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Governor Corzine Signs Bill Impacting Physician Referrals to Physician-Owned Surgical Practices and Limiting New One-Room Surgical Practices

April 2009

On March 21, 2009, Governor Corzine signed into law Senate Bill S787 (N.J. P.L.2009, c.24) that permits practitioners to refer patients to surgical practices registered with the New Jersey Department of Health and Senior Services (“DHSS”) or licensed ambulatory care facilities in which they have a financial interest under certain circumstances. In addition, the law sets forth a definition for the term “surgical practice,” places a moratorium on new physician-owned surgical practices and ambulatory care facilities, and requires registration of single-operating room surgical practices with DHSS. As a result, the new law amends the “Codey Law” that prohibits physician referrals of patients to entities in which they have a financial interest; it also clarifies issues raised by the 2007 case of Garcia v. Health Net of N.J., Inc., where the court found that surgeons violated the Codey Law by referring patients to an ambulatory surgical center in which they had a financial interest. Further, services such as lithotripsy or radiation therapy performed pursuant to an oncological protocol will no longer be exempt from referral restrictions.

Surgical Practice Definition:

A “surgical practice” is defined as a structure or suite of rooms (i) having no more than one operating room, (ii) having one or more post-anesthesia care units, and (iii) having been established by a physician, physician professional association, or other professional practice form specified by the Board of Medical Examiners. A surgical practice also includes an unlicensed entity that is certified by CMS as an ambulatory surgery center provider.

Self-Referral Requirements:

Pursuant to the new law, practitioners are only permitted to make referrals for ambulatory surgery or procedures requiring anesthesia to a surgical practice or ambulatory care facility in which they have a financial interest if the following conditions are met: (i) the referring practitioner must personally perform the procedure; (ii) remuneration related to the practitioner’s ownership or investment in the practice or facility must be directly proportional to that financial interest and not to the volume of the practitioner’s patient referrals; (iii) with respect to a facility with non-practitioner owners, all clinically-related decisions must be made in the best interest of patients by practitioners; and (iv) the patient for whom the referral is made must be given written disclosure of the the referring practitioner's significant beneficial interest in the practice or facility.”

Registration Requirements:

A surgical practice in operation on the effective date of the law must be registered with DHSS on or before March 20, 2010. An entity that did not commence operation as a surgical practice on or before March 21, 2009, but files plans and other required documentation for its surgical practice with the municipality in which the practice will be located before September 17, 2009, is required to register with DHSS prior to beginning services. Registration requirements include obtaining certification by CMS as an ambulatory surgery center provider or obtaining ambulatory care accreditation from an accrediting body recognized by CMS, and reporting to DHSS annually (i) the number of patients served by payment source, (ii) the number of new patients accepted, and (iii) the number of health care professionals providing services at the surgical practice.

Moratorium on New Surgical Practices and Ambulatory Care Facilities:

Effective March 21, 2009, DHSS is prohibited from issuing new registrations to surgical practices or new licenses to ambulatory care facilities unless one of the following applies:

•In the case of a proposed transfer of ownership, the Commissioner of DHSS reviews and approves the proposed transfer;

•In the case of a proposed relocation, the new location is within 20 miles of the current location or in a designated “Health Enterprise Zone”, and the Commissioner reviews and approves the new location. In addition, the scope of services provided at the new location cannot be broadened;

•The entity is a surgical practice required to be registered and meets all registration requirements;

•For facilities not in operation on March 21, 2009, the entity files (on or before September 17, 2009) its plans, specifications, and required documents for a surgical practice or ambulatory care facility with the Health Care Plan Review Unit of the Department of Community Affairs or the municipality in which the practice or facility will be located;

•The ambulatory care facility is jointly owned by a general hospital in New Jersey and one or more other parties; or

•The ambulatory care facility is owned by a hospital or medical school.

Grandfathering of Referrals

The law includes a provision under which a referral made prior to March 21, 2009 by a physician to a surgical practice or ambulatory care facility licensed by DHSS, in which he or she has a beneficial interest, is deemed compliant with the self-referral provisions of the law when the practitioner personally performs the procedure. Referrals made on or after March 21, 2009 through the last day of February, 2010, are also deemed compliant provided the practitioner personally performs the procedure and discloses his or her beneficial interest in writing to the patient. Effective March 1, 2010, actual compliance with the self-referral provisions of the law is required.

For more information, please contact: David M. Hyman at (973) 530-2009 or via email at; Daniel A. Schwartz at (973) 530-2005 or via email at; Nicole DiMaria at (973) 530-2111 or via email at


This Client Alert should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer concerning your specific situation or any legal questions you may have.