APPELLATE COURT RULING: A Win for Physicians and Patients

This week, the New Jersey Superior Court Appellate Division upheld the trial court’s opinion in Garcia v. HealthNet concerning billing practices at the Wayne Surgical Center. The unpublished per curiam appellate court decision affirmed the lower court ruling that physicians are not compelled to collect co-insurance from their patients. MSNJ participated as amicus curiae. The AMA’s Litigation Center provided support for the appeal.

This case was filed by physicians in 2006 when HealthNet refused to renew their contracts. HealthNet counterclaimed and countersued the Wayne Surgical Center alleging fraud, breach of the implied covenant of good faith and fair dealing, unjust enrichment, and tortuous interference with HealthNet’s subscriber contracts. The physicians were in-network providers with an ownership interest in Wayne Surgical Center; the surgical center was not a network facility.

HealthNet’s appeal was from the 2007 trial court decision that was favorable to both the physician community and to the owners of ambulatory care facilities. HealthNet alleged violations of the “Codey Act” prohibition on self-referal and improper billing practices by the surgical center in violation of the Insurance Fraud Protection Act (IFPA). HealthNet also alleged violations of the IFPA because the facilities failed to disclose that they waived collection of co-insurance. The trial court found that the referral practices of the physicians were in violation of the “Codey Act” (which was subsequently amended and allows the conduct complained of), but the State, not HealthNet, had authority to prosecute those violations.  The trial court also found no authority to support HealthNet’s claim that providers’ failure to collect co-insurance violated the IFPA.

The appellate division evaluated HealthNet’s theory on appeal that the trial court had used an erroneous “knowledge” standard under the IFPA. Since knowledge was not a defined term, the appellate division used the commonly understood meaning and found that HealthNet failed to establish that the claims were submitted knowing that they were false or misleading as required by the fraud statute.

Importantly for the state’s physician community is that the appellate court’s decision affirms that providers who waive their right to collect co–insurance do not misrepresent their charges. This opinion affirms the trial court’s finding that there is no legal authority barring a provider of healthcare services from waiving their contractual right to collect co-insurance.

According to Larry Downs, MSNJ’s General Counsel, “The ruling is important to the state’s physician community which wants to remain unencumbered in making decisions relating to waiving co-insurance based on an individual patient’s situation.” This case demonstrates that the courts, not the insurers, have the final say in the question of fraud and that they will decide by evaluating the evidence before them.

MSNJ and the AMA were represented by David Stone, Esq. formerly of Boies, Schiller & Flexner and now at Stone & Magnanini.