Physicians challenge New Jersey fee schedule

A column analyzing the impact of recent court decisions on physicians

By Bonnie Boothis a longtime staffer and former editor of the Professional Issues section, left the paper to study law. She wrote the "In the Courts" column during 2005-08. Posted Nov. 12, 2007.

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As federal and state legislators, labor contract negotiators and business organizations have debated about rising health care costs over the past several years, physicians have been forced to fight on several fronts for fair payment for their patient care.

The federal government is looking to cut or stabilize Medicare costs. State governments are trying to contain Medicaid costs. And private insurers have become pretty adept at using their collective might to drive hard bargains.

But physicians in New Jersey have recently found that the drive to cut health care costs in industries tangential to health care also can have a significant effect on their reimbursement rates.

Now they are fighting back.

The Medical Society of New Jersey and seven other physician groups have persuaded the Appellate Court of New Jersey to temporarily prohibit the state from implementing a new fee schedule for physicians who treat people injured in auto crashes.

The state's Dept. of Banking and Insurance would have raised the procedures that would be capped under the state's Personal Injury and Protection statute to 1,000 -- a significant jump from the 92 now capped. It also would have created a fee schedule for ambulatory surgical centers. The change was to become effective Oct. 1, but the Appellate Court agreed to decide whether the department properly developed the new regulations.

The court put the measure on hold until it makes a decision. That could take anywhere from three months to a year, depending on whether New Jersey Attorney General Anne Milgram, who represents state agencies when they are sued, asks for an expedited appeal or the case winds its way through the court system at a normal pace.

"Reasonable and prevailing" fees?

At issue is a sentence in the personal injury statute that directs the Dept. of Banking and Insurance to "incorporate the reasonable and prevailing fees of 75% of the practitioners within the region" in setting its fee schedule.

The MSNJ and the other physician groups, in their brief supporting their motion for a stay pending appeal to the appellate court, argue that the department's regulations are not consistent with the personal injury statute; that the department did not sufficiently explain the basis for the regulations; and that it did not interpret the statute by giving plain meaning to its language.

Doctors argue that the regulations are not consistent with the statute because the department did not attempt to set rates using the reasonable and prevailing fees of 75% of physicians, but instead used the Medicare fee schedule. Relying on Medicare, a single federal government program, is not a substitute for complying with the statutory requirement, they argue. In addition, they write in their brief, the department has not "adequately explained and documented how and why Medicare payment rates are a reasonable barometer" for setting fees that are supposed to be based on the experiences of New Jersey physicians.

In adopting the final rule, the department said that it calculated the fee amount using a variety of sources, including Medicare and state workers' compensation fee schedules, health care providers and compilations of paid fees by vendors. Physician group leaders say this statement contradicts one the department made in the original proposed rule, and that fee amounts did not change between the proposed and final rule.

In their brief, the physician groups also point out that the "allowed fee data bases" that the department used are primarily composed of fees paid by managed care organizations "which are in an economic position to demand that physicians accept reduced payments rather than payment in full of their reasonable charges."

They argue that the statute -- which uses the word "fees" -- is a clear expression of the Legislature's intent to have payments to physicians under the personal injury and protection law's fee schedule equal the amount physicians charge, not the amount of those charges that are paid.

This is not the first time the issue of whether the statute can be interpreted to mean paid fees rather than billed fees has been before the appellate court.

In 2003, in Coalition for Quality Health Care, et al., v. New Jersey Dept. of Banking and Insurance, the department acknowledged that billed fees had been the basis for medical fee schedules since 1990. However, it successfully argued that over the years, paid fees and billed fees had diverged to the point where the paid fees could be considered the proper measure of "reasonable and prevailing."

Courts are reluctant to overturn agency decisions unless they determine that those decisions are "arbitrary, capricious or unreasonable." In ruling that it was permissible for the department to use paid fees instead of billed fees to set the payment schedule, the court said that despite the history of basing fee schedules on billed fees, it was not arbitrary and capricious for the department to use paid fees.

"Indeed, if as the department asserts, and appellants do not factually dispute, providers routinely accept significantly less than the amount they are purported to charge, then paid fees are a realistically more accurate measure of reasonable and prevailing fees than billed fees," the court wrote.

The physician groups are asking the court not to follow the precedent set in Coalition for Quality Health Care because the court's reasoning was circular. Physicians do not "choose" to accept the fee schedule; instead, they have no choice but to accept the fee schedules dictated by Medicare and insurers, physician groups argue in the brief.

The New Jersey Attorney General's office did not return calls for comment.

Lowering auto insurance rates?

Lawrence Downs, MSNJ general counsel, said the banking and insurance department has not updated the fee schedule in some time and that the court noted in Coalition for Quality Health Care in 2003 that the department did not dispute it had defaulted in making timely biennial adjustments to the schedule.

The statute, which included a directive that the schedule be updated biennially for inflation and new medical procedures, was enacted in 1988.

Downs said that historically, New Jersey and Connecticut have had the highest auto insurance rates in the country, and that the issue is very politicized. About 15 cents of every premium dollar collected in the state is related to medical care. Physician services account for between four and five cents of that 15 cents, Downs said.

There is a public policy push to bring rates down, he said, but if the Legislature was looking to make a big change, physician rates wouldn't be the area to look at first.

The New Jersey Assn. of Osteopathic Physicians and Surgeons, Orthopaedic Surgeons of New Jersey, New Jersey Interventional Pain Society, Atlantic Orthopedic Associates LLC, New Jersey Assn. of Ambulatory Surgery Centers, New Jersey State Society of Anesthesiologists, and Alliance for Quality Care, Inc. -- a coalition of health care professionals who would be subjected to the challenged regulations -- joined MSNJ in the lawsuit.

Bonnie Booth is a longtime staffer and former editor of the Professional Issues section, left the paper to study law. She wrote the "In the Courts" column during 2005-08.

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Kentucky physical therapy decision appealed

Kentucky orthopedic surgeon Ronald Dubin, MD, wants the state Supreme Court to overturn a recent appeals court ruling that forbids him from using two CPT codes that relate to physical therapy.

In September, the Kentucky Court of Appeals overturned a trial court judge's refusal to grant a permanent injunction to the Kentucky Board of Physical Therapy, which sought to keep Dr. Dubin from using the codes. The appeals court sent the case back to the trial court with an order that it grant the injunction.

The court held that a state statute regulating physical therapy prohibits "any person, including a licensed physician, from representing to be a physical therapist, from representing to provide physical therapy services, or from billing for physical therapy services."

The law seems to give physicians the right to practice physical therapy, as one of its sections clearly states that nothing contained in the statute "shall prohibit any person licensed in the state under any other law from engaging in the practice for which such person is duly licensed" -- including physicians licensed to practice medicine. But the court said the result of this exception is that licensed physicians "may utilize treatment modalities that are the same or similar to those provided by a licensed physical therapist," but not call the treatments physical therapy or bill their services as such.

In his motion to the Supreme Court of Kentucky, Dr. Dubin argues that the appellate court ruling, if left standing, would put physicians in the "legal conundrum" of evaluating a patient for physical therapy, designing a treatment plan according to medical standards, and then not billing accurately for their services -- which he says would violate federal and state law and the AMA Code of Medical Ethics.

Dr. Dubin, whose case was featured in a 2006 "In the Courts" column (link), also points out that physical therapists could not practice independently until the state began licensing them in 1958. He argues that the Physical Therapy Practice Act was never intended to prevent physicians from providing physical therapy. It was only meant to give licensed physical therapists the ability to practice without the direct supervision of a physician.

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