Month: January, 2018

Surgical Practices Must Now Be Licensed as Ambulatory Surgical Centers in New Jersey

Surgical practices in New Jersey will now be required to become licensed by the New Jersey Department of Health (“DOH”) as ambulatory surgical centers, with existing ones required to do so by January 16, 2019.  Previously, surgical practices had to be registered with the DOH, and oversight was jointly shared by the DOH and the New Jersey Board of Medical Examiners.  Now, oversight will be the sole province of the DOH.

Surgical practices that are certified by the Centers for Medicare and Medicaid Services (“CMS”) will be exempt from the physical plant and functional requirements set forth in the New Jersey licensing regulations for ambulatory surgical centers.  Existing surgical practices not certified as such, but which are accredited by an accrediting body recognized by CMS, will also be exempt.  Those surgical practices that do not fall in one of the foregoing categories will have to comply with the requirements.

Surgical practices will also be exempt from the New Jersey ambulatory care facility assessments unless they expand to include any additional room dedicated for use as an operating room.

Surgical practices may now also combine with each other or with ambulatory surgical centers to form a larger licensed ambulatory surgical center consisting of an aggregate number of operating rooms up to the total number of operating rooms that both facilities contained prior to the combination.

These changes mean more for surgical practices than the mere language of the law would suggest.  As licensed facilities, anyone, not just New Jersey licensed physicians, can now be an owner of a one room facility.  This will make it easier for outside investment directly in one room centers.  Those who are not New Jersey licensed physicians and who are currently managing one room facilities can now seek to become direct owners of those facilities, which was previously prohibited.  Additionally, any New Jersey licensed physician will now be able to perform a procedure at a one room center, not just owners of the center.

Outside investment and mergers and acquisitions in the New Jersey ambulatory surgical center market have been active for years, with recent increased movement due to the influx of private equity dollars into health care.  The level of activity will now increase even more.

Fulfilling Your Purpose: Recent Developments Impacting on Non-Profit Hospital’s Liability Cap and Tax-Exempt Status

Recently there has been an increase in the number of challenges to non-profit hospitals related to their limitation of liability pursuant to the Charitable Immunity Act (“CIA”) and to their tax-exempt status for purposes of local property taxation.  A Federal District Court in New Jersey has recently denied one of these challenges by affirming the protection of the liability cap afforded by the CIA applicable to a hospital in a medical malpractice action. In Sexton v. Rizzetta, D.O. et al, Civ. No. 15-3181, plaintiff alleged malpractice during an admission in 2013 to defendant Cape Regional Medical Center (CPRM). The hospital moved to cap damages at $250,000 pursuant to N.J.S.A. 2A:53A-8. Plaintiff opposed arguing that the statute was unconstitutional and not applicable arguing the hospital must show that it was “actually a non-profit” and not one “solely in name” and based an argument on an unpublished opinion dealing with a claim of charitable immunity in a nursing home context. [(Klein v. Bristol Glen, Inc., 2010 WL 3075582 (App. Div. 2010)] The Federal Court granted the application and rejected plaintiff’s arguments. Judge Kugler quickly dispatched the constitutional argument, relying upon caselaw that has settled the constitutionality of the CIA years ago. Citing to Johnson v. Mountainside Hospital, 239 N.J. Super. 312 (App. Div. 1990).

In rejecting the substantive argument the court applied the N.J. Supreme Court case of Kuchera v. Jersey Shore Medical Center, 221 N.J. 299 (2015).  In Kuchera, the N.J. Supreme Court held that the defendant hospital was entitled to limited immunity under 2A:53A-8 (rather than the absolute immunity of 2A:53A-7). The Court noted that whether a nonprofit organization is entitled to the limitation on damages afforded to those institutions organized exclusively for hospital purposes “turns on the purpose of the institution, not the use to which the facility is put on any given day”. Id. at 242.  In doing so the Court focused on the purposes set forth in the organizing documents of the entity:

By the plain language of N.J.S.A. 2A:53-7 and 8, a hospital is subject to limited liability under section 8 if it is formed as a non-profit corporation, society, or association, is organized exclusively for hospital purposes, was promoting those objectives and purposes at the time plaintiff was injured, and the plaintiff was a beneficiary of the activities of the hospital. Id. at 249.

In looking to the “purposes” of the entity, the Court discussed the role of the hospital in today’s modern society. Id. at 250. The Court noted that the modern hospital is now a place where members of the community not only seek emergency services but preventative services, therapy, educational programs and counseling. Id. at 251.The Court also noted that the modern hospital “also provides medical care to those who can pay for the care and those who cannot. In fact, every acute care hospital in this State is required to provide care to anyone who seeks care without regard to ability to pay”. Id. at 254.  The provision of charity care is therefore a “core function of a hospital”. Id.  Applying these principals, the Court concluded that the Defendants are governed by the “specific expressions of legislative intent regarding hospitals articulated in N.J.S.A. 2A: 53A-8”. Id.  Additionally the Sexton Court deemed that the hospital’s 501 (c)(3) status was recognized evidence of its non-profit status. (citing Parker v. St. Stephen’s Urban Dev. Corp., 243 N.J. Super. 317, 324 (App. Div. 1990)).

Shortly after the Kuchera decision was rendered, a tax court denied a hospital full tax exempt status related to local property taxes based on an interpretation of the so-called “profit test’. See AHS Hospital Corp. v. Town of Morristown, 28 N.J. Tax 456 (2015).  This test is based on the elements of the Paper Mill Playhouse decision which overlap to some degree with the Kuchera elements: (1) the owner of the property must be organized exclusively for the exempt purpose; (2) its property must be actually and exclusively used for the tax-exempt purpose; and (3) its operation and use of its property must not be conducted for profit”. See Paper Mill Playhouse v. Millburn Township, 95 N.J. 503, 506 (1984). The AHS tax court found that many of the facilities involved were not exempt as a result of not meeting the third element of the test as the Hospital “entangled its activities and operations with those of other for-profit entities, thus allowing its property to be used for profit”. AHS Hospital Corp., supra. Recently, the IRS denied tax-exempt status of a hospital as result of a lease agreement it entered into with a for-profit entity. See Herschman, “Hospital Involved in Joint Venture with For-Profit Entity Loses Tax-Exempt Status” National Law Review (December 6, 2017).

These recent developments highlight the importance for non-profit hospitals to follow the guidance the N.J. Supreme Court issued relating to maintaining non-profit status and continuing to demonstrate the fulfillment of “hospital purposes” as the term is applied in the modern context.  Under the Kuchera analysis the focus is not on whether the hospital is exclusively organized for charitable purposes or exclusively acting as a charity (as plaintiffs have attempted to argue especially as it relates to some of the larger non-profit entities with relatively high overall revenues). The challenges highlight the importance of applicable statutory and regulatory compliance as it relates to both the organization of the not-for profit and the ongoing activities to avoid the entanglement with for-profit entities or purposes. Those facing challenges to tax-exempt status may look to the N.J. Supreme Court’s emphasis on the role of the modern hospital in society in order to highlight the aspects of multitude of the charitable and related societal benefits and programs which the hospitals routinely engage which are not driven by monetary profit motive.

Revised Confidentiality Rules Under HIPAA Part 2 For Substance Use Disorder Patient Records

On January 3, 2018, the Substance Abuse and Mental Health Services Administration (SAMHSA) within the Department of Health and Human Services published its final rule revising confidentiality rules for substance use disorder treatment programs.   A review of the Part 2 regulations for such programs and their overlap with pertinent provisions of HIPAA was the subject of a recent post on this blog.

The effective date of the revised regulations is February 2, 2018 with the exception of one provision which has a compliance date of within two years of the effective date.  The agency indicated that “[t]hese changes are intended to better align the regulations with advances in the U.S. health care delivery system while retaining important privacy protections for individuals seeking treatment for substance use disorders.”  An important aspect of this effort was aligning the substance use regulations with HIPAA and HITECH while recognizing the Part 2 regulations provide “more stringent federal protections” to safeguard individuals from discrimination and the legal consequences of improper disclosure.

The prior Part 2 regulations included a strict prohibition on redisclosure of information that is disclosed in the first instance with a patient’s consent.   SAMSHA’s new regulation approved the use of an abbreviated notice of prohibition of redisclosure which was intended to help the notice fit within space limitations of free-text fields in electronic health record systems.

The new regulation also permits disclosures with written consent for payment and health care operations activities.  The germane language in this regard is in the preamble to the regulation to indicate that the catalog of such activities is illustrative rather than an exhaustive list.  SAMSHA sought to balance the protection of confidentiality with the legitimate need to disclose information to obtain the benefits of emerging health care models promoting integrated care and patient safety.  It pointed to the existing provision in 42 CFR § 2.13(a) that was intended to ensure that information is not shared more broadly than the purpose(s) for which the patient consents.

SAMSHA also addressed the applicability of the Part 2 regulations to business associates and subcontractors in a fashion similar to the HITECH regulations.  It stated that the agency did not intend at this time to have Part 2 regulations apply to business associates and subcontractors. However, the agency left the door open to further alignment with HIPAA indicating that additional changes were under consideration.

With these latest changes and the promise of more to possibly come in the future, providers subject to these regulations must be sensitive to their applicability and complexity given the significant repercussions that can come from violations of HIPAA Part 2.