In re License Issued to Zahl

• Decision Date: 26 April 2006
• Citation: 186 N.J. 341,895 A.2d 437
• Parties: In the Matter of the Suspension or Revocation of the LICENSE ISSUED TO Kenneth ZAHL, M.D., License No. MA56413 to Practice Medicine and Surgery in the State of New Jersey.
• Court: New Jersey Supreme Court

895 A.2d 437

186 N.J. 341

In the Matter of the Suspension or Revocation of the LICENSE ISSUED TO

Kenneth ZAHL, M.D., License No. MA56413

to Practice Medicine and Surgery in the State of New Jersey.

Supreme Court of New Jersey.

Argued March 6, 2006.

Decided April 26, 2006.

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Douglas J. Harper, Special Counsel, argued the cause for appellant, State Board of Medical Examiners (Zulima V. Farber, Attorney General of New Jersey, attorney; Jeffrey C. Burstein, Assistant Attorney General, of counsel).

John Zen Jackson, argued the cause for respondent, Kenneth Zahl, M.D. (Kalison, McBride, Jackson & Murphy, attorneys, Warren; Mr. Jackson and Leonardo M. Tamburello, on the brief).

Robert J. Conroy, Bridgewater, submitted a letter in lieu of brief on behalf of amicus curiae, Medical Society of New Jersey (Kern Augustine Conroy & Schoppmann, attorneys).

Justice ZAZZALI delivered the opinion of the Court.

In this matter, the New Jersey State Board of Medical Examiners (Board) petitions the Court to restore the Board's order revoking the medical license of Kenneth Zahl. The Board found that Zahl, a physician specializing in anesthesiology, willfully engaged in numerous dishonest acts over a course of years, including Medicare and insurance fraud and maintaining improper patient records. The Appellate Division reversed the Board's penalty, concluding that license revocation is unduly harsh in view of the absence of patient harm. We hold that the Board was within the bounds of its statutory authority and discretion in revoking Zahl's license after the Board found Zahl to be a "fundamentally corrupt licensee." We therefore reverse the Appellate Division decision and reinstate the Board's order.

I.

A.

Kenneth Zahl obtained his medical degree from Columbia University Medical School in 1981. He then completed his residency in anesthesiology at the University of Pennsylvania and became a board-certified anesthesiologist in 1986, receiving additional qualifications in the specialty of pain medicine soon thereafter. In 1993, Zahl founded Ambulatory Anesthesia of New Jersey (AANJ), a pain management and anesthesiology practice of which he was the sole shareholder and officer. From 1993 to 1998, AANJ had a contract with the Ridgedale Surgical Center to provide basic anesthesia services, primarily assisting the Center with cataract removals and interlocular lens implants. During that time period, Zahl hired a series of anesthesiologists to assist him.

In the summer of 1999, the Attorney General filed a complaint against Zahl with the Board, seeking revocation of his license. The eight-count complaint alleges that Zahl committed various acts of misconduct, including "dishonesty, fraud, deception, misrepresentation, false promise or false pretense," in violation of N.J.S.A. 45:1-21(b); gross and repeated acts of negligence and malpractice, in violation of N.J.S.A. 45:1-21(c) and (d); "professional or occupational misconduct," in violation of N.J.S.A. 45:1-21(e); the creation of false patient records, in violation of N.J.S.A. 45:1-21(h) and N.J.A.C. 13:35-6.5(b); and failure to maintain good moral character, in violation of N.J.S.A. 45:9-6. None of the allegations in the complaint, however, relate to the safety or quality of patient care rendered by Zahl.

The Attorney General petitioned the Board for summary decision on all counts of the complaint, but the Board denied that motion and transferred the case to the Office of Administrative Law. An Administrative Law Judge (ALJ) ultimately ordered revocation of Zahl's medical license, which the Board affirmed. To aid us in the review of the propriety of the Board's penalty, we now set forth the details surrounding Zahl's misconduct, as alleged in the complaint and found by the ALJ and the Board.

The eight counts in the complaint relate to five general areas of wrongdoing. First, the complaint alleges that Zahl submitted eighty-eight claims with overlapping time periods to the federal Medicare program for payment of medical services he rendered in violation of federal Medicare billing guidelines. The complaint states that by committing federal Medicare fraud, Zahl breached his professional obligations under state law.

Questions concerning Zahl's Medicare billing practices first arose in spring of 1998 when Xact Medicare Services (Xact), the then federal Medicare contractor responsible for processing claims submitted by physicians within the State of New Jersey, initiated an investigation. Xact evaluated a sample of 104 of Zahl's Medicare patients between 1995 and 1997. After comparing Zahl's medical records and operating room schedules to the Medicare claims that he electronically submitted, Xact's fraud auditor concluded that Zahl's billing practices were "clearly improper." The auditor found that "virtually every beneficiary's anesthesia service overlapped with a subsequent patient's anesthesia service," indicating that Zahl had furnished services to two separate patients at the same time. The auditor stated that such practices are "neither authorized nor permitted under Medicare billing guide-lines and the Medicare Carriers Manual." Subsequent to that investigation, Xact suspended Zahl's Medicare payments. Empire Medicare Services (Empire) succeeded Xact as New Jersey's Medicare contractor in 1999. At that time, Empire performed an additional audit of 105 of AANJ's federal Medicare claims and found that ninety-seven of those claims contained overlapping time periods.

After counsel for AANJ requested a Fair Hearing from the federal Medicare Hearing Office, the Hearing Officer ruled that Zahl was liable to Medicare for $2,071.34 in overpayment. The Hearing Officer determined that Zahl could not be found "'without fault' . . . based on the provisions in § 1870 of the [federal] Social Security Act." She reasoned that AANJ and Zahl "had been previously notified in numerous Medicare publications and correspondence with Xact Medicare Services and Empire Medicare Services of ... how to properly bill for blocks of time." AANJ pursued an administrative appeal from the Hearing Officer's decision. A federal administrative judge upheld the Hearing Officer's ruling and found that "the regulations do not permit the billing of overlapping/concurrent anesthesia times." In the matter before us, the ALJ adopted the federal Hearing Officer's findings that Zahl had over-billed Medicare and concluded that he breached his professional obligations under state law.

Second, relying on essentially the same fact pattern described above, the complaint alleges that Zahl created false patient records in violation of state regulations by inserting overlapping time entries into the records of 102 patients. In support of that allegation, the complaint refers to an investigation performed by the Board into Zahl's record-keeping. During the investigation, the Board reviewed 102 of Zahl's patient records from late 1995 to late 1997 and, as had the federal investigations conducted by Xact and Empire, found substantial improprieties in Zahl's billing practices. The Board noted that in each record "there is a period of time common to both that patient and either the preceding or succeeding patient, or both," with the overlapping time frequently ranging from twenty-five to thirty-five minutes. At a hearing before the ALJ, Zahl also acknowledged engaging in over 800 anesthesia procedures where overlapping time periods were inserted into patient records, ninety percent of which were Medicare cases. The ALJ found that Zahl's insertion of overlapping time periods created false and inaccurate patient records.

Third, the complaint alleges that Zahl created false patient records by inserting the name of another doctor into records when that doctor had not performed the indicated functions. The allegation is substantiated by four doctors who certified or testified before the ALJ concerning the unauthorized insertion of their names into patient records. One doctor testified that Zahl had inserted her name into forty patient records although she had not been present during the patients' surgical procedures and did not provide them with anesthesia services other than limited pre-operative care. Another doctor certified that her name had been inserted into eight patient records although she had performed none of the functions indicated. Yet another doctor testified that her name was inserted into a patient record for a patient treated on a day when she was not in the office and into a record for a patient that she did not treat. A final doctor, who was not even employed by AANJ but who had visited the office on two occasions to discuss employment possibilities, testified that her name had been inserted into three patient charts.

In assessing Zahl's motivation for inserting those doctors' names, an expert witness for the Attorney General testified that a dual doctor entry in patient records would make scrutiny of the records by an auditor more difficult. He also testified that dual entries potentially could serve as a defense to liability claims, because "if anything went wrong the anesthesiologist could say there were two anesthesiologists with the patient and therefore the patient had not been abandoned." The ALJ found that Zahl's insertion of the doctors' names falsely represented that the doctors had provided services to the patients.

Fourth, the complaint alleges that Zahl misrepresented his disability status to his disability insurer, thereby fraudulently collecting $118,000 in disability claims over the course of a nine-month period from 1998 to 1999. Zahl had been the holder of two disability insurance policies issued by Equitable Life Insurance Society (Equitable). In December 1997, Zahl sent a claim to Equitable informing them that he was "totally disabled" on and after December 8, 1997 as a result of cutting his left thumb while slicing cheese. Zahl described his job to Equitable as...