Anti-Kickback Statute

The federal Anti-Kickback Statute proscribes the offering, payment, solicitation or receipt of any remuneration in exchange for a patient referral or referral of other business for which payment may be made by a Federal health care program, including Medicare and Medicaid. Violations of the Anti-Kickback Statute can result in significant criminal penalties, civil penalties of up to $50,000 for each violation, as well as imprisonment. The primary concern for physician investment in ambulatory surgery centers (ASCs) under the Anti-Kickback Statute is whether distributions to them constitute disguised remuneration for referrals. Given the severity of the criminal and civil sanctions under the Anti-Kickback Statute, physicians need to structure these arrangements carefully and consistent with the ASC safe harbor and OIG’s position on health care ventures.

ASC Safe Harbor

Historically, the investment interests safe harbor for small investments has been used to protect joint ventures. To get protection under this safe harbor, however, a joint venture has to satisfy a number of stringent requirements. In 1999, OIG finalized the ASC safe harbor, which protects certain physician-owned and physician-hospital owned ASCs. This safe harbor contains many of the same elements as the small investment interests safe harbor. Unlike the small investment interests safe harbor, however, there is no cap on the services rendered or referrals made to the entity by physician investors. On the contrary, physician-investors are required to provide a certain level of services and, under certain circumstances, generate a certain amount of revenue for the ASC to maintain safe harbor protection.

Generally, under the ASC safe harbor, prohibited remuneration does not include any payment that is a return on an investment interest, such as a dividend or interest income, made to an investor, as long as the investment entity is a Medicare-certified ASC, the ASC’s operating and recovery room space is dedicated exclusively to the ASC, patients referred to the ASC by an investor are fully informed of the investor’s investment interest, and all of the applicable standards are met within one of four categories, including surgeon-owned ASCs, single-specialty ASCs, multi-specialty ASCs, and hospital-physician ASCs.

Standards applicable to each of the four categories of protected ASC arrangements include the following.

· The terms on which an investment interest is offered to an investor must not be related to services furnished, the previous or expected volume of referrals or the amount of business otherwise generated from that investor to the entity.

· At least one-third of each surgeon investor’s medical practice income from all sources for the previous fiscal year or previous 12-month period must be derived from the surgeon’s performance of those procedures on the list of Medicare-covered procedures for ASCs.

· The ASC or any investor (or other individual or entity acting on behalf of the ASC or any investor) must not loan funds to, or guarantee a loan for, an investor if the investor uses any part of such loan to obtain the investment interest.

· Any distribution or dividend payment to an investor in return for the investment must be directly proportional to the amount of the capital investment (including the fair market value of any pre-operational services rendered) of the investor.

· Any and all ancillary services for Federal health care program beneficiaries performed at the ASC must be directly and integrally related to primary procedures performed at the ASC, and none may be separately billed to any Federal health care programs, including Medicare.

· The ASC and any surgeon investors must treat Federal health care program beneficiaries in a nondiscriminatory manner.

Protected ASC Arrangements

Surgeon-Owned ASCs. Permissible investors in surgeon-owned ASCs include general surgeons or surgeons engaged in the same surgical specialty, who are in a position to refer patients directly to the ASC and perform surgery on such referred patients, as well as surgical group practices composed exclusively of such surgeons. A surgeon is considered to be in a position to refer patients directly to the ASC and perform surgery on such referred patients, if they derive at least one-third of their medical practice income from all sources for the previous fiscal year or previous 12-month period from their own performance of procedures that require an ASC or hospital surgical setting in accordance with Medicare reimbursement rules. Importantly, deriving at least one-third of the physician’s medical practice income from all sources for performance of "procedures" does not require that all such procedures be performed at the ASC (although they may). What is required is that when the physician’s medical practice income (from all sources) is calculated for such previous fiscal year or previous 12-month period, at least one-third of such income is derived from the performance of procedures on the list of Medicare-covered procedures for ASCs (whether performed at the ASC or hospital out-patient department).

Single-Specialty ASCs. Physicians engaged in the same medical practice specialty who are in a position to refer patients directly to the ASC and perform procedures on such referred patients may invest in a single-specialty ASC, as well as group practices composed exclusively of such physicians. Importantly, this category does not require that the physicians be traditional surgeons.

Multi-Specialty ASCs. For multi-specialty ASCs, all of the investors must be physicians who are in a position to refer patients directly to the ASC and actually perform procedures on such referred patients. Specifically, in addition to satisfying the one-third medical practice income test applicable to surgeon-owned ASCs and single-specialty ASCs, the physician investors in multi-specialty ASCs must also perform at least one-third of the physician’s procedures requiring an ASC or hospital surgical setting at the ASC, since the risk for abuse is greater in a multi-specialty group. HHS has indicated that such an arrangement truly qualifies as an extension of the physician’s office and, therefore, the physician investors would unlikely have any significant incentives to generate referrals for other investors because of the minimal additional return on investment derived from such referrals. Multi-specialty ASCs also permit group practices composed exclusively of such physicians to invest.

Hospital/Physician ASCs. Under the hospital-physician ASC safe harbor, investors must include at least one hospital and all of the remaining investors must be physicians who meet the requirements of a surgeon-owned ASC, a single-specialty ASC or a multi-specialty ASC, as applicable. The hospital-physician owned ASC also protects group practices composed of such physicians and surgical group practices. The hospital-physician ASC contains the following additional standards.

· The ASC may not use space such as operating and recovery room space, located in or owned by any hospital investor, unless such space is leased from the hospital in accordance with a lease that complies with all the requirements of the space rental safe harbor; nor may the ASC use equipment owned by or services provided by the hospital investor unless such equipment is leased in accordance with a lease that complies with the equipment rental safe harbor, and such services are provided in accordance with a contract that complies with the personal services and management contracts safe harbor.

· The hospital may not include on its cost report or any payment claim from a Federal health care program, including Medicare, any costs associated with the ASC (unless such costs are required to be included by a Federal health care program).

· The hospital investor may not be in a position to make or influence referrals directly or indirectly to the ASC or any investor of the ASC.

In the preamble to the final safe harbor regulations for ASCs, HHS notes that a hospital may be in a position to influence referrals when it employs physicians who make referrals. Accordingly, a hospital-employed physician’s investment in a hospital-physician owned ASC would jeopardize the hospital’s compliance with the safe harbor requirements.

Also protected under each of the protected ASC arrangements are investors who are not employed by the ASC or by any investor, are not in a position to provide items or services to the entity or any of its investors, and are not in a position to make or influence referrals directly or indirectly to the entity or any of its investors. Investments by physicians such as radiologists, anesthesiologists and pathologists (or physician extenders, such as certified registered nurse anesthetists) would not be protected if the physicians or extenders would be in a position to provide items or services to, refer patients directly or indirectly to, or generate business for, the ASC or any of its investors. Additionally, HHS has indicated that home health agencies, skilled nursing facilities, physician practice management companies and managed care companies may be referral sources. Whether an investor should be classified as a potential referral source, however, is a factual question. HHS has reaffirmed its position under the small investment interests safe harbor that it will accept a written stipulation that for the life of the investment the investor will not make referrals to, furnish items or services to, or otherwise generate business for the ASC or any of its investors (as proof that he or it will not do so) provided that, in fact, the investor’s actions comport with the written stipulation.

The federal Anti-Kickback Statute is an intent-based criminal statute, so failure to fall within a safe harbor does not equate to a violation of law. Ventures that do not satisfy a safe harbor are not illegal per se, but rather, would need to be analyzed on a facts and circumstances basis to determine if the requisite intent to induce referrals is present. The drawback to entering into any such arrangement is that the parties would lose the blanket immunity from prosecution provided under the ASC safe harbor.