NEW JERSEY - REFERRALS

March 25, 2008

New Jersey state laws and regulations that affect your medical practice

I. CONSULTING PHYSICIANS FROM ANOTHER STATE

1. May a physician request a consultation from a physician licensed in another state?

The rendering of an occasional medical service by a physician from another state which is incidental to a special case may be permitted, under limited circumstances. However, New Jersey severely restricts the circumstances for in-state medical practice by a physician not licensed in this state. An out-of-state physician may not open an office for the practice of medicine nor regularly interpret medical diagnostic tests in New Jersey without a license. Furthermore, an out-of-state physician may not admit patients to a hospital, prescribe medications, or write orders. The exceptions to this rule include the following:

(A) An active officer of the federal government; a substitute doctor covering a local doctor during vacations/illness; a resident in hospital training; and a doctor-employee of state/county institutions who has no private practice;

(B) Persons acting under the Good Samaritan Law such as treatment of the sick or suffering by prayer or spiritual means (without the use of drug remedy); or assistance or relief in emergency or accident cases pending the arrival of a regularly licensed physician; and

(C) Persons licensed under another statute such as dentists, optometrists, podiatrists, pharmacists, chiropractors or physician assistants.

The above exceptions do not authorize the designated persons to practice medicine in New Jersey; rather, they may act within the limits of their area of competence and only under the direction of a New Jersey licensed physician.

(N.J.S.A. 45:9-21)

II. SELF-REFERRALS

1. What are the regulations governing the referral of patients by a physician to health care facilities in which the physician has a financial interest?

New Jersey prohibits the referral by a physician to a health care service in which the physician or the physician's immediate family has a significant beneficial interest (defined below). There are, however, several exceptionsto the self-referral prohibition:

A. Interest Created Prior to July 31, 1991

If the physician held the interest prior to July 31, 1991 and discloses that interest to the patient, then a physician may refer patients to a health care service in which he or she holds an interest. Such a physician shall be deemed to be “grandfathered.” If another physician professionally affiliated with a grandfathered physician obtains a significant beneficial interest in the same health care service in which the grandfathered physician holds an interest, that physician shall not refer patients to that service. On the other hand, if the physician does not hold an interest in that service, he may refer patients to that service so long as all of the disclosure requirements below are met.

B. Disclosure

Disclosure of a physician’s interest shall be made by the physician by personal notice to the patient, prior to the referral stage of treatment, and by the conspicuous posting of a written disclosure form, at least 8 ½ by 11 inches in size, in the physician’s waiting room of all office locations. The patient shall also be provided with a personal copy of the notice. The disclosure shall state the following:

Public Law of the State of New Jersey and Public Rule of the Board of Medical Examiners mandate that a physician, podiatrist and all other licensees of the Board of Medical Examiners inform patients of any significant financial interest held in a health care service. Accordingly, take notice that practitioners in this office do have a financial interest in the following health care service(s) to which patientsare referred:

(LIST APPLICABLE HEALTH CARE SERVICES)

You may, of course, seek treatment at a health care service provider of your own choice. A listing of alternative health care service providers can be found in the classified section of your telephone directory underthe appropriate heading.

(N.J.A.C. 13:35-6.17)

C. Financial Interest

A financial interest means a monetary interest of any amount held by a practitioner personally, or through immediate family, in a health care service to which the practitioner’s patients are referred. It includes the offer or receipt, directly or indirectly, by the physician or immediate family, of anything of more than negligible value as a result of a patient's purchase of a prescribed service, goods or devices to or from another person or entity.

Financial interest includes a licensee's financial interest in a contractual arrangement with a licensed health care facility (such as a hospital, nursing home, or clinic, etc.), whereby the licensee agrees to provide health care services on referral, for example, cardiac or radiologic diagnostic testing, to patients including those receiving Emergency Room care or inpatients or outpatients of the health care facility.

Financial interest does not include the following:

i. A straight salary or an annual retainer which is not related to the volume of patients treated;

ii. A contractual arrangement with a licensed health care facility or health care service to provide non-clinical services such as quality assurance review, peer review, administrative or supervisory services, duties (other than hands-on care) of a department chair or medical director, or similar services;

iii. A contractual arrangement with a licensed health care facility to provide health care services to patients who are medically indigent, under which the facility pays the licensee reasonable fees for services rendered. For purposes of this rule, "medically indigent" patient means any patient meeting the requirements for indigency established by the State Medicaid program, by the Federal government for purposes of meeting Hill-Burton obligations, by the State Department of Health for purposes of reimbursing hospitals for uncompensated care, or by any other governmental program for purposes of providing health care to indigent individuals;

iv. A contractual arrangement (including a faculty practice plan) with a licensed health care facility to provide health care services to patients of the facility, under which the licensee agrees to accept payments from third party payors (plus any deductible or coinsurance amounts) as payment in full for such services; in the absence of third party payment mechanism, the licensee must have agreed to provide such services at no charge or the facility must have agreed to pay the licensee reasonable fees for services rendered;

v. A contractual arrangement with a licensed health care facility to provide health care services to patients of the facility, under which the contract establishes the maximum fees which can be charged for the services of the facility approves the licensee's fees in advance, and the services to be provided are part of the facility's normal utilization review process;

vi. A contractual arrangement with a licensed health care facility in connection with a residency or externship program conducted by the facility in affiliation with a medical school accredited by the American Council on Graduate Medical Education or the American Osteopathic Association under which the facility pays the licensee (either directly or through a professional corporation or nonprofit corporation or other appropriate entity) for administration, teaching, supervision and/or hands-on care, and under which the facility or licensee (directly or indirectly) bills patients and third party payors for hands-on care; or

vii. A contractual arrangement (either individually or through an individual practice association, competitive medical plan, or similar organization) with a licensed health care facility to provide health care services to the facility's employees and/or beneficiaries of the facility's health plan, and/or to provide services to eligible individuals pursuant to an agreement between the facility and a health maintenance organization, other managed health care organization, insurance company, union welfare plan, employers or other similar organizations.

D. Significant Beneficial Interest

A “significant beneficial interest” means any financial interest, including an equity or ownership interest in a practice or in a commercial entity which holds itself out as offering health care services.

This interest does not include the ownership of a building wherein the space is leased to a person at the prevailing rate under a straight lease agreement (that is, a fixed fee for a fixed term), or any interest in publicly traded securities.

Note: In the event of an inquiry, the SBME requires that physicians submit financial and familial information sufficient to establish the financial interest in the investment.

E. Health Care Services

“Health care service" means a business entity which provides on an in-patient or out-patient basis: testing for or diagnosis or treatment of human disease or dysfunction or the dispensing of drugs or medical devices for the treatment of human disease or dysfunction.

Health care service includes, but is not limited to, a bioanalytical laboratory, pharmacy, home health care agency, home infusion therapy company, rehabilitation facility, nursing home, hospital, or a facility that provides radiologic or other diagnostic imaging services, physical therapy, ambulatory surgery, or ophthalmic services.

F. Physician's Medical Office

The restrictions on referral of patients shall not apply if the health care service is provided at the physician's own medical office and the patient is billed directly and in the physician’s name.

G. Radiation, Lithotripsy or Renal Dialysis Treatment

The restrictions on referral of patients shall not apply to radiation therapy pursuant to an oncological protocol, or lithotripsy or renal dialysis treatment, provided that there is disclosure of the financial interest.

H. Division of Medical Assistance and Health Services

Neither the prohibition on referral, nor disclosure requirements of this rule apply in the case of a practitioner providing health care services pursuant to a prepaid capitated contract with the Division of Medical Assistance and Health Services in the Department of Human Services.

I. Durable Medical Equipment

A physician with a significant beneficial interest in durable medical equipment who prescribes to a patient any such equipment must provide personal notice of that interest to a patient in any setting, including the physician’s office and prior to the time of patient discharge from a hospital, nursing home or free standing health care facility (for example, urgent care offices or ambulatory surgery centers).

J. Investments: Real Estate and Medical Equipment

Physicians are permitted to be owners or investors in real estate or in medical equipment utilized for the conduct of a professional health care practice, provided that rent, dividends or any other forms of remuneration are received solely on the basis of the investment or fair market value.

K. Leasing

Physicians may lease professional space from a commercial (non-professional) entity on any arrangements consistent with standard business practice in the community, provided that the arrangement does not affect the licensee’s professional discretion in matters including choice of patients, professional services offered, or fees.

Physicians may also lease space or medical equipment to or from another licensed health care professional to whom patients are referred, only where rent is a fixed fee set in advance and determined by the fair market value, or less, and is for a regular term and not for sporadic use of the space or equipment.

Any monetary arrangement other than as set forth above shall require Board approval for good cause shown.

L. Personal Medical Services

A physician who owns or practices in premises used for the performance of personal medical services including, but not limited to, ambulatory surgery services but not holding a Certificate of Need from the State Department of Health, shall not charge, or permit or condone a charge or “facility fee” separate from the fee for professional services. A facility fee may, however, be charged by a licensee who is a registered Medicare provider of surgical services, who is billing pursuant to criteria for such fee established by rules of the U.S. Department of Health and Human Services.

(N.J.A.C. 13:35-6.17)

3. What is a “kickback”?

Generally, "kickback" refers to any remuneration or payment arrangement by a physician as a portion of the charges for services rendered to a referring health care provider as incentive or inducement to refer patients for future services, when the payment is not an ordinary and necessary expense. Specifically, under regulations of the New Jersey State Board of Medical Examiners, a practitioner shall not, directly or indirectly, give to or receive from any licensed or unlicensed source a gift of more than nominal (negligible) value, or any fee, commission, rebate or bonus or other compensation however denominated, which a reasonable person would recognize as having been given or received in appreciation for or to promote conduct by a licensee including: purchasing a medical product, ordering or promoting the sale or lease of a device or appliance or other prescribed item, prescribing any type of item or product for patient use, or making or receiving a referral to or from another for professional services. For example, a practitioner who refers a patient to a health care service (such as a cardiac rehabilitation service or a provider of durable medical equipment or a provider of testing services) shall not accept from nor give to the health care service a fee directly or indirectly in connection with the referral, whether denominated as a referral or prescription fee or consulting or supervision fee or space leasing in which to render the services (other than as permitted elsewhere in Medical Board rules), or by any other name, whether or not the practitioner has a financial interest as defined above.

Copyright © Kern Augustine Conroy and Schoppmann, P.C. Used with permission.

Updated 2008