If the new version of the Codey Law, which is essentially the state's version of the Stark Law prohibiting physicians from referring patients to a facility in which they have a financial interest, is signed into law, physicians interested in opening a new surgery center will have just 180 days — after the new version of the Codey Law is signed into law — to identify a site and develop plans for their facility and start the application process before a moratorium on new surgery centers begins, says Michael Schaff, a healthcare attorney and chair of the corporate and healthcare departments for Wilentz, Goldman & Spitzer.
"They have to start moving now and take it seriously because the clock is going to start running soon," says Mr. Schaff. "There's nothing in [the law] that says construction has to be completed by a certain time, but you just have to start the process."
Other changes to the law under the bill will include:
- existing surgery centers will be required to become accredited by an accrediting organization;
- physician-owned single operating room surgery centers which were previously exempt from state Department of Health regulation will have to register with the Department of Health and will be subject to the accreditation requirement and the moratorium on new facilities;
- certain services that were once exempt from the Codey Law, including lithotripsy, will no longer be exempt one year after the effective date of the law, although existing physician ownership in these services will be grandfathered; and
- new ASCs that are owned by hospital, including joint ventures between physicians and a hospital, will be exempt from the moratorium.
The original Codey Law (named after Sen. Richard Codey) was passed by the N.J. Senate in 1991 and included greater restrictions on physician referrals than Stark, but was rarely enforced, and whether it applied to surgery centers was unclear, says Mr. Schaff.
But in Nov. 2007, a trial court judge issued a ruling in the case of "Garcia v. Health Net of New Jersey" which said that referrals to an ASC in which the referring physician had a significant financial interest violated the state's Codey Law. However, the judge said physicians in this case, and physician owners of surgery centers in the state, had not committed fraud because they thought (based on common practice and rulings by the state's Board of Medical Examiners) physician ownership was not a violation of the Codey Law, says Brian Kalver, healthcare attorney with Wilentz, Goldman & Spitzer.
"That prevented physician ownership of ASCs before the Garcia decision from being fraud per se," says Mr. Kalver. "But once the decision was published, the question was, can physician-owned surgery centers be accused of fraud now that they know that they are violating the Codey Law (at least according to one trial court judge)?"
In response to the Garcia decision, the legislature worked on several proposed amendments to the Codey Law, before the current version passed the state Senate and Assembly. Despite the significant new restrictions on surgery center, the bill creates a clear exemption under the Codey Law for physician-owned surgery centers as long as they follow some guidelines that are commonly observed, such as distributions based on investments and not on the number or value of cases brought to the facility, says Mr. Kalver.
View the Codey Law as it was passed by the state's Senate Nov. 24 by clicking here.