New Jersey’s “Codey Law” and the Prohibition Against Self-Referrals

New Jersey’s “Codey Law” and the Prohibition Against Self-Referrals

Most physicians are generally aware of the “Stark” law, named after Congressman Pete Stark, which is the federal government’s attempt to prevent physician self-referrals of Medicare and Medicaid patients to health care services and facilities in which they have an ownership interest.  Many physicians however, may not be as familiar with NJ’s version of similar legislation passed by Senator Richard Codey known as the “Codey” law.

Like the Stark Law, the Codey law prohibits a physician from referring Medicare and Medicaid patients to other health care facilities in which the doctor has an ownership interest.  The prohibition was born of the belief of many legislators that such referrals lead to abuse of the Medicare and Medicaid system, by racking up charges which would otherwise be unnecessary.

The New Jersey Board of Medical examiners (the “BME”) issued an advisory opinion in 1997 in which the Board declared that referrals of a physician to ambulatory surgery centers owned by a physician is actually an extension of the referring doctor’s practice, and therefore not a violation of the statute.  To be sure, there are certain restrictions, not the least of which is that procedure to be performed at the surgery center must be done by the referring doctor.  Today, you orthopedist for example, may refer you for surgery to a surgery center in which he or she holds an ownership interest.  Indeed, the number of same day surgery centers has sprung up in the last ten years as a result of the BME opinion.

In 2007, the NJ Superior Court threw a serious monkey wrench into that business structure.  In Joseph Garcia, M.D., et al. v. Healthnet of New Jersey, Inc. v. Wayne Surgical Center, LLC et. al., the Court essentially ignored the BME opinion and ruled that the ambulatory care facilities did not qualify for the exception under the Cody law.

As a result of the outcry of physicians and the entire medical community, the legislature went back to work and amended the Codey law in 2009.  The amended law however, had some drawbacks.  First, there was a moratorium on the number of new ambulatory care facilities which would be licensed.  Second, there were new restrictions on the transfer of ownership interests within the facilities.  Third, the amendment brought new mandatory registration requirements for “surgical practices” meaning the regulation of such facilities would be regulated not only by the NJ Board of Medical Examiners, but are now regulated by the NJ Department of Health and Senior Services.

The Codey and Stark Laws are only two of the very important statutes which physicians must be mindful of when establishing their practices.  Romanowsky Law can guide you through the thicket of regulations which exist, so that you may concentrate on the practice of medicine.