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Endo Surgi Center, P.C. v. Liberty Mutual Insurance Co.

August 17, 2010


On appeal from the Superior Court of New Jersey, Law Division, Union County, Docket No. L-0228-06.

Per curiam.


Argued February 22, 2010

Before Judges R. B. Coleman, Baxter and Alvarez.

This is a dispute between plaintiff, Endo Surgi Center, P.C. (Endo) and defendant, Liberty Mutual Insurance Company (Liberty Mutual), over the latter's refusal to pay facility fees that were billed by Endo when surgeons performed ambulatory surgery procedures at Endo on Liberty Mutual's insureds. In particular, Liberty Mutual justified its refusal to pay Endo's facility fees by alleging that Endo and its physician-owners violated the Codey Law's prohibition against self-referrals to a health care service in which a physician has an ownership interest. See N.J.S.A. 45:9-22.5(a).

After the Law Division rendered its March 26, 2008 judgment denying Endo's claim for payment of $363,813 of unpaid facility fees and denying Liberty Mutual's counterclaim seeking reimbursement from Endo of facility fees it had already paid, the Legislature amended the Codey Law. Those amendments, which are to be applied retroactively, see N.J.S.A. 45:9-22.5, would entitle Endo to payment of the disputed facility fees, provided that Endo has obtained the license that is now required by the statutory amendments. We thus order a limited remand to enable the Law Division to make that determination. If the court finds that Endo did, in fact, obtain the required license during the one-year safe harbor period created by the amendments, then the Law Division is directed to enter judgment in favor of Endo in the amount of $363,813. If Endo did not obtain such license, then the Law Division shall issue a ruling on the consequences of such failure. We thus vacate the dismissal of Endo's complaint, and remand for the limited proceeding we have just described.

On Liberty Mutual's cross-appeal, we affirm the Law Division's conclusion that Liberty Mutual was not entitled to an order requiring Endo to reimburse Liberty Mutual for the $171,704 of facility fees Liberty Mutual had already paid.


In January 1995, Endo began operation as an ambulatory surgical center performing out-patient gastrointestinal endoscopy and pain management procedures. Endo's sole owner was Dr. Samiappan Muthusamy, who also maintained a gastroenterology practice known as the Center for Digestive Diseases (CDD). The Endo facility was comprised of an operating room, along with a dedicated recovery area where a patient could be closely monitored and observed until discharged. Muthusamy's medical practice and Endo were both located at 1201 Morris Avenue in Union.

At the time Muthusamy opened Endo, he was the only physician intending to use the Endo Surgi Center. Consequently, the Department of Health (DOH) notified him that he was exempt from the requirement of obtaining a Certificate of Need (CON).*fn1

When Dr. Muthusamy expanded his practice by hiring a second physician, Peter Carosella, M.D., Muthusamy sought, and obtained, permission from DOH to continue to operate without obtaining a CON.

Over time, the ownership of both CDD and Endo changed. In particular, in 1998, three physicians, who were not associated with Muthusamy's practice at CDD, purchased partial ownership of Endo. Dr. Suresh Jain and Dr. Pradeep Mahal, gastroenterologists, purchased five percent and forty percent interests, respectively. Dr. David Yu, a board-certified anesthesiologist, purchased a two and one-half percent interest. Yu's practice was known as Union County Pain Management, and was located at a different location from Endo, namely at 1308 Morris Avenue in Union.

At Endo, Yu performed epidural nerve blocks and other anesthesiology procedures. He testified at his deposition that when discussing an upcoming procedure with a patient, he routinely advised the patient of his ownership interest in Endo. Yu is the only owner-physician for whom Liberty Mutual has challenged the facility fees charged by Endo.

In 1999 and 2003, Muthusamy expanded his practice at CDD by adding two partners, Dr. Eyad Baghal and Dr. Pavan Sachan. Each of them purchased an eight percent ownership interest in Endo, but both had been performing medical procedures there before they became owners of Endo. Liberty Mutual points to the use of Endo by Baghal and Sachan as a basis for its claim that Endo was required to have obtained a license from DOH.

At the time this action was commenced, Liberty Mutual had been sending its personal injury protection (PIP) insureds*fn2 to Endo for several years for out-patient pain management procedures. Prior to rendering services on behalf of Liberty Mutual's policyholders, Endo obtained pre-certification approval from Liberty Mutual for each patient's treatment. Among the procedures for which Liberty Mutual granted such pre-certification were the anesthesiology procedures performed by Dr. Yu.

The dispute that led Endo to file its complaint against Liberty Mutual for payment of outstanding facility fees arises from eighty-one anesthesiology procedures performed on Liberty Mutual insureds by Dr. Yu at Endo. Endo's facility fee invoices were issued in the name of "Endo Surgi Center, P.C." and listed Dr. Yu, by name and license number, as the "attending physician." The corresponding bills from Dr. Yu for the medical procedures he performed at Endo were issued in the name of "Union County Pain Management, P.C."

In its complaint, Endo sought payment from Liberty Mutual of $363,813 for unpaid facility fees, plus interest and attorney's fees. Each of the insureds assigned his or her claim for payment to Endo. Liberty Mutual filed an answer denying any obligation to pay the sums demanded in Endo's complaint, asserting that Endo violated the Codey Law's prohibition on self-referrals, see N.J.S.A. 45:9-22.5, by receiving referrals from its owner physicians. In particular, Liberty Mutual alleged that because the Endo facility was not located at Yu's medical office and because patients treated at Endo were not billed by Yu in Yu's name, Endo had violated the Codey Law. Second, Liberty Mutual asserted that because N.J.A.C. 13:35-6.17(h)(5) allows ambulatory care facilities, such as Endo, to charge a facility fee only if such ambulatory care facility is licensed, Endo, an unlicensed facility, was not entitled to charge a facility fee. Liberty Mutual relied on those two provisions as a basis for denying payment of the outstanding bills submitted by Endo, and also as a basis for its counterclaim and third-party complaint seeking reimbursement of $171,704 in facility fees it had previously paid.

After oral argument, the judge issued a written opinion in which he addressed the threshold issue of whether Endo was required to have obtained a facility license from DOH. The judge observed that if a facility license was required, Endo's failure to have obtained such a license would, standing alone, justify Liberty Mutual's refusal to pay Endo's facility fees, without regard to the Codey Law violation Liberty Mutual had also asserted.

The judge concluded Endo was not required to secure a license as a "surgical facility," and therefore Liberty Mutual was not permitted to withhold payment of Endo's facility fees on that basis. He did, however, agree with Liberty Mutual's assertion that Endo had violated the Codey Law's ban on self-referrals because Yu had referred his patients to Endo while having a financial interest in the facility, and Yu's self- referral did not qualify for any exception to the Codey Law's provisions. The judge accordingly rejected Endo's claim for payment of facility fees in the amount of $363,813 and granted partial summary judgment to Liberty Mutual.

On Liberty Mutual's counterclaim, the judge concluded that plaintiff's billing practices did not violate a provision of the Insurance Fraud Prevention Act (IFPA), N.J.S.A. 17:33A-4(a)(1), because there was no evidence demonstrating that Endo was aware that its billing practices violated the Codey Law, or that it had submitted facility fee invoices to Liberty Mutual while knowing it was not entitled to receive payment. The court held that in the absence of an IFPA violation, Liberty Mutual had "provided this court with no basis at law to order disgorgement." Thus, the judge dismissed Liberty Mutual's counterclaim against Endo and its third-party complaint against Muthusamy, Mahal, Jain, Yu, Baghal and Sachan, and granted partial summary judgment to Endo. Both sides appealed.

On appeal, Endo argues: 1) the trial judge erred by applying the Codey Law's prohibition on self-referrals to Endo which is a facility, even though by its terms, the Codey Law applies only to practitioners, and not to facilities; 2) because the Codey Law places sole responsibility for enforcement of the Codey Law with the Attorney General, and because the Codey Law did not establish a private cause of action, such as the one maintained here by Liberty Mutual, the judge erred when he concluded that a violation of the Codey Law disqualifies a surgical facility from obtaining payment of its facility fees from an insurer; 3) the judge's conclusion that Endo had violated the Codey Law impermissibly ignored two prior letter opinions issued to other surgical practices by the Board of Medical Examiners (BME) that held to the contrary; and 4) even if the practices of Endo constituted a Codey Law violation, there is no support for the judge's conclusion that such violation entitles an insurer to deny payment of claims that are otherwise proper. Endo did, however, agree with Judge Anzaldi's conclusion that because Endo qualified as a "surgical practice," as defined by N.J.A.C. 8:43A-1.3, it was not required to obtain the license that is required for a "surgical facility."

In its cross-appeal, Liberty Mutual argues the judge erred in ruling that: 1) Endo did not require a facility license under N.J.A.C. 8:43A-1.3; and 2) Liberty Mutual had not established a violation of the IFPA and was therefore not entitled to recoup facility fees previously paid to Endo.

This appeal arises from orders granting and denying motions for summary judgment. Consequently, we apply the Brill standard, which requires us to review the record to determine whether there are material factual disputes and, if not, whether the undisputed facts viewed in the light most favorable to the party opposing the motion nonetheless entitle the moving party to judgment as a matter of law. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). Because there are no disputed issues of fact, we review the trial court's determination of these summary judgment motions de novo, applying the same legal standards the trial judge applied. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998).


We turn first to the portion of Liberty Mutual's cross-appeal that presents the threshold issue of whether the judge erred when he concluded that Endo was not obligated to obtain a facility license. Relying on N.J.A.C. 13:35-6.17(h)(5),*fn3 Liberty Mutual maintains that if a facility qualifies as a "surgical facility," as defined in N.J.A.C. 8:43A-1.3, it is not entitled to charge a facility fee unless it has obtained a license from DOH. Endo agrees with Liberty Mutual that N.J.A.C. 13:35-6.17(h)(5) requires a "surgical facility" to obtain a license from DOH before it may bill for facility fees; however, Endo maintains that it is not a "surgical facility," and therefore was not required to obtain a facility license.

In reaching the conclusion that Endo was not required to obtain a license as a "surgical facility," the judge relied upon the definition of "surgical facility" contained in N.J.A.C. 8:43A-1.3. The regulation defines that term as follows:

1. One or more rooms dedicated for use as operating rooms, which are specifically equipped for the performance of surgery, designed and constructed to accommodate ...

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