OIG Issues Advisory Opinion Regarding Proposed Ambulatory Surgery Center Investment

On April 26, 2021 the Office of Inspector General (“OIG”) in the U.S. Department of Health and Human Services (“HHS”) issued a new Advisory Opinion Letter providing its analysis as to whether a “Proposed Arrangement” involving an investment in a new ambulatory surgery center (“New ASC”) by an anonymous “Health System”, “Manager” and certain “Physician Investors” consisting of five orthopedic surgeons and three neurosurgeons would constitute grounds for the imposition of sanctions under the exclusion authority at section 1128(b)(7) of the Social Security Act (the “Act”) or the civil monetary penalty provision at section 1128A(a)(7) of the Act, as those sections relate to the commission of acts described in section 1128B(b) of the Act (the “Federal Anti-Kickback Statute”). This Advisory Opinion provides valuable insight into what steps may be taken by investors and healthcare providers to reduce the risk of regulatory enforcement action for violations of the Federal Anti-Kickback Statute as a result of investments in ambulatory surgery centers.

Investors in such facilities must be aware that the Federal Anti-Kickback Statute makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce, or in return for, the referral of an individual to a person for the furnishing of, or arranging for the furnishing of, any item or service reimbursable under a Federal health care program. Under the Federal Anti-Kickback Statute, the offer or payment of investment returns from an ambulatory surgery center to an investor may be found to constitute prohibited remuneration.

However, Congress and HHS have created several “safe harbors” that, while although failure to meet the safe harbor is not necessarily indicative of a violation, when all conditions set forth in a safe harbor are met, meeting such safe harbor serves to protect individuals from sanctions under the Federal Anti-Kickback Statute. One such safe harbor is the Ambulatory Surgery Center Safe Harbor (the “ASC Safe Harbor”).

In this recent Advisory Opinion, the OIG assessed the Proposed Arrangement under the lens of the ASC Safe Harbor and concluded that despite failing to completely satisfy the safe harbor, “the Proposed Arrangement is sufficiently low risk under the Federal Anti-Kickback Statute, and [the OIG] would not impose administrative sanctions on the Health System or the Manager in connection with the Proposed Arrangement.” The OIG provided five reasons for its determination that the Proposed Arrangement would be “low risk” despite failing to meet each condition of the safe harbor which may serve to provide useful guidance for future ASC investors under similar circumstances. The OIG’s rationale in sum is as follows:

  1. Though the surgeons would likely fail to satisfy the one-third requirement for the surgeons’ medical practice income for the previous fiscal year or previous 12-month period as required by the ASC Safe Harbor, the neurosurgeons would use the New ASC on a regular basis as part of their medical practices and would only rarely refer their patients to the other Physician Investors (i.e. fewer than 1% of such ASC services would be referred to other Physician Investors rather than personally performed by the applicable surgeon);
  2. The Proposed Arrangement would have certain safeguards to reduce the risk that the Health System would make or influence referrals which include that:
    1. Compensation for the affiliated physicians would be fair market value and not related to the value or volume of referrals such affiliated physician may make to the New ASC or the Physician Investors, and
    2. The Health System would refrain from any action that would require or encourage the affiliated physicians to refer patients to the New ASC or its Physician Investors and would not track any referrals made to the New ASC or Physician Investors;
  3. The Proposed Arrangement would have certain factors that reduce the risk that investors who are referral sources for the New ASC would be rewarded for their referrals including that:
    1. Neither the New ASC, nor any investor, would loan funds to or guarantee a loan for any investor to obtain ownership in the New ASC,
    2. The New ASC would not offer ownership to any party based on the previous or expected volume or value of referrals made by any party to the Proposed Arrangement,
    3. Capital contributions and profit distributions would be made in proportion to an investor’s ownership in the New ASC, and
    4. All New ASC investors would invest directly in the New ASC rather than through a pass-through entity;
  4. The Proposed Arrangement would have certain safeguards that reduce the risk that the New ASC’s investors would receive profit distributions for referrals of patients to the New ASC including that:
    1. Any space or equipment leased by the New ASC from the Health System or the real estate company would comply with the Federal Anti-Kickback Statute safe harbors for space rental and equipment rental, as applicable,
    2. Any services performed by the Health System or the real estate company for the New ASC would comply with the safe harbor for personal services and management contracts and outcomes-based payments, and
    3. The New ASC and its investors would provide written notice to patients referred by New ASC investors to the New ASC of the referral source’s investment interest in the New ASC; and
  5. The Proposed Arrangement would contain safeguards designed to reduce fraud and abuse risks such as improper billing by doing the following:
    1. The New ASC, the Health System, the Physician Investors, and the Manager would treat patients receiving medical benefits or assistance under any Federal health care program in a nondiscriminatory manner,
    2. All ancillary services provided to Federal health care program beneficiaries performed at the New ASC would be related directly and integrally to primary procedures performed at the New ASC and would not be billed separately to Medicare or any Federal health care program, and
    3. The Health System would not include on any cost report or any claim for payment from a Federal health care program any costs associated with the New ASC, unless such costs are required to be included by a Federal health care program.

Although Advisory Opinions only apply to those parties requesting the Advisory Opinion, the major takeaway from this Advisory Opinion from the OIG is that despite failing to strictly meet each condition of the ASC Safe Harbor, by taking clear steps to reduce the risk that any payment is being made for referrals generated by the ASC and its investors, it is possible for ASC investors to minimize the risk of adverse regulatory enforcement action and violations of the Federal Anti-Kickback Statute. It is clear from the language of this Advisory Opinion that the OIG analyzes these arrangements by the totality of the circumstances and by taking proactive steps to remove or mitigate the conditions that could result in such violations, ASC investors may better protect their interests while still achieving a successful return on their investment.

How Frier Levitt Can Help

Contact Frier Levitt’s knowledgeable attorneys to learn more about the Federal Anti-Kickback Statute. The Firm advises ASCs on all regulatory and compliance issues.

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