Attorney Representing New Jersey ASC in Landmark Victory for Surgery Center Industry Discusses Garcia v. Health Net, Continued Challenges for N.J. ASCs

The Appellate Division of the Superior Court of New Jersey recently upheld a decision  by the state's trial court that Wayne (N.J.) Surgical Center and its physician-owners did not violate the state's Insurance Fraud Prevention Act by waiving out-of-pocket costs for patients or by referring to patients to an ASC in which they owned an interest without notifying these patients' insurer of these practices.

Thomas Gentile, partner at Lampf, Lipkind, Prupis and Petigrow, argued the case, Garcia v. Health Net, on behalf of WSC and its physician-owners in front of the appellate court.

The case, he says, stemmed from an effort by insurers in the state to pressure ASCs and other physician-owned facilities to contract with them. Out-of-network facilities typically receive higher reimbursements for treating patients than in-network facilities; thus, many ASCs in the state have decided to remain out-of-network as part of their business strategy.

"Insurers like Health Net are happy to go out and sell employers insurance policies that allow patients to go out-of-network, but insurers don't like it when patients actually go to out-of-network providers because they are required to pay higher rates to out-of-network facilities," says Mr. Gentile. "At the same time, ASCs have become more and more popular with patients."

One way that insurers in the state have pressured facilities to go in-network is to refuse to renew the contracts of individual physicians who have an ownership stake in out-of-network ASCs, says Mr. Gentile.

In 2006, Health Net refused to renew the contracts of six physician-owners for no obvious reason than their involvement in the ASC, says Mr. Gentile. The physicians previously had contracts with the insurer for their professional services through their office even though WSC remained out-of-network. The physicians sued Health Net for what they claimed was unfair termination, and Health Net countersued WSC and the physicians for insurance fraud.

"Every time an ASC sues an insurer it seems they introduce counter claims of insurance fraud," says Mr. Gentile. "The appellate court's decision refutes insurers' theory that ASCs commit insurance fraud by violating the Codey law or failing to balance bill."

The Health Net suit claimed that WSC and its physician-owners violated the state's Insurance Fraud Prevention Act by referring patients to the ASC and waiving certain patient costs without notifying the insurer.

The decision of the appellate court upholds the decision of the trial court that the ASC and its owners did not violate the IFPA by violating the Codey Law, which prohibits self-referral for certain physician-owned businesses, or by failing to balance bill patients.

"What the courts said in regard to Health Net's Codey argument was that whether or not surgeon ownership violates Codey Law, WSC did not commit insurance fraud because the ASC did not have knowledge of the fraud. A required element of the insurance fraud is knowledge. To commit fraud, you have to know that what you are telling the insurer is false," says Mr. Gentile. "Because they believed that neither being part of an ASC nor waiving patient fees was illegal, the court ruled they didn't act with requisite knowledge under the protection."

A key component of Mr. Gentile's argument in the case was the insurer's lack of authority to bring forward suits against healthcare providers for insurance fraud using statues that are not intended to be enforced by private parties.  

"There's nothing in the Codey Law that says an insurance company has the power to sue a provider who violates the Codey Law. When the New Jersey Legislature passed the law, it was set up so that state Department of Health and other state agencies could take action against a physician," says Mr. Gentile "None of these agencies have ever said that surgeon-owned ASCs violate Codey Law, yet you have an insurance company decide to sue for insurance fraud because of a supposed Codey violation."

The Codey Law has since been amended to ensure the legality of surgeon-owned ASCs under defined circumstances, says Mr. Gentile.

Mr. Gentile says that he is pleased with the court's decision because it puts the power to regulate the practice of medicine back into the hands of elected representatives and administrative agencies.

"One of the things we've emphasized to the appellate and lower court is that these kinds of decisions about how the practice of medicine is regulated belongs with the peoples' elected representatives in the legislature and in administrative agencies, such as the Department of Health and Senior services and the Department of Banking and Insurance," says Mr. Gentile "This decision does not belong in private litigation where individual judges could be making decisions about how healthcare is regulated in our state."

Read more about the Garcia vs. Health Net appeal here.

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