N.J. surgery center wins ruling in health plan fraud case

A New Jersey appeals court ruling is good news for the viability of ambulatory surgery centers in the state and reinforces physicians' rights to do what's best for their patients, according to the state's medical community.

On Nov. 17, the Appellate Division rejected claims by Health Net of New Jersey that physician owners of an ASC committed fraud by billing for improper referrals to their out-of-network facility. The doctors themselves were in the health plan's network.

The appeals court upheld a 2007 trial court finding that while state law at the time banned self-referrals, the doctors did not knowingly violate the law or submit false claims in violation of a separate state insurance fraud statute. They were operating under a 1997 state medical board opinion that allowed for such referrals. Judges also noted that the referral statute was amended in March 2009 to permit self-referrals in certain circumstances and retroactively protect surgery center referrals.

In addition, the appeals court rejected Health Net's assertions that Wayne (N.J.) Surgical Center engaged in fraud when it waived patients' coinsurance payments so they would use the facility. Health Net alleged that the doctors misrepresented their charges because they failed to disclose the fact that they had waived the fees when submitting claims.

But state law and regulations do not bar physicians from waiving co-payments, the court said. Health Net did not respond to calls for comment, though attorneys in the case expect an appeal to the state Supreme Court.

Insurers often punish doctors and patients for using out-of-network services, said John D. Fanburg, counsel to the New Jersey Assn. of Ambulatory Surgery Centers. The organization was not directly involved in the case, but it is helping its members fend off similar suits by other insurers.

"Ultimately it's the patients' choice, and they should decide where they want to go, especially if insurance companies are charging them a higher premium for that [out-of-network] benefit," said Fanburg, chair of the health law practice at Brach Eichler LLC in Roseland, N.J.

The decision also helps keep third-party payers out of medical decision-making, said Lawrence Downs, general counsel to the Medical Society of New Jersey. The society, along with the Litigation Center of the American Medical Association and State Medical Societies, filed a friend-of-the-court brief in the case. Although the case involved surgery centers, it has implications for all physicians, who often see patients out of network.

"Physicians routinely consider what the impact [of health care costs] may be on financially strapped patients," Downs said. "Like any business person in the free market, if you decide it's better for you to write off a bill as opposed to expending the money or damaging a relationship to collect it, it's up to your professional and clinical judgment, not a third party."

But health plans contend that such practices drive up health care costs and ultimately hurt patient care. Health Net sought to recover $5 million in alleged fraudulent overpayments to Wayne Surgical Center.

ASCs often inflate their charges by waiving coinsurance and failing to disclose it, said Wardell Sanders, president of the New Jersey Assn. of Health Plans, which also filed a friend-of-the-court brief in the case. Doctors end up with higher incomes when they refer patients to their own facilities, while patients end up paying higher premiums, Sanders said.

"There is an additional cost-sharing requirement on out-of-network benefits to incentivize [patients] to go in network," he said. "These plans are priced assuming if you go in network, you pay a smaller cost share than out of network. But if the cost-sharing is waived, it doesn't fairly represent what the provider is really charging."

Thomas A. Gentile, Wayne Surgical's attorney, said the facility had patients sign agreements stating that they were responsible for the entire cost of care. Although the facility waived coinsurance, it still could collect the money if the patient were reimbursed directly by the insurer.

In affirming the trial court ruling, the appeals court agreed there was no fraud.

"Insurance companies are jumping on this excuse of keeping health care costs down, and that's a popular thing to say nowadays," Gentile said. "But they like to ignore the fact they sold the patient a policy that says they have the right to go out of network."