Health law newsletter
August 2010
Retaliation by Third-Party Payors for Referring to Out-of-Network ASCs
Certain health insurance companies in New Jersey employ what many consider to be unfair tactics to pressure their participating physicians to cease referring their patients to out-of-network service providers (e.g., ambulatory surgical centers and out-of-network labs). For example, some insurers have successfully deterred physicians from referring their patients to out-of-network surgi-centers by paying them a substantially reduced professional fee for services they provide at such centers (e.g., 50% of the professional fee such physicians would receive if they had provided such services at an in-network surgical center). Other insurers have employed the extraordinary tactic of terminating a physician’s provider agreement to deter out-of-network referrals under the false pretense that the termination is without cause.
We believe that the aforementioned tactics are unfair and potentially unlawful. For many physicians in this State who derive a substantial portion of their revenue from the provision of services to insured patients, termination from the insurer’s network means the decimation of their practice. Not only do the aforementioned tactics have the potential to cause significant financial harm to physicians, they may also interfere with a patient’s right to seek treatment from the provider of their choice. An argument can be made that it is unlawful for a health insurer that offers out-of-network benefits (at a premium rate) to undermine their insureds’ ability to fully utilize their out-of-network benefits by punishing physicians who facilitate the patient’s utilization of out-of-network providers. The foregoing may constitute a violation of the third-party payor’s obligations to its beneficiaries.
If you believe you have been unfairly treated by a third-party payor for your referral of patients to out-of-network surgical centers, you and your patients may have legal recourse against such third-party payor.
Penalties against Patients Seeking PIP-Covered Services from Out-of-Network Providers Authorized
On July 6, 2010, the New Jersey Department of Banking and Insurance
(“DOBI”) amended its current regulations governing Personal Injury Protection (“PIP) benefits to, among other things, permit insurers to impose a penalty (not to exceed 30%) on patients for failure to use an approved network of providers with respect to services covered by a PIP plan. The penalty will be in the form of an additional co-payment (the patient’s responsibility). Additionally, insurers are now entitled to file policy language that waives copayments and deductible when a patient receives medical treatment from a provider that is part of an “Organized Delivery System” that has contracted with the insurer or its PIP vendor. At this juncture, we believe that the aforementioned regulation may impact ambulatory surgery centers, among other providers, to the extent that theirs physicians and chiropractors perform services reimbursable under a PIP plan. However, it remains to be seen whether the regulation will be utilized by insurers to patients who seek services from out-of-network providers with respect to other services not covered under a PIP plan.
Financial Arrangements with Clinical Laboratories Restricted
A New Jersey Department of Health and Senior Services (“DHSS”) regulation, which was adopted on May 25, 2010 and became effective on July 19, 2010 (codified at N.J.A.C. § 8:44-2.14 (the “DHSS Regulation”)), prohibits a clinical laboratory (a “Lab”) from providing certain monetary or non-monetary remuneration to a physician in exchange for the physician’s permitting the Lab to operate a “Collection Station” (i.e., a site where Lab employees provide, among other things, phlebotomy services) at the physician’s office, regardless of the intent behind such remuneration. The prohibition is extremely broad, such that all remuneration, direct or indirect, monetary (e.g., payment of rent or subsidizing staff salaries) and non-monetary (i.e., provision of items or services to the physician, such as EHR, office supplies) in exchange for the Lab’s operating a Collection Station at the physician’s office is prohibited. According to the DHSS, payment of the aforementioned remuneration will be viewed by the DHSS as a payment by the Lab to solicit patients of the physician by offering unearned remuneration to the physician in violation of N.J.S.A. § 45:9-42.42d (New Jersey’s statute prohibiting, among other things, the offering of payment of kickbacks by clinical laboratories to referral sources) (the “Lab Anti-Kickback Law”).
The DHSS Regulation also sets standards for Collection Stations that serve the general public, which standards include, among other things, the requirement that the Collection Stations: (i) serve all members of the public, and not just patients of one or more specific medical practices, (ii) be located in a free-standing building or occupy a space in a public access building, (iii) be accessible through an exterior building entrance or from a public access foyer or hallway that clearly indentifies the name of the Lab and its days and hours of operation, and (iv) have a written lease for use of the Collection Station that must be presented to the DHSS upon request. The aforementioned standards are designed to prevent Labs that purport to operate Collection Stations to serve the general public from operating such Collection Stations in a physician’s office to serve only the physician’s patients (as a way to unlawfully secure the physician’s referrals).
In light of the DHSS Regulation, many existing arrangements between Labs and physicians must be reviewed to determine their legality, and prospective arrangements must be structured so as to either comply with the terms of the Regulation or simply avoid implicating it. Though the Regulation does not apply to physicians (it applies only to clinical laboratories), a physician’s involvement in a transaction that violates the Regulation could increase the risk that the physician will be scrutinized under New Jersey’s Board of Medical Examiners regulation prohibiting, among other thing, the receipt of kickbacks to induce the physician’s referral of patient to the lab (the “BME Regulation”) for the following reasons: (i) increased scrutiny of Lab will consequently lead to increased scrutiny of physician-recipients of the prohibited remuneration, and (ii) in light of the DHSS Regulation, the DHSS now has a basis upon which it may deem remuneration paid in violation of the DHSS Regulation as a kickback violative of the Lab Anti-Kickback Law (thus, the argument by a physician-recipient of the remuneration that the remuneration was, in fact, not a kickback will be untenable).
CAP on NJ ACF Raised, but Not Lifted
As we advised you in our last newsletter, the original version of the budget proposed by New Jersey Governor, Chris Christie, included a provision that would have eliminate the $200,000 cap on the annual assessment on gross revenues of ambulatory care facility (e.g., ambulatory surgical center and imaging facilities), meaning that there would have been no limit on the amount of the assessment. However, in a compromise favorable to ambulatory care facilities, the New Jersey Legislature approved only an increase of the current cap from $200,000 to $350,000, and not a total elimination of the cap. As such, effective July 1, 2010, ambulatory care facilities in the State of New Jersey must pay an assessment on their gross revenues (equal to 2.95%) not to exceed $350,000.
This newsletter was prepared by Daniel B. Frier, Esq. (a founding member of the Frier Levitt and Chairman of the Health Law Department) and Mohamed H. Nabulsi, Esq. (an associate of the Firm).
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