N.J. Superior Court Upholds Ruling That Surgery Center Did Not Violate Insurance Fraud Prevention Act by Waiving Costs for Out-of-Network Patients

The Superior Court of New Jersey recently upheld a decision by the state's trial court that Wayne (N.J.) Surgical Center and its physician-owners did not violate the state's Insurance Fraud Prevention Act by waiving out-of-pocket costs for patients without notifying these patients' insurers of the practice.

The Superior Court's ruling also rejected claims by Health Net, state insurance industry associations and the N.J. Attorney General that the ASC violated IFPA by knowingly submitting claims to the insurer that were false or misleading. Insurance fraud must be knowingly committed to violate the IFPA.

Health Net of New Jersey filed the appeal after a trail court ruled in Dec. 2007 in favor of WSC and its owners after the insurer filed suit in Feb. 2006 that the center and its owners committed insurance fraud, under the state's IFPA, by failing to notify the insurer of waived balances.

Before undergoing surgery at WSC, patients signed a form stating that they were fully responsible for 100 percent of the center's charge. However, WSC routinely waived co-insurance obligations for patients unless the patient was directly reimbursed by his or her insurer. The ASC did not know at the time the patient signed the waiver whether or not that patient's co-insurance would be waived or billed, according the Superior Court's unpublished decision.

The Feb. 2006 Health Net suit followed a complaint introduced by WSC physician-owners against Health Net in Jan. 2006 after the insurer refused to renew their contracts. The WSC physicians previously contracted, on an individual basis, with Health Net. WSC, however, did not contract with the insurer. The complaint alleged that Health Net unlawfully refused to renew their contracts because of their participation with the out-of-network ASC.

Mark Manigan, JD, an attorney with the Health Law Practice Group at Brach Eichler in Roseland, N.J, considers the decision a huge win for patients and providers. "This is an important decision. The insurance carrier tried desperately to get the court to hold that providers had a legal duty to collect co-insurance amounts. The court refused to do so," says Mr. Manigan. "In addition, holding that actual knowledge of submitting a false claim is required in order to establish an IFPA claim is of great relief, in light of how complex the billing and collection process has become."

Michael Schaff, Esq., and Brian Kalver, Esq., attorneys with Wilentz, Goldman & Spitzer in Woodbridge, N.J, who represent a number of New Jersey ASCs that are embroiled in questions concerning patient billing, are hopeful the decision will put to rest many of the legal challenges that have been issued by New Jersey insurers, and provide some peace of mind to ASCs concerning their past patient billing practices.

"The decision vindicates the view held by many physicians that, as powerful as health insurers may be, they cannot make up their own rules on how non-contracted providers bill for their services and then deny claims and even accuse providers of committing fraud use for violating those rules," says Mr. Kalver.
The case is a win for New Jersey ASCs but does not completely remove all challenges to out-of-network practices by ASCs in the state, according to New Jersey ASC-industry activist Jeffrey Shanton, director of billing for American Surgical Centers.

"I don’t think that it changes the landscape all that much, except to remove the 'threat' of an insurance fraud lawsuit for the centers. All the carriers in New Jersey are ratcheting up the pressure on the weak link in the equation: the doctors," says Mr. Shanton. "Pressuring doctors to not go to out-of-network centers and issuing policies that restrict that ability are more of the problem than a carrier actually suing a center."

Read the unpublished Appellate Court opinion.

Contact Lindsey Dunn at lindsey@beckersasc.com.