ASCs in New Jersey Breathe Sighs of Relief: Appellate Division Makes Decision on Garcia Case

ASCs in New Jersey are breathing sighs of relief in the wake of an Appellate Division decision which settles the state law surrounding referrals and waivers of co-insurance.  On November 17, 2009, the New Jersey Appellate Division affirmed, in an unpublished opinion, a lower court's holding that referrals to ambulatory surgery centers by physician owners prior to enactment of the recent amendment to New Jersey's anti-referral statute (the Codey Law) did not constitute fraud and that insurance claims of a provider that waives collection of co-insurance do not misrepresent the provider's actual charges.  Garcia v. Health Net, Inc., No. A-2430-07T3 (N.J. Super. Ct. App. Div., Nov. 17, 2009). 
 
In Garcia v. Health Net of New Jersey, Inc., an ASC and its surgeon-owners sued Health Net, charging that it had improperly denied renewal of the surgeons' individual provider contracts. While the surgeons had been in-network, the ASC had not.  Patients were required to sign legal acknowledgements of their obligation to pay their insurance plans' deductibles and co-insurances, which the ASC did not bill for or collect.  Health Net countered that the ASC and its owners had violated the New Jersey Insurance Fraud Protection Act (IFPA) by submitting false and misleading insurance claims:  first, by submitting claims for services, despite the fact that the physicians’ referral of patients to an ASC in which they had an ownership interest violated the then-current provisions of the Codey Law, and second, by submitting claims to Health-Net that did not disclose the ASC’s practice of waiving the patients’ obligations to pay the co-insurance.  Health Net also raised a number of common law claims, including a claim that the ASC’s practice of waiving co-insurance tortiously interferred with Health Net’s subscriber contracts.  The lower court granted summary judgment to the ASC and its owners on Health Net's claims and Health Net appealed, asserting that (1) the lower court applied an erroneous knowledge requirement to the NJ Insurance Fraud Prevention Act (IFPA), (2) the lower court erred in finding that insurance claims of an out-of-network provider who waives payment of co-insurance do not misrepresent actual charges and (3) the trial court erroneously granted summary judgment to the ASC and its owners on Health Net's common law claims. 
 
In its decision, the Appellate Division specifically addressed Health Net's IFPA claims and supported the lower court's reasoning that, because the physician owners were relying on a regulatory agency's interpretation of the Codey Law, they had a reasonable basis to believe that their referrals were lawful and thus had not knowingly submitted claims that were illegal.  The court declined to address the legislative fix present in the amendments to the Codey Law which provide retroactive protection to referrals made prior to enactment.  Furthermore, with regard to the waiver of co-insurance and common law assertions, the Appellate Division found that, Health Net's claims were "of insufficient merit to warrant comment". 
 
Although the waiver of co-insurance now seems to be a permissible practice in New Jersey, ASCs are cautioned to use best practices in implementing any blanket policies on the issue.  The ASC at issue in the Garcia case did not advertise that it waived co-insurance and it is uncertain whether the Garcia decision will afford protection to an ASC that does so advertise. 

Keep an eye out for the January issue of SurgiStrategies where Lorin Patterson and Lisa Albright will be discussing this topic more in depth.

Lisa S. Albright is a senior healthcare associate in the Princeton, N.J. office of Reed Smith LLP who specializes in regulatory and transactional matters for ambulatory surgery centers, hospitals, physician groups, skilled nursing facilities and other healthcare clients.