospitals or offices -- could immediately absorb additional cases, providing timely services. Any effort on the part of insurers to deny claims submitted by physician-owners will likely have a significant impact on the availability of services, representing a potential imminent peril to the public health. As such, the Board will undertake an effort to pursue an emergency rule defining a medical office for purposes of Codey Act.

The judge, using the Codey Act as a basis for his decision, in a part of a legal opinion focused principally on out-of-network issues, reasoned that the existing physician self-referral law technically makes a referral by a surgeon owner to an outside ASC unlawful. Here, the Board has decided that it will study and issue an emergency position and opinion on this shortly. It makes some efforts in this initial release to distinguish its view from that of the judge. This is positive for ASCs. That stated, the Board does not here go as far as to say ASC structures are all fine, and tends to speak negatively regarding indirect referrals and out-of-network (which often means very high rates of payment).

However, the Board does note that the concept of the facility doing its own billing as opposed to the practice itself seems like a proper practice. It may end up with a ruling similar to other states, where a physician who directly performs a procedure is permitted to invest and refer if he performs the case. The big questions as to the Board's final issuance may revolve around how the opinion impacts the ability to have non-physician partners or management company partners, how it impacts under-development facilities, and whether it comments on out-of-network or high fees.

To see a full copy of the statement issued by the New Jersey Board of Medical Examiners, please visit

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News and Notes

HealthSouth Corp. agrees to $14.2 million settlement. HealthSouth Corporation and two physicians have agreed to pay the United States government a total of $14.9 million to settle allegations that the Birmingham, Ala.-based company submitted false claims to the government and paid illegal kickbacks to physicians who referred patients for care in some of its hospitals, outpatient rehabilitation clinics and ASCs, Justice Department announced. HealthSouth will pay $14.2 million, and the physicians will pay a total of $700,000 under separate settlement agreements.

The settlement results from disclosures made by HealthSouth in 2004 and 2005 to the U.S. Attorney for the Northern District of Alabama after a change in management and an internal investigation. It resolves claims made by HealthSouth to Medicare and Medicaid for services provided to patients referred by orthopedic surgeons James Andrews and Lawrence Lemak of Birmingham, when HealthSouth had financial relationships with the physicians, their former partnership, the Alabama Sports Medicine and Orthopaedic Clinic, and their research and training foundation, the American Sports Medicine Institute, that violated the Medicare and Medicaid Anti-Kickback Statute and a provision of the Stark Law. Dr. Andrews will pay $450,000 and Dr. Lemak $250,000, resolving the government's claims against them.

The HealthSouth settlement also resolves allegations that the company paid kickbacks to, and entered into improper financial relationships with, other physicians, including a group in Los Angeles, in an apparent attempt to induce the referral of patients. The government's investigation of certain of the other physicians is continuing.

Back order alert. Depo-Medrol (methylprednisolone acetate) for Injection 80 mg/mL, 1-mL PF vials is currently on nationwide back order. JCB Laboratories can supply compounded methylprednisolone acetate, 80 mg/mL, 1-mL PF vials. Call JCB at (877) 405-8066 for pricing and availability or for other items you are having trouble locating.

Welcome new advertisers. We would like to thank AON, a leader in risk management that offers high-value risk protection products and capabilities for healthcare facilities, among a number of industries. The company has more then 50 years' experience, and its Affinity Programs are recognized for excellence. For more information, e-mail Pat Sedlak or visit AON online.

We also welcome Outpatient Outlook 2008, a gathering of 100 executives from cancer, imaging and surgery center developers and hospital and healthcare systems, presented by a5, a Chicago-based firm with significant healthcare and event marketing experience. For more information, e-mail John Harris or visit Outpatient Outlook online.

Thank you, new and returning advertisers. We thank JCB Laboratories, an outstanding company, for its renewal of advertsing for 2008. We also thank each of Kaye/Bassman and Greg Zoch, who heads up a leading search firm and spends a lot of his time on ASCs and search matters. We also are delighted to welcome the Manning Search Group, another lead recruiting firm, as an advertiser in the Becker's ASC Review. E-mail Roger Manning or visit Manning Search Group online. We are delighted to have these two exceptional firms aboard.

We also thank Larry Teuber, MD, and Medical Facilities Corporation for continued support of the Becker's ASC Review. Dr. Teuber has an incredible mix of being very very smart and very very decisive. To contact Dr. Teuber, click here. Finally, we thank Orion for being our first leaderboard advertiser on the redesigned Becker's ASC Review Web site. We have several other advertisers that begin on Jan. 1 now that the structure is in place; please bear with us while we complete the updating of various content on the site.

Congratulations, Jessica Cole. We congratulate Jessica Cole of ASC Communications, who spearheaded the efforts of the company to record advertising revenues for our Jan./Feb. issue. We hope our substance can match her sales and that we can avoid the impetus to constantly push for higher circulation and thus keep costs in line. In an effort to throw some caution to the wind, however, we did expand distribution to 25,000 people for the upcoming issue.

Subscribe to the Becker's ASC Review. To never miss an issue of the Becker's ASC Review, please subscribe! Visit or call (800) 417-2035.

Update on June Orthopedic- Pain Management- and Spine-Driven ASC Conference: Tucker Carlson to speak. The agenda and program for this event is nearly complete. We will have a robust agenda with approximately 70 different presentations. Further, given the proximity to the '08 presidential race, we have secured political commentator Tucker Carlson as a lead or keynote speaker. Overall, it will be a terrific event.

We will again be offering CME credit for physicians and we expect to exceed last year's attendance of 480 at this event. Aside from sizable attendance, we receive great feedback on the quality of the audience. To obtain a copy of the exhibitor-sponsorship prospectus for the conference, please visit

Should you have questions regarding sponsoring or advertising, please e-mail Scott Becker, and he will refer you to the right person; or e-mail Jessica Cole, e-mail Emily Noyes or e-mail Ryan Kiernan. For editorial ideas or news and notes, please e-mail Stephanie Wasek.

June conf ad w Emily
Companies to Watch

We are delighted to highlight the following companies in this week's E-Weekly.

Ambulatory Surgery Centers of America.ASCOA (Ambulatory Surgical Centers of America) is a leader in the surgery center and surgical hospital industry, achieving exceptional quality of care and outstanding financial results. Since 1984, ASCOA's founders have helped physician-owners start and operate successful facilities -- from the initial feasibility study to accreditation and day-to-day management. ASCOA currently operates 21 facilities across the country with others in development. Physicians looking to start a new surgery center or surgical hospital venture, and existing facilites looking to improve their process and profits can find a partner in ASCOA. For more information, visit ASCOA online.

Medical Facilities Corporation. Medical Facilities Corporation is a publicly traded company and a leading acquirer of majority interests in high quality specialty hospitals and ASCs. Founded and managed by physicians and with a market capitalization over $300 Million, MFC is the ideal partner for physician owners. MFC permits physician owners to retain local operational control while benefiting from being part of a larger prestigious healthcare organization. MFC currently owns an interest in four specialty hospitals with a total of 28 operating rooms, 51 recovery beds and more than 500 physicians and surgeons. Visit MFC's Web site or contact Steven Hartley at (866) 766-3590 x105.

Alpine Surgical Equipment. The reputation of the Alpine Surgical Equipment team is well known throughout the ASC industry: This team of professionals has worked on well over 750 surgery centers nationally, and has worked extensively with the industry's leading corporations, surgery center development, equipment planning and consulting firms. Alpine Surgical provides its clients with a wide array of both new and refurbished medical equipment for the entire ASC, including OR, pre- and post-op areas, by working closely with many of the leading medical equipment manufacturers and specialty refurbishing companies nationwide. Alpine Surgical's goal is to provide customers with exemplary service, great product knowledge, the best products on the market and pricing that fits each budget. For more information, contact Matt Sweitzer at 916-933-2863 or visit Alpine Surgical on the Web.

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If you have any questions on any of the items listed in this letter, please contact me at (312) 750-6016 or by email at

Very truly yours,
Scott Becker

Scott Becker, JD, CPA
(312) 750-6016

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