New Jersey physician-owned Wayne Surgical Center, an ambulatory surgical center, has won an appellate decision that its physician-owners did not violate insurance fraud law in self-referrals to their out-of-network facility or in waiving co-insurance payment collection.

In the opinion of the case, Joseph Garcia, M.D. et al v. Health Net of New Jersey, Inc. et al. (Health Net), the Appellate Division dismissed Health Net's claims that Wayne and the physician-owners engaged in fraud through improper billing for referrals. Health Net had appealed a prior order of the trial court on December 11, 2007, which had granted summary judgment in favor of plaintiffs and third-party defendants on Health Net's claims.

The physicians had contracted with Health Net to provide services as in Health Net's network, but Wayne itself was not part of that network. Health Net then received two insurance claims when subscribers had undergone surgery at Wayne--from both the treating physician and by Wayne for facility fees. Because Wayne was not part of the Health Net network, the subscriber was responsible for payment of co-insurance, part of Wayne's charge. The patients were required to sign acknowledgments that they were responsible for Wayne's charge.

However, in practice Wayne waived the co-insurance obligation for most patients unless the patient was directly reimbursed and failed to turn over payment to Wayne.

In 2006, the Wayne physician-owners filed a complaint against Health Net alleging the company unlawfully refused to renew their contract for health care services in the network. Shortly thereafter, Health Net filed a counterclaim asserting claims under the New Jersey Insurance Fraud Prevention Act (IFPA) and other causes of action. Health Net alleged that the physicians involved violated the IFPA in knowingly submitting claims that were false and misleading. Health Net claimed the submission of the claims violated the IFPA because the physicians' referrals to the Wayne Center violated provisions of law in effect at the time. Health Net also alleged that the claims submitted did not disclose that Wayne had waived payment of co-insurance by Health Net's subscribers.

The trial court held that the Wayne Center and physician-owners did not knowingly submit false or misleading claims to Health Net. The law in question did state that medical practitioners could not refer a patient to a heath care service in which the practitioner had a significant beneficial interest. However, the Executive Committee of the New Jersey State Board of Medical Examiners had also issued an advisory opinion in 1997, stating that physician referral of patients to an ambulatory surgical center, in which the physician had a financial interest, was permissible.

While that advisory opinion was inconsistent with the language of the law, the trial court determined the advisory opinion gave Wayne's owners a reasonable basis to conclude the referrals of their patients to Wayne were lawful. The Appellate Division decision has upheld that determination.

The Appellate decision also upholds the trial court's determination that Wayne and the physician-owners did not violate the IFPA in failing to disclose their waiver of payment for the co-insurance due on Wayne's facility charge. The trial court noted that at the time Wayne submitted the claims to Health Net, it did not know if it would enforce the subscriber's agreement, and therefore the practice was not unlawful, and Wayne and the physicians did not knowingly submit false and misleading claims by failing to disclose the payment waiver. In addition, the Appellate Division pointed out that there was no statute or regulation from any licensing agency barring waiver of a contractual right to collect co-insurance.

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