In this healthcare Update, we highlight three decisions from the New Jersey State Courts that may be relevant to healthcare providers:
Allstate Ins. Co., et al. v. Northfield Medical Center, PC, et al., Docket No. A-0964-12T4 (App. Div. March 11, 2019)
In this matter, the Appellate Division reversed a verdict against Defendants after a bench trial holding that a jury trial is constitutionally required for claims seeking compensatory and punitive damages under New Jersey’s Insurance Fraud Prevention Act, N.J.S.A. 17:33A-1 to 30.
In New Jersey, the Corporate Practice of Medicine Doctrine prevents non-physicians from owning medical practices. In the 1990s, Defendant Daniel Dahan (“Dahan”), a California chiropractor, marketed lectures advancing a corporate structure that would enable chiropractors to create and indirectly own multi-disciplinary medical practices. John Scott Neuner (“Neuner”), a New Jersey chiropractor, set up a corporate structure following Dahan's model. Allstate began rejecting Neuner's invoices for treatment arguing that the corporate structure at issue violated the Corporate Practice of Medicine Doctrine.
After a bench trial, the trial court held that the corporate structure at issue, while superficially complying with applicable regulations, allowed Neuner to own medical practices through various agreements and control mechanisms. As a result, the trial court awarded nearly $4 million in damages and counsel fees. The Appellate Division, however, reversed, holding that jury trials are constitutionally mandated for claims seeking compensatory and punitive damages under New Jersey’s Insurance Fraud Prevention Act.
United States of America ex rel. Jane Doe v. Heart Solution, PC, et al., Civil No. 17-2019 (Third Cir. 2019)
In this precedential decision, the United States Court of Appeals for the Third Circuit held that employees can be held liable under the Federal False Claims Act, 31 U.S.C. § 3729 (“FCA”).
Nita K. Patel and her husband, Kirtish N. Patel, were convicted of defrauding Medicare in a criminal proceeding. Ms. Patel owned Heart Solution P.C. and her husband, Mr. Patel, owned Biosound Medical Services (“Biosound”). They engaged in two separate schemes, one of which involved Biosound’s performance of diagnostic neurological testing. To qualify for payment under Medicare for that testing, the testing must be performed under the proper level of physician supervision. Instead of employing a supervising neurologist, the Patels falsely represented to Medicare that the neurological testing was being supervised by a licensed neurologist.
After the criminal convictions, the United States filed a civil action against the Patels, including claims under the FCA. The District Court granted the United States summary judgment on the FCA claims. Ms. Patel appealed, arguing that she could not be held liable for unsupervised neurological testing at Biosound because she did not own Biosound and was just an employee and, therefore, she had no legal duty to ensure that Biosound complied with Medicare regulations. The Appellate Division, similar to the District Court, rejected that position and held that there are four elements to an FCA claim: "falsity, causation, knowledge, and materiality," and that ownership is not one of them. Therefore, the Appellate Division concluded that individual employees with no ownership interest in a company can be liable under the FCA.
Allstate New Jersey Insurance Company, et al. v. Gregorio Lajara, et al., Docket No. A-1151-16T4 (App. Div. March 8, 2019)
In this matter, Allstate filed suit against several physicians, including a radiologist, claiming that they failed to comply with N.J.A.C. 13:35-2.6(m)(3) and (m)(6) by not performing a medical necessity assessment before performing a diagnostic test through a referral from a limited licensee such as a chiropractor. Several of the defendants testified that they did not perform a medical necessity assessment or examined patients before performing the diagnostic test. For example, Defendant Natalio Damien, M.D. testified that he would verify that the referral or prescription was from a licensee, and that was the extent of his pre-testing procedures. Based on that testimony, the trial court and Appellate Division held that Dr. Damien violated N.J.A.C. 13:35-2.6(m)(3) and (m)(6). However, since the phrase “medical necessity” was not used in the regulation, the Appellate Division held that Dr. Damien did not have to perform a medical necessity test or examine the patient. Instead, the Appellate Division held that Dr. Damien was required to institute some procedure that was less than a medical necessity verification, such as having a procedure to assure himself that the referring physician had provided clinical data sufficient, in Dr. Damien's professional judgment, to justify the requested test.
It is important to note that the Appellate Division reached its decision despite the BME issuing open board minutes that stated the BME’s intent behind the regulation was that a valid prescription for a diagnostic test from a licensee was sufficient for a radiologist to accept the referral. In response, the Appellate Division found the BME’s interpretation to be plainly unreasonable. In response to this decision, the BME issued amended rules eliminating (m)(3) and (m)(6) as well as other provisions in N.J.A.C. 13:35-2.6.
The list above does not include every proposed or adopted legislation, litigation or guidance document that may impact the healthcare industry. Instead, it includes only a select few chosen by the authors, and any information in this Update is not intended to provide legal advice. If you are concerned that a proposed or adopted legislation, litigation or guidance document may impact your practice, then you should seek legal advice. We send these Updates to our clients and friends to share our insights on new developments in the law. Nothing in this Update should be relied upon as legal advice in any particular matter. © 2019 Riker Danzig Scherer Hyland & Perretti LLP.
