HEALTH

LAW REPORT
A Newsletter from the Health Care Law Practice Group

www.flastergreenberg.com Spring 2004

New Jersey Health Care Providers may be Facing

New Challenge from Insurance Companies
By Markley S. Roderick was owned by a chiropractor and/or laypersons. The court first
ealth care providers treating patients held that the company was violating N.J.A.C. 13:35-2.5, a reg-

Markley S. RoderickH injured in motor vehicle accidents in

New Jersey have struggled in recent
years with the fallout of a particularly diffi-
cult (and some say, wrong) court decision. Now it appears
that providers treating patients that have private medical
insurance – a group that includes virtually all other medical
providers—may be forced to join the struggle.
Background
In Allstate vs. Orthopedic Evaluations, 300 N.J. Super 510,
a company engaged in the business of performing certain tests,
ulation issued by the New Jersey Board of Medical Examiners,
which required all diagnostic testing companies to be owned by
plenary-licensed physicians. The court then went further and
held that because the company was violating a licensing reg-
ulation, it was ineligible to receive benefits under the per-
sonal injury protection (PIP) program. Thus, although the
insurance carrier had collected premiums from its policy-
holders and the policyholders had received treatment from
the medical provider, the insurance carrier did not have to
pay for the services.
Over the last several years the Orthopedic Evaluations
decision and others like it have been

Editor’s Note. . . used routinely by insurance carriers

seeking to deny payment to medical
practices with PIP patients. Frequently,
By Stephen M. Greenberg these cases are litigated before a partic-
his issue of our Health Care Law Report underscores the ular judge in Morris County who has

Stephen M. Greenberg
T increasingly difficult and dangerous environment in which
health care providers are forced to operate. The lead arti-
cle, by Mark Roderick, describes a new, aggressive approach that
(continued on page 2)

insurance companies now use to avoid paying providers’ claims.

Alma Saravia’s article explains New Jersey’s new CME requirements and what may In This Issue…
become a mandate to the New Jersey Board of Medical Examiners (B.M.E.) to get
New Jersey Health Care
tougher in investigating and disciplining physicians. The relationship between these Providers May Be Facing
two topics is chilling, because in our health care practice, we have seen a coordination New Challenge From
of effort between insurance companies and the B.M.E. that has had the effect of Insurance Companies..............1
destroying a physician’s practice well before the physician has had a day in court.
National Provider Identifier:
Jay Hafter’s article describes the new National Provider Identifier that will HIPAA, Part IV ........................3
enable the government to keep better track of every practitioner in the country.
Finally, my piece on the change in the Medicare Reassignment Rule brings some New Jersey Board Of Medical
positive news on the regulatory front. Examiners Mandates Licensees
Obtain CME Credits For
The topics covered in this issue make it clear that now more than ever, the Licensure..................................4
health care provider must practice within the letter of the law or risk devastating
consequences. Our Health Care Practice Group stands ready to guide you as Medicare Reform Act Liberalizes
you navigate these dangerous waters. Reassignment Rule..................5

Copyright © 2004 Health Law Report • Flaster/Greenberg P.C.

 2
New Jersey Health Care Providers may be Facing
New Challenge from Insurance Companies
routinely found in favor of the insurance carriers, even if the
practice in question is located in a distant county.
The Orthopedic Evaluations decision places providers in an
extremely vulnerable position. Typically, the carrier suspends
payment during the litigation, which means the provider
experiences a drastic reduction in income at just the time he or
she needs the money to pay legal counsel. The carrier not only
denies payment of outstanding claims, but also seeks a refund
of all amounts previously paid plus triple damages under the
Insurance Fraud Prevention Act. Therefore, the provider faces
the risk of financial catastrophe, while
the insurance carrier generally faces just
the risk of paying the claims it would
have paid in the first place, plus
attorneys’ fees and a little interest.
The unevenness of the playing field
places the provider at an enormous
disadvantage, especially when the
litigation is in Morris County.
Insurance carriers have found fertile
ground to exploit the Orthopedic
Evaluations decision because many
licensing regulations are by nature
ambiguous. When a carrier alleges that
a particular regulation is being violated,
it is often impossible to know with 100 percent certainty
whether the carrier is right or wrong. Even if the provider is
90 percent certain his position is correct—a very high level of
certainty in legal matters—that leaves a 10 percent chance
that he is wrong and will face a catastrophic outcome under
Orthopedic Evaluations.
Before Orthopedic Evaluations, the New Jersey Board of
Medical Examiners and other licensing boards were responsi-
ble for enforcing regulations and policing medical providers.
Under the new regime, these agencies and the entire admin-
istrative and rulemaking apparatus of the government have
been effectively pushed to the side. Today the insurance
companies and the courts are the voices that matter in the
regulation of providers.
Extension to Major Medical Carriers
Recognizing the opportunity to avoid paying claims while
continuing to collect premiums, insurance carriers have
challenged all kinds of health care practices under the
Orthopedic Evaluations rationale, alleging all sorts of
regulatory violations. Up to this point, however, all of the
carriers have been PIP carriers, and all of their challenges have
involved providers seeking reimbursement of PIP claims.
We have recently become aware of instances where major
Health Law Report • Flaster/Greenberg P.C.
(continued from page 1)
medical carriers have challenged providers under the
Orthopedic Evaluations rationale. Apparently, these carriers
are aware of the economic windfall being enjoyed by their
counterparts in the PIP industry and are now seeking a
windfall of their own.
It is not immediately apparent from a legal point of view
that the theory of Orthopedic Evaluations applies to major
medical claims. The PIP program is a creature of statute, and
the Orthopedic Evaluations decision is best viewed as a matter
of statutory construction and interpretation. In contrast,
major medical claims arise as a result of
the private contract between a patient
and an insurance carrier. Consequently,
even if a major medical carrier is able to
show that a provider violated a licens-
ing regulation, it does not automatical-
ly follow that the carrier will be entitled
to deny the provider’s claims as PIP
carriers have done.
The consequences of such an adverse
decision to providers would, of course,
be enormous. Yet from a practical point
of view, the decision of the major
medical carriers to pursue Orthopedic
Evaluation claims in the first place—a
decision, which appears to already have been made—is proba-
bly just as important. It means that all New Jersey medical
providers are now subject to challenges faced by PIP
providers over the last several years, challenges that include
intrusive and interminable “investigations” by carriers in
which the carriers look for a justification to avoid paying
claims, lengthy and costly litigation, and ultimately the risk of
catastrophic loss even for unintentional violations of licensing
regulations. For a practice that has never experienced the
ordeal, it is difficult to overstate potential consequences.
Conclusion
With insurance carriers now seeking to extend Orthopedic
Evaluations into the world of private insurance, every health-
care provider should review its structure and operations to
determine whether licensing regulations are being violated—
or, more accurately, to determine whether an insurance carri-
er would find any basis to allege that licensing regulations are
being violated. Potential violations should be reviewed with
legal counsel.
Similarly, providers that have already been contacted by an
insurance carrier should immediately contact legal counsel.
Providers must recognize that information given to a carrier
may provide ammunition for the carrier’s claims. ✦
 3

National Provider Identifier: HIPAA, Part IV

By Jacob L. Hafter
n January 23, Initiated in 1996, the NPS was created • Reactivating deactivated NPIs;

O 2004, the
Department of
Health and Human
as a method to “capture health care
provider data and be equipped with
technology necessary to maintain and
• Not assigning a deactivated NPI
to any other covered entity;
• Disseminating NPS information as
Services published the manage the data.”3 Codified through appropriate; and
fourth rule in final the Rule, the assignment of an NPI to
form promulgated every health care provider is the first • Assigning an NPI to subsidiaries
under the authority of step in the creation of a national health of covered entities, if the covered
Jacob L. Hafter
care database. entity is unique.
the Health Insurance
Portability and Accountability Act of These responsibilities create a charge
While the extent of future uses, safe-
1996 (“HIPAA”). Intended to improve for the NPS that both introduces and
guards and requirements of the NPS
the overall “effectiveness and efficiency solidifies its position in
are not
of the health care industry in general,”1 the field of health
known yet,
the Standard Unique Health Identifier informatics in a single
an NPI will
for Health Care Providers Rule (“Rule”) have a much …the assignment of an step. When combined
mandates that all health care entities use with a mandate that all
more sweep- NPI to every health care covered entities must
the standard 10 digit identification num- ing effect
ber assigned by the government for all provider is the first step in use the NPI assigned
than initially
electronic health care transactions. the creation of a national for all standard transac-
conceived.
tions and provide addi-
Beginning on May 23, 2005, any Initially, health care database. tional information for
entity that is a covered entity for the under the
each transaction as
purposes of HIPAA, or “any subpart of Rule, the
required or requested
a covered entity that would be a cov- NPS will be
by the NPS, this Rule
ered health care provider if it were a responsible for the following seven
gives the federal government access to
separate legal entity,”2 must apply for tasks4:
an unlimited amount of data on virtual-
its unique National Provider Identifier • Assignment of a unique NPI to all ly every health care service delivered
(“NPI”). Except for small health plans eligible providers; after May 23, 2007. ✦
that have one additional year to be
• Collecting, maintaining and
compliant, all covered entities must updating information on all cov-
apply for their NPI by May 23, 2007. ered entities that have been Fed. Reg., Vol. 69(15), p. 3434 (Jan. 23, 2004)
1

45 C.F.R. § 162.410
2
NPI is a gateway to the larger assigned an NPI; Fed. Reg., Vol. 69(15), p. 3456 (Jan. 23, 2004)
3

National Provider System (“NPS”). • Deactivating NPIs, as indicated; 45 C.F.R. § 162.408

4

Health Care Practice Group Services

◆ Sales and Acquisitions of Practices ◆ Licensing Board Representation

◆ Starting a Practice or Business ◆ Buying or Leasing Real Estate

◆ Employment Agreements ◆ Ambulatory Surgical Centers and

Ambulatory Care Centers
◆ Shareholder Agreements
◆ Medical Management Companies
◆ Admitting and Terminating Partners
◆ Internet-Based Healthcare Businesses
◆ Lobbying
◆ Emergency Health Systems Development
◆ Litigation and Dispute Resolution
◆ HIPAA Compliance
◆ Fraud and Abuse and Other Regulatory Advice

www.flastergreenberg.com
 4

New Jersey Board of Medical Examiners Mandates

Licensees Obtain CME Credits for Licensure
By Alma L. Saravia Assembly Bill 1913 creates a 29-member commission with
he mandate of the New Jersey State the commissioner of Health and Senior Services, or his

T Board of Medical Examiners (“B.M.E.”)

is to license and discipline physicians,
podiatrists and other professionals through
its broad statutory and regulatory authority
over its licensees. The B.M.E. may deny,
suspend or revoke a license. By one esti-
mate, the B.M.E. receives complaints
Alma L. Saravia against more than 700 practitioners each
year. Two years ago, the Legislature granted the B.M.E.
extensive new powers to investigate and discipline physicians.
It also authorized the Board to appoint a full-time educational
director to oversee its new continuing medical education
(“CME”) program, as well as the monitoring and remedia-
tion program for physicians with deficient skills. Under that
law, the B.M.E. proposed regulations on February 9, 2004
requiring all physicians and podiatrists to complete 100
credits of CME during each biennial license renewal period.
Of the 100 credits required, 40 credits must be taken in
so-called Category I courses. The proposed regulations
authorize the B.M.E. to delineate specific course topics as
well as establish procedures for reporting CME credits.
However, an applicant for an initial license is exempt from
the requirement if he or she has completed an accredited
graduate medical education program within 12 months prior
to licensure.
While the B.M.E. is moving forward to implement this
new requirement, it is simultaneously under heightened
scrutiny by the New Jersey Legislature. As reported in several
news articles, a number of legislators are concerned that the
B.M.E. is not taking enough disciplinary action against
physicians. Assemblywoman Loretta Weinberg introduced
legislation to establish a commission to review the B.M.E.
and other professional licensing boards, including those
regulating nurses, pharmacists and respiratory therapists.
designee, as chairperson. The Health Care Professional
Regulation Study Commission (“Commission”) would study
and recommend the most effective means to strengthen the
oversight of health care professionals practicing in New
Jersey. The Commission would consider whether to transfer
the boards from the Division of Consumer Affairs to another
agency, and how to provide more effective and timely disci-
plinary actions.
If the bill is passed, licensing boards would be directed to
issue an annual report stating the number of complaints filed,
closed, opened at the time of the report and the number
of disciplinary sanctions imposed (including revocations,
suspensions, voluntary surrenders, limitations or restrictions,
applications denied and licenses reinstated). The boards also
would be required to report the number of consent agree-
ments entered. Most significantly, A-1913 would mandate
that the boards initiate an investigation within 30 days of a
complaint. Currently, a physician can be notified that a com-
plaint has been filed against him or her, but may not learn
about the disposition of the matter for more than a year. If a
board takes disciplinary action, it also would be required to
notify each third party payer in whose network the licensee is
a participating provider or every health care facility at which
the licensee practices. While many managed care agreements
already provide that a physician must notify them of any
action, this automatic notice may result in physicians creden-
tials being withdrawn and, thus, being unable to participate
in any panel.
If you receive a letter from the B.M.E. informing you that
an investigation is underway, it is in your best interest to
promptly contact experienced counsel to represent you.
Many disputes can be resolved by submitting a detailed
explanation of the facts and how the standards of practice
were met. ✦

Health Care Law Practice Group

Richard J. Flaster Jacob L. Hafter Alma L. Saravia
(856) 661-2260 (856) 382-2227 (856) 661-2290
Rick.Flaster@flastergreenberg.com Jacob.Hafter@flastergreenberg.com Alma.Saravia@flastergreenberg.com

Kenneth S. Goodkind Markley S. Roderick Laura B. Wallenstein

(856) 661-2273 (856) 661-2265 (856) 661-2263
Ken.Goodkind@flastergreenberg.com Mark.Roderick@flastergreenberg.com Laura.Wallenstein@flastergreenberg.com

Stephen M. Greenberg Steven B. Sacharow Alan H. Zuckerman

(856) 661-2261 (856) 661-2272 (856) 661-2266
Steve.Greenberg@flastergreenberg.com Steve.Sacharow@flastergreenberg.com Alan.Zuckerman@flastergreenberg.com

Health Law Report • Flaster/Greenberg P.C.

 5

Medicare Reform Act Liberalizes Reassignment Rule

By Stephen M. Greenberg
n important provision of The Medicare pendent physicians or physician groups to enter into contrac-

A Prescription Drug, Improvement and

Modernization Act of 2003 (the
“Medicare Reform Act”), signed into law on
December 8, 2003, has received very little
attention. This provision makes a change in
the so-called “Medicare Reassignment Rule,”
Stephen M. Greenberg a change that should dramatically expand the
scope of permissible contractual arrangements
into which physicians can enter.
When a physician provides medical services to a patient
covered by Medicare, the patient assigns his Medicare benefit
to the physician, allowing him or her to bill Medicare directly
for the service rendered. Under prior law, with rare excep-
tion, the physician could “reassign” this benefit only to his
employer. If the physician was not employed by the “reas-
signee,” but was instead an independent contractor, reassign-
ment of benefits was permitted only if the services were
rendered in space owned or leased by the contracting party.
This limitation made it difficult, if not impossible for inde-
tual arrangements with third parties where, for example,
services were to be rendered in a hospital.
The Medicare Reform Act changed this. It now provides
for reassignment to an entity “where the service was provided
under a contractual relationship between such physician or
other person [rendering the service and]. . . the entity, if,
under the contractual arrangement, the entity submits the bill
for the service and the contractual arrangement meets such
program integrity and other safeguards as the Secretary may
determine to be appropriate.”
This change in the law is new and there are not yet any
interpretive rulings by The Centers for Medicare and
Medicaid. However, officials at the Centers recognized that
there was no rational reason to treat employees and inde-
pendent contractors differently in this context and that the
prior rule prevented legitimate contractual arrangements that
promoted quality health care with no likelihood of fraud or
abuse. With this change, such arrangements should now be
permitted. ✦

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This report, published as a service to Flaster/Greenberg clients and interested readers, is for general use and
information. The content should not be interpreted as rendering legal advice on any specific matter.

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