New Jersey law now requires that a Surgical Practice (i.e., a one operating room surgical suite that is “Registered” with the New Jersey Department of Health (“DOH”)) to secure licensure as an Ambulatory Care Facility within one year from the date of enactment. Some of the highlights of the new law are as follows:

I.           To facilitate the licensure of Surgical Practices, the legislature exempted Surgical Practices, that meet certain Medicare-Certification or national accrediting body accreditation requirements, from stringent State physical plant requirements applicable to Ambulatory Surgical Facilities. 

II.                Unlike an Ambulatory Surgical Facility (a facility that historically included more than one operating room and was licensed by the DOH), a Surgical Practice will not be subject to the Ambulatory Care Facility Assessment on Gross Receipts (commonly known as the “ACF tax”). 

III.        The legislature exempted a Surgical Practice that complies with the new law from initial and renewal licensure fees (to which Ambulatory Surgical Facilities are subject).

IV.              A Surgical Practice may combine with other Surgical Practices to form and become licensed as Ambulatory Surgical Facilities, despite the existence of a moratorium on the issuance of licenses for Ambulatory Surgical Facilities.

Some of the potential benefits of licensure are:

I.       Surgical Practices and Ambulatory Surgical Facilities will be subject to uniform standards governing their operations, licensure, etc., and will be regulated by the DOH, an agency that is best-suited to regulate entities that provide surgical and related services.

II.       Recognition by payors as being qualified for reimbursement. Certain payors (e.g., Cigna) have taken the position (arbitrarily and capriciously, in my opinion) that a Surgical Practice is not entitled to reimbursement under certain plans’ Summary Plan Descriptions, as they are not licensed by the DOH. With the licensure of Surgical Practices as Ambulatory Care Facilities, the argument in favor of reimbursement may be bolstered.

It remains to be determined whether a Surgical Practice’s status as an Ambulatory Care Facility will avail it of the flexibility enjoyed by Ambulatory Surgical Facilities. Specifically, Ambulatory Surgical Facilities may be owned by non-physicians (pursuant to a regulation of the New Jersey Board of Medical Examiners (“BME”) applicable to general business corporations licensed as Ambulatory Care Facilities (the “ACF Exception”)) and need not grant equity to physicians who perform procedures at the Ambulatory Surgical Facilities (i.e., they may have non-owner medical staff members). By contrast, a Surgical Practice, due to its status as a medical practice under the BME regulations, and a restrictive, statutorily-based definition requiring that it be established “solely” for a “professional entity’s” “private medical practice” (the “Restrictive Definition”), was historically required to be owned solely by physicians and other closely allied health professionals and used only by medical staff members who are owners. While the new law would grant a Surgical Practice the status of an Ambulatory Care Facility, which theoretically qualifies for the benefits of the ACF Exception if structured as an LLC, the new law’s retention of the Restrictive Definition raises the issue of whether a Surgical Practice will enjoy the full benefits of an Ambulatory Care Facility. If the BME/DOH does not agree that the ACF Exception preempts the Restrictive Definition, then Surgical Practices, even as Ambulatory Care Facilities, may not be owned by non-physicians and may be used only by those physicians who maintain an ownership interest in the same. This would be an unjust outcome, since there would be virtually no difference between an Ambulatory Surgical Facility and a Surgical Practice in terms of agency oversight, which oversight serves as the basis for relaxing the laws prohibiting non-physician ownership of an entity that employs physicians as long as such entity is licensed as an Ambulatory Care Facility.

There are many issues to consider before you license your Surgical Practice, including the corporate entity to be used for the ownership and operation of the same post-licensure. Because of their historical status as a medical practice, many Surgical Practices were originally formed as Professional Corporations. The Professional Corporation is a restrictive entity by statute (e.g., it must be owned by physicians or closely-allied health professionals regardless of whether or not it is licensed by the DOH as an Ambulatory Care Facility). If the DOH/BME agrees that the ACF Exception preempts the Restrictive Definition (in which case a Surgical Practice will enjoy all benefits of an Ambulatory Surgical Facility, including non-physician ownership), the Professional Corporation form will preclude the Surgical Practice from enjoying such benefits. Accordingly, it may be prudent to establish an LLC to own and operate the Surgical Practice post-closing, even given the current lack of clarity on the implications of the ACF Exception.  Other issues to consider will be the need to amend existing shareholders’/operating agreements to re-allocate shares/control of the entity, given the greater flexibility that may be afforded to Surgical Practices if the DOH/BME agrees that the ACF Exception preempts the Restrictive Definition.

The Healthcare and Life Sciences Practice Group at Mandelbaum Salsburg has substantial experience in handling and advising clients on licensure/corporate/regulatory matters involving Surgical Practices, Ambulatory Surgical Facilities, Laboratories and other healthcare facilities, and has recently secured, on behalf of a client, what is likely to be the State’s first Ambulatory Care Facility license for an entity that historically operated as an MD/DC practice, thereby relieving the client of the unreasonable restrictions to which MD/DC practices are subject under the law (i.e., the “51/49 requirement”) and bestowing upon the client greater recognition by the payor community.

Mohamed Nabulsi, Esq., Member
Mandelbaum Salsburg
3 Becker Farm Rd., Suite 105, Roseland, NJ 07068
t. (973) 736.4600 x345 | f. (973) 325.7467
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