6 things you should know about the recent changes to New Jersey’s laws regulating ambulatory surgery centers and surgical practices

On January 12, 2018, former Governor of New Jersey Chris Christie signed into law certain amendments to the Healthcare Facilities Planning Act (N.J.S.A. § 26:2H-12) (the “New ASC Law”), which fundamentally change the landscape of physician-operated “surgical practices” in New Jersey. Owners of existing registered surgical practices and ambulatory surgery investors should be familiar with the ramifications and opportunities that arise from this legislative change.

The recent amendments will change the landscape for physician based surgical practices in several ways, as summarized in the list below:

1. The Surgical Practice Registrationwas Replacedwith ASC Licensure.

Prior to the New ASC Law, single-room surgical practices based in a physician’s private medical office were required to obtain a registration from the New Jersey Department of Health (the “DOH”). All other surgical facilities – e.g., ambulatory surgery centers (“ASCs”) – were required to obtain a license and undergo New Jersey’s application process for licensed facilities. The prior law allowed physician based surgical practices to register with the DOH, rather than applying for facility licensure.

Under the New ASC Law, surgical practicesare now required to obtain a license from the DOH as an ASC and follow the existing statutory and regulatory scheme relating to ASCs, with a few exceptions as described below. Surgical practices that are currently registered must apply to the DOH for ASC licensure by no later than January 12, 2019.

2. Newly Licensed ASC are Exempt from Certain ASCRequirements.

Existing surgical practices that are now required to become licensed ASCs are exempt from paying initial and renewal licensing fees.In addition, surgical practices that are certified by the Centers for Medicare and Medicaid Services (“CMS”) or accredited by any accrediting body recognized by CMS (e.g., the American Association of Ambulatory Surgery Facilities) are not required to meet the physical plant and functional requirements that are otherwise imposed on ASCs. Surgical practices that do not qualify for the aforementioned exceptions to the ASC physical plant and functional requirements may apply to the DOH for a waiver from these requirements.

Generally, existing surgical practices that become licensed ASCs under the New ASC Law will be exempt from the ASC assessment charged by the DOH. However, the DOH may impose the ASC assessment against any surgical practice that expands to include additional operating rooms (as discussed below).

3. ASCs are Subject to New Reporting Requirements.

The New ASC Law requires ASCs to report to the DOH any changes in ownership within 30 days of such change. In addition, ASCs are required to annually report to the DOH the name of the facility’s medical director, physician director, and physician director of anesthesia, as applicable, and the director of nursing services, and report any changes in a named director within 30 days of such change.

The DOH has not yet issued regulations implementing the New ASC Law. The current regulations applicable to ASCs require a change of ownership to be reported at least 30 days prior to the change (N.J.A.C. 8:43A-3.3(a)). Existing regulations applicable to surgical practices require parties to apply to the DOH for approval at least 90 days prior to a transfer of ownership or adding a new individual as an owner (N.J.A.C. 8:43C-1.6(a)).


4. New Exceptions to the ASC Moratorium are Available.

While New Jersey’s moratorium on issuing new ASC licenses is still in effect, the New ASC Law provides several new exceptions for parties interested in becoming owners in an ASC. The New ASC Law retains the six exceptions that existed under the previous moratorium statute and adds several new exceptions as described below. Of particular note, the moratorium does not apply to existing registered surgical practices so long as they apply for an ASC license by January 11, 2019.

Prior Exceptions:


• Transfer of ownership of an ASC approved by the DOH;
• Relocation of an ASC within 20 miles of the ASC’s current location or to a Health Enterprise Zone with no expansion in the number of operating rooms, which has been approved by the DOH;
• The entity filed relevant documentation with the Health Care Plan Review Unit of the Department of Community Affairs within 180 days of the effective date of the 2009 moratorium;
• The facility is owned jointly by a general hospital in New Jersey and one or more other parties; or
• The facility is owned by a hospital or medical school in New Jersey.

New Exceptions:

• Two or more surgical practices may combine and form a newly licensed ASC, provided that the number of operating rooms at the new ASC is no greater than the total number of operating rooms of the two or more consolidating surgical practices;
• An existing ASC can expand by combining with one or more surgical practices, provided that the number of operating rooms after such an expansion does not exceed the total number of operating rooms of the ASC and consolidating surgical practices prior to the consolidation; or
• An existing ASC can also expand by combining with one or more ASCs, provided that the number of operating rooms after such an expansion does not exceed the total number of operating rooms of the surviving ASC and consolidating ASCs prior to the consolidation.

5. Unique Opportunities for Surgical Practice Consolidation Now Exist.

The new exceptions to the ASC moratorium generate unique opportunities for existing surgical practices and/or ASCs that are interested in consolidation and expansion. The New ASC Law permits surgical practices and ASCs to consolidate with other surgical practices or ASCs to form larger facilities.

The New ASC Law permits registered surgical practices, which were limited to only 1 operating room under the previous law, to increase their capacity by consolidating with other surgical practices or ASCs provided that the maximum number of operating rooms for any newly consolidated facility does not exceed the total aggregate number of operating rooms permitted for each of the consolidating surgical practices and/or ASCs. Through such combination, surgical practices and ASCs may be able to achieve certain economic efficiencies through shared resources and economies of scale. In addition, the combined efforts of surgical practices and/or ASCs can improve quality of care to patients through the common development of evidence-based policies, procedures, and protocols to be used in an expanded facility.

In addition, the New ASC Law presents opportunities for non-physicians to invest in combined and expanded former surgical practices. Prior to the New ASC Law, registered surgical practices could only be owned exclusively by licensed physicians. However, the New ASC Law suggests that non-physician ownership may be permitted once a surgical practice is licensed as an ASC.

Thus, the three new exceptions to the ASC moratorium under the New ASC Law present intriguing opportunities for:

• Non-physician investors who can now own equity in newly license done room ASCs and larger ASCs formed through the combination of other ASCs;
• Existing surgical practices that were previously unable to expand beyond one operating room due to the ASC licensing laws and moratoriums; and
• Existing ASCs that could not expand beyond their current capacity of operating rooms.

6. Self-Referral Prohibitions Were Modified.

The New ASC Law was passed in conjunction with amendments to New Jersey’s “Codey Law”(N.J.S.A. §§ 45:9-22.5 and 45:9-22.5a),which generally prohibits practitioners from making referrals to entities where the practitioner (or the practitioner’s immediate family member) has a “significant beneficial interest.”

Under the previous version of the law, one exception to the Codey Law permitted such referrals to an ASC or surgical practice for procedures that required anesthesia, if the following conditions are met: (a) the procedure is personally performed by the referring practitioner; (b) the practitioner’s earnings as an owner or investor in the surgical practice or ASC are directly proportional to the practitioner’s ownership interest and not to referrals; (c) clinical decisions at a facility owned in part by non-practitioners are made by practitioners in the best interest of the patient; and (d) the disclosure of the referring practitioner’s “significant beneficial interest” is disclosed in writing to the patient at or prior to the time that the referral is made.

The new Codey Law amendments will amend this exception (effective January 12, 2019), making it applicable to surgical procedures “involving the use of any anesthesia”, if the aforementioned conditions are met. This amended language will in effect protect more referrals, as it expands the scope of covered surgical procedures from those that only require anesthesia to procedure that involve the use of anesthesia.

Conclusion

Less than one year remains for registered surgical practices in New Jersey to obtain ASC licensure, and thus, industry stakeholders should understand the ramifications and opportunities generated by the New ASC Law and the amendments to the Codey Law.

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