On February 5, 2009, the New Jersey legislature adopted Assembly Bill No. A1933 (the "Bill"), which amends the New Jersey Health Care Practitioner Self-Referral Law (commonly referred to as the "Codey Law"). The Senate adopted an identical bill (S. 787) on December 15, 2008. The Bill currently awaits Governor Corzine's signature.
In sum, the Bill provides some security for existing ambulatory surgical centers ("ASCs"), by creating an exemption under which physicians may refer patients to facilities in which they have a financial interest. That exemption, however, extends only to those referrals for which the referring physician personally performs the procedure. The Bill also limits the issuance of licenses to new ASCs that are owned by medical schools or at least co-owned by hospitals, thereby marking the end of the proliferation in recent years of wholly physician-owned ASCs.
Background
The Bill was introduced in 2008 after a New Jersey court held in 2007 that a physician who refers a patient to an ASC in which the physician has a beneficial interest violates the Codey Law's prohibition against self-referrals. The court's decision, which caused many ASCs to fear that closure was their only option, seemingly overrode ten year old informal guidance from the New Jersey Board of Medical Examiners that Codey was not intended to prevent referrals to ASCs because ASCs constitute extensions of physician-owners practices.
By creating an exemption for certain referrals, the Bill aims to address the uncertainty created by the court decision. It also seeks to level the playing field between hospitals and ASCs by restricting the licensure of ASCs.
Self-Referral Exemption
The Bill creates an exemption for physician referrals to ASCs in which a physician has a financial interest, if: 1) the physician who has a financial interest and makes the referral personally performs the procedure; 2) the physician's compensation as the owner or investor in the ASC is directly proportional to his/her ownership interest and unrelated to his/her volume of referrals to the ASC; 3) all clinical decisions at a facility owned in part by nonpractitioners are made by practicing physicians; and 4) the referring physician discloses in writing his/her financial interest in the facility to the patient. Effective on the first anniversary of enactment, the Bill abolishes the current Codey Law exception that permits a physician to refer patients to lithotripsy and radiation oncology entities in which the physician holds an interest. That exception survives and will still apply, however, if the physician held such an interest prior to the first anniversary of the enactment of the Bill.
To address concerns about past referrals that could be found to violate the self-referral ban, the Bill exempts referrals made before its enactment if the referring physician personally performed the procedure. Referrals to ASCs and surgical practices made in the year following enactment would also be deemed to comply with the Codey Law if the physician who provided the referral personally performs the procedure and discloses his/her interest, as described above.
Restrictions On Future ASC Licensure
As to licensure, the Bill restricts future licensure of ASCs to facilities owned by a hospital or medical school, or jointly owned by a New Jersey hospital and other parties. While the Bill does not prohibit ASC ownership by those other than physicians and hospitals, it will prevent the establishment of any ASC that is not owned by a hospital (wholly or jointly) or medical school. According to the Bill's Statement, the restriction seeks to "address the economic disadvantage that hospitals face with the proliferation of free-standing ASCs." Facilities that submit architectural plans within six (6) months of the Bill's enactment, however, may obtain a license without partnering with a hospital. The Bill also permits the issuance of a new ASC license to an existing facility, if it changes ownership or relocates within a twenty (20) mile radius or to an underserved area designated as a "health enterprise zone."
Registration And Accreditation Of Facilities
The Bill increases regulatory oversight by requiring single operating room medical practices ("surgical practices") to register with the New Jersey Department of Health and Senior Services ("NJDHSS") and obtain ASC certification from the Centers for Medicare & Medicaid Services ("CMS") or accreditation from a CMS-recognized accrediting body within one (1) year of the Bill's enactment. Within the same time period, the Bill also requires all licensed ASCs to become accredited by a CMS-recognized accrediting body. Although surgical practices will be required to register with NJDHSS, it appears they will not be subject to the NJDHSS assessment that applies to licensed ambulatory facilities.
The Future Of ASCS
While the Bill offers some security for existing physician-owned ASCs, it limits referrals to those existing entities and severely restricts the development of new physician-owned facilities. The ability of physicians to refer to ASCs in which they have a financial interest will be greatly impinged, as the Bill permits such referrals only if the referring physician personally performs the procedure. Physicians will no longer simply be able to refer a patient to an ASC in which he/she has an interest for a procedure to be performed by another physician. Also, the proliferation in recent years of wholly physician-owned ASCs will likely cease due to the Bill's restriction on the issuance of new ASC licenses. Physicians who wish to develop a new ASC will have to partner with a New Jersey hospital to obtain licensure. There may be a flurry of wholly physician-owned ASC development immediately following the Bill's enactment, however, due to the ability of such ASCs to obtain licensure if they submit plans for approval within six (6) months of the Bill's enactment.
We will update you when Governor Corzine signs the Bill, which will likely occur within the next few weeks.
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