New Jersey court sends blow to doctor-owned surgery centers

The state medical board plans to clarify the self-referral law in question. But doctors and regulators worry the ruling could threaten immediate access to care.

By Amy Lynn Sorrel, AMNews staff. Jan. 14, 2008.

A New Jersey trial court ruling puts most, if not all, of the 200 physician-owned ambulatory surgery centers there in violation of the state's anti-referral law.

A 1989 law called the Codey Act prohibits doctors from referring patients to an entity in which they have a financial interest, except in certain circumstances, such as for radiation therapy or if the service is provided at the doctor's medical office.

Health Net of New Jersey sued Wayne Surgical Center for billing fraud. The insurer claims that the multispecialty facility sought payment for care resulting from illegal referrals. The physician investors were part of the Health Net network, but the surgery center was not. The insurer also challenged the facility's out-of-network billing practices.

In his Nov. 20, 2007, opinion, Bergen County Superior Court Judge Robert P. Contillo said he recognized that "the very ubiquitousness of physician-owned ambulatory surgery centers ... is proof positive that this mechanism for delivering health care to the public is serving a need. But the [law], as is, plainly and unambiguously bars physician self-referrals."

Contillo also questioned whether surgical centers qualify as another medical office for the physicians who operate at them.

But the judge also found against Health Net. He wrote that he saw no evidence to support its fraud claim, given that Wayne Surgical and hundreds of facilities like it have been allowed to operate under what he called a largely unenforced law. Contillo also said there was nothing wrong when the doctors did not collect coinsurance payments from patients for out-of-network surgeries.