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Lipkowitz v. Hamilton Surgery Center

August 4, 2010

JEFFREY LIPKOWITZ, M.D., DARMAKUSUMA IE, M.D., AND KEKUL SHAH, M.D., PLAINTIFFS-APPELLANTS,
v.
HAMILTON SURGERY CENTER, LLC, SURGICAL PARTNERS OF AMERICA, AND MICHAEL W. CREWS, DEFENDANTS-RESPONDENTS.



On appeal from the Superior Court of New Jersey, Law Division, Mercer County, Docket No. L-3186-06.

The opinion of the court was delivered by: A. A. RODRÍGUEZ, P.J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

APPROVED FOR PUBLICATION

Argued May 17, 2010

Before Judges Rodríguez, Reisner and Yannotti.

Ophthalmologists Jeffrey Lipkowitz, M.D., and Darmakusuma Ie, M.D., appeal from an order granting summary judgment and dismissing their complaint against Hamilton Surgery Center, LLC. (HSC), Surgical Partners of America (SPA), and Michael W. Crews. A third plaintiff, Kekul Shah, M.D., chose not to participate in the appeal. We affirm.

These are the facts relevant to this appeal, viewed in the light most favorable to appellants. See Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 530 (1995). In July 2003, Crews asked appellants to invest in HSC, a multi-specialty ambulatory outpatient surgical center. Appellants signed HSC's Private Offering Memorandum and Operating Agreement and purchased four shares each. Shortly after HSC opened its doors in 2006, both appellants purchased an additional five-and-a-half shares, bringing their total investment to $69,750 each.

The Offering Memorandum addresses the federal laws with which ambulatory surgery centers (ASC) must comply, including the Federal Anti-Kickback Statute, 42 U.S.C. § 1320a-7(b). This statute makes it a crime to knowingly solicit or receive remuneration in return for a referral. The Offering Memorandum also addresses the "ASC Safe Harbor," 42 C.F.R. § 1001.952(r)(1), which provides an exception to physicians who use ambulatory centers as a significant part of their medical practice. This safe harbor requires physicians to pass the "One-Third/One-Third" test, which requires that "[a]t least one-third of each physician investor's medical practice income from all sources . . . must be derived from the physician's performance of procedures" and "[a]t least one-third of [those] procedures . . . must be performed at the investment entity."

42 C.F.R. § 1001.952(r)(3)(ii) and (iii).

The Operating Agreement requires physician members to submit an Annual Eligibility Affirmation Statement, affirming that the member was in compliance with the ASC Safe Harbor. If a physician fails to meet the ASC Safe Harbor requirements, "then in each such case the Governing Board may require such Physician Member to sell all of his or her Membership Units." However, "the Governing Board in its sole discretion may establish a lower percent for an individual Physician Member based on a case-by-case analysis to the extent such lower percent is in compliance with federal and state laws and regulations."

In June 2006, approximately one year after HSC opened for business, Crews scheduled a meeting with appellants to discuss the low percentage of retinal surgeries they were performing. In the previous year, appellants had only scheduled thirty-one surgeries at HSC, of which only twenty were actually performed.

A review of those twenty surgeries revealed that the Medicare reimbursement was less than the actual direct costs. Thus, according to Crews, HSC lost money on the surgeries. Crews reminded appellants that they were failing to meet the OneThird/One-Third test, that the Governing Board could elect to purchase their shares, and that appellants had the right to sell their shares to other physicians.

Two months later, the Governing Board unanimously voted to discontinue all retinal surgeries because such surgeries were "not profitable" and "[a]ll Medicare procedures are completed at a financial loss." Crews notified appellants of the Board's decision, noting that "because of the [financial] factors outlined above, there are very few surgery centers that perform retina cases at their centers."

Appellants did not return their Annual Eligibility Affirmation Statement, which was three months overdue. Two months after that, ...


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