Last week, OIG considered a proposed investment by a health system, a management company, and certain surgeons in an ambulatory surgery center (ASC). OIG advised that the proposed arrangement would generate prohibited remuneration under the federal Anti-Kickback Statute (AKS) if the requisite intent were present but determined it would not impose sanctions because the arrangement involved sufficiently low risk under the AKS. The Advisory Opinion presents a valuable compilation of the types of safeguards needed to mitigate risk in ASC investment arrangements that do not qualify for one of the ASC safe harbors under the AKS.

Under the proposed arrangement, the health system, certain orthopedic surgeons and neurosurgeons employed by the health system, and a manager would invest in a new ASC. The health system would own 46% of the new ASC; the physician investors would collectively own 46% of the new ASC (with individual physicians owning between 4% and 8%); and the manager would own 8% of the new ASC. In addition, the new ASC would be located in a new medical facility owned by a real estate company in which the health system, physicians, and the manager would also invest. The new ASC would lease space and equipment, as well as receive support services, from the health system and the real estate company.

The manager currently develops and manages ASCs nationwide and would provide similar services to the new ASC. The health system and physicians affiliated with the health system (including the physician investors) would be in a position to make or influence referrals to the new ASC. However, the health system would refrain from any action requiring or encouraging its affiliated physicians to refer patients to the new ASC or to the physician investors. Further, the manager would not make or influence referrals to the physician investors or the new ASC. No physician would have any ownership in the manager.

The AKS prohibits knowing and willful payment, solicitation, or receipt of any remuneration to induce or reward referrals of federal healthcare program business. Violation of the AKS carries steep penalties, including criminal penalties, fines and exclusion from federal healthcare programs, including Medicare and Medicaid. However, several safe harbor regulations protect some arrangements from sanctions under the AKS, including certain investments by hospitals and physicians in ASCs, if all conditions of the regulations are met. Although the proposed arrangement did not meet all of the terms of a safe harbor, OIG advised it carried sufficiently low risk under the AKS that OIG would not impose administrative sanctions on the health system and the manager requesting the Advisory Opinion.
In making this determination, OIG relied upon several safeguards in the arrangement. Specifically:

1. Although the neurosurgeon physician investors would fail to meet the safe harbor term requiring that at least one-third of their practice income be derived from the performance of procedures at the new ASC, they would use the facility on a regular basis. The physician investors would not be a significant source of cross-referrals to each other to generate new ASC profit distributions.
2. The proposed arrangement includes safeguards to reduce the risk that the health system would make or influence referrals to the new ASC or the physician investors. For example, compensation the health system paid to affiliated physicians would be consistent with fair market value and would not be directly or indirectly related to the volume or value of referrals. Additionally, the health system would refrain from requiring or encouraging its affiliated physicians to refer patients to the new ASC or to physician investors.
3. The proposed arrangement has safeguards reducing the risk that investors who are referral sources would be rewarded for those referrals. For example, no investor would loan funds to or guarantee a loan for any investor to obtain ownership in the new ASC. Volume or value of referrals would not be considered in offering investment interests to any party. Capital contributions and profit distributions would be made in proportion to an investor’s ownership interest. Further, all investors in the new ASC would invest directly, and not use pass-through entities which could be used to redirect revenues to reward referrals.
4. The proposed arrangement includes safeguards to reduce the risk that the new ASC investors would receive profit distributions for referrals of patients to the new ASC. For example, the hospital system certified that any space or equipment leased or services purchased by the new ASC from the health system or the real estate company would comply with AKS safe harbors. In addition, patients referred to the ASC by investors would be notified of the investment interest.
5. The proposed arrangement includes safeguards to reduce fraud and abuse risks. No ancillary services would be billed separately by the new ASC to federal healthcare programs. In addition, the new ASC, the health system, the physician investors, and the manager would treat patients receiving medical benefits or assistance under the federal healthcare program in a nondiscriminatory manner.

In sum, OIG concluded that it would not impose sanctions under the proposed arrangement because there would be a sufficiently low risk under the AKS under the facts described above.

A copy of OIG Advisory Opinion 21-02 is available here.