N.J. Decision May Cause Big Challenges for State's Physician-Owned ASCs

A new case (Endo Surgi Center v. Liberty Mutual Insurance Company), in the aftermath of the original Garcia v. Health Net of New Jersey (also known as the Codey Case), may spell larger problems for New Jersey-based surgery centers. Endo Surgi Center holds that a New Jersey payor need not pay a physician-owned ASC that operates out of compliance with the Codey Act.

Here, the case was brought by the physician-owned surgery center to contest the failure of the payor to make certain payments to the surgery center. The claims alleged that the payor was both underpaying and, in some cases, not paying the surgery center for out-of-network claims. The insurer counter-claimed that the surgery center had been billing the payor in a fraudulent manner and had been operating in a manner that was unlawful and that, therefore, it should not have to pay. Further, it argued that it should be able to recoup previous claims paid. Specifically, the court recited:

"Defendant is not only refusing payment of outstanding claims but is also affirmatively seeking disgorgement of facility fee payments previously made to Plaintiff. Defendant is also alleging that Plaintiff?s billing practices amount to a violation of the Insurance Fraud Prevention Act."

"Defendant also asserts that Plaintiff has violated the Codey Law against self-referrals. Under the Codey Law, a practitioner is precluded from referring a patient to a facility in which the practitioner has a significant beneficial interest."

The court, in the decision, held that the surgery center had not committed a fraud of any sort, but did hold that the surgery center was operating in violation of the Codey Act, and thus the insurer did not have to make payments to the ASC:

"Accordingly, this Court finds that Plaintiff has violated the Codey Law?s ban on self-referrals, and Plaintiff is not entitled to payment on the outstanding claims. Summary Judgment is granted in favor of Defendant on this point."

This holding goes a step much further than the original case holding in Garcia. It means that surgery centers can be faced with this type of defense against the payment of claims of any sort. The New Jersey State Surgery Center Association and other associations must continue to push for resolution of this issue as soon as possible.

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