New Jersey's outpatient surgery facilities may find themselves on the wrong side of the law following a state superior court judge's ruling that physicians who refer patients to ASCs in which they hold a financial interest are violating the Codey Act, a 1991 state statute which prohibits certain forms of medical self-referral.

The judge rejected the New Jersey Board of Medical Examiners' 1997 advisory opinion that said physician-owners who perform surgery at their own facilities are engaging in permissible referrals. Rather, the judge ruled, ASCs are not extensions of physicians' offices.

If the Nov. 20 ruling stands, it may jeopardize the operations of New Jersey's approximately 200 outpatient surgery centers and make New Jersey the only state to bar physician ownership of and referrals to ASCs.

The ruling was an unexpected result of Health Net of New Jersey, Inc. v. Wayne Surgical Center, LLC, a lawsuit between an insurer and a Wayne, N.J., facility. The two parties disputed the insurer's claims for procedures performed by in-network surgeons at their out-of-network, physician-owned center rather than at in-network hospitals. The judge dismissed the insurance claims component of the lawsuit, finding no cause of action or fraud.

Several of the state's outpatient and healthcare players, including the New Jersey Association of Ambulatory Surgery Centers, the Medical Society of New Jersey, Orthopedic Surgeons of New Jersey, the Alliance for Quality Care and the New Jersey Academy of Ophthalmologists, filed a motion with the court on Nov. 30 requesting it reconsider the ruling. They are also pursuing potential recourse through the Board of Medical Examiners and the state legislature.

John D. Fanburg, JD, chairman of the health law practice group at Roseland, N.J.-based firm WolfBlock Brach Eichler, which is representing the groups, advises the state's ASCs to keep their eyes open and exercise caution in light of the ruling. "You may see insurance companies stop reimbursing for some procedures," he says, since the court's action may allow insurers to challenge payments for self-referrals. "Surgery centers may have to sue to get paid."

He recommends that ASCs provide patients and insurers with written disclosures in cases where a referring physician has a financial interest in the facility, in accordance with Board of Medical Examiners regulations. "The concern I have is allegations of fraud," says Mr. Fanburg. "In order to avoid that, the judge spoke of notification of physician ownership."

While many physicians may agree with the standards of professional behavior set by major medical societies, they don't always report colleagues who don't follow these rules. A survey reported in the December issue of the Annals of Internal Medicine found that there is a disconnect between the standards they agree with and what they actually practice.

For example, 96 percent of the 3,504 respondents throughout the nation felt that physicians should always report impaired or incompetent colleagues, but only 45 percent of respondents who had encountered such situations did so.

Additionally, more than 90 percent agreed with specific statements about principles of fair distribution of finite resources, improving access to and quality of care, managing conflicts of interest and professional self-regulation. However, many did not follow through on these ideals. Only 25 percent of the respondents said they actively look for disparities in health care based on the race or sex of the patient, and 11 percent admitted to revealing confidential information about their patients. Twenty-four percent of respondents said that they did not consider periodic recertification desirable or necessary to running a practice.

The survey included specialists in internal medicine, family practice, pediatrics, surgery, anesthesiology and cardiology. Of these, anesthesiologists and pediatricians were the most willing to report a colleague's mistake and undergo quality assessment programs.