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Safe harbors for ambulatory surgical centers

By Bruce D. Armon, Esq.

Physicians now have a Safe Harbor if they wish to invest and expand their practice into an ambulatory surgical center (ASC). On November 19, 1999, the Department of Health and Human Services’ Office of Inspector General (OIG) issued a final rule to clarify six of the existing Safe Harbors and implement eight new safe harbors, including the ASC Safe Harbor.

The Anti-Kickback Statute provides criminal penalties for individuals or entities that knowingly and willfully offer, pay, solicit or receive remuneration in order to induce business reimbursable under Federal or State health care programs, including Medicare and Medicaid. A violator of the Anti-Kickback Statute could face imprisonment, fines, and be excluded from participating in Federal and State health care programs.

Because of the expanse of the Anti-Kickback Statute, the Safe Harbors are designed to specify various payment and business practices which, although potentially capable of inducing referrals of business under the Federal and State health care programs, would not be treated as offenses under the Anti-Kickback Statute.

The ASC Marketplace

The number of ASCs has grown dramatically since Medicare first approved reimbursement for ASC procedures in 1982. New technologies now permit many surgical procedures to be performed in ASCs outside of the traditional hospital setting. According to a June, 1999 survey by the SMG Marketing Group, a Chicago-based research company, there are over 2700 freestanding ASCs across the United States. The same survey noted that more than 5.7 million procedures are performed in those ASCs annually. This is equivalent to an average of approximately 2100 procedures annually per ASC.

Unless there is a change in reimbursement methodologies, ASCs will continue to proliferate in the Delaware Valley and across the nation because they are more cost efficient than hospitals and technological advances no longer require an overnight hospitalization for many surgical procedures.

The ASC Safe Harbor protects four categories of ASCs:

• Surgeon-owned ASCs, i.e., all physician-investors are either general surgeons or group practices composed of surgeons engaged in the same specialty.

• Single specialty ASCs, i.e., all physician-investors are engaged in the same specialty or subspecialty.

• Multi-specialty ASCs, i.e., the physician-investors are a mix of specialties.

• Hospital/physician ASCs, i.e., the investors are at least one hospital and physician(s) and group practice(s).

The ASC Safe Harbor also provides protection for investors in an ASC who are not employed by the ASC, or by any investors, who are not in a position to provide items or services to the ASC or any of its other investors, and are not in a position to make or influence referrals directly or indirectly to the ASC or any of its investors.

There are eight common requirements for each of the four types of ASCs to be protected by the ASC Safe Harbor:

• The ASC must be Medicare certified.

• The ASC must use operating and recovery room space dedicated exclusively to the ASC.

• Patients referred to the ASC by physician investors must be fully informed of the physician investors’ investment interests.

• Investment interests must be offered on terms not related to the volume or value of referrals.

• Neither the ASC nor any investor may loan funds or guarantee a loan for an investor to use in obtaining the ASC investment interest.

• Payments to an investor in return for the investment must be directly proportional to the amount of the capital investment of that investor.

• All ancillary services provided at the ASC must be directly and integrally related to the primary procedures performed at the ASC and none may be separately billed to Medicare or other Federal health care programs.

• Neither the ASC nor any of the physicians practicing at the ASC can discriminate against Federal health care program beneficiaries.

To be protected under the ASC Safe Harbor, at least one-third of each physician-investor’s medical practice income from all sources for the previous fiscal year or 12-month period must be derived from his or her performance of ASC procedures. A procedure includes any item on the list of Medicare-covered procedures for ASCs. The medical practice income does not, however, necessarily have to be derived from the ASC in which that physician has invested.

There are specific additional criterion for each of the four ASC Safe Harbors. For instance, to qualify for the multi-specialty ASC Safe Harbor, in addition to the one-third income test, at least one-third of the procedures performed by each physician-investor for the previous fiscal year or previous twelve month period must be at the ASC in which he or she invested.

One of the most important and controversial elements of the hospital/physician Safe Harbor is that, in direct contrast to the multi-specialty’s one-third procedures test, the hospital must not be in a position to refer patients directly or indirectly to the ASC or any physician- investor. In addition, if the space or equipment for the ASC is leased from the hospital, then these agreements must also satisfy the Safe Harbors for space rental and equipment rental, as appropriate.

Purpose and Prognosis for the Impact of the ASC Safe Harbor

The OIG’s purpose for establishing the ASC Safe Harbor was to protect those investments that represent a legitimate extension of the physician’s or group’s office practice. The ASC Safe Harbor does not protect investments by physicians who might refer patients to the ASC, but who do not personally perform ASC-covered procedures.

The ASC Safe Harbor, while an important advance in physician participation in ASCs, may not be an ideal fit for all physicians. The OIG specifically noted that anesthesiologists, radiologists and pathologists ASC investors are not protected by the ASC Safe Harbor if they are 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. However, the OIG noted that it would accept a written stipulation that, for the life of the investment, that physician will not make referrals to the ASC provided that the physician’s actions are consistent with the written stipulation.

Depending upon the ASC, a physician-investor may have difficulty in meeting the one-third income and/or one-third procedure test. For instance, if one physician in a four-person practice does not perform any ASC procedures (or the total medical practice income for that physician is less than the one-third threshold in the Safe Harbor), that physician’s group will not have Safe Harbor protection because each of the physicians have not met the one-third income test.

The OIG acknowledged that some ASCs will not fit within the ASC Safe Harbor. However, the failure to meet all of the requirements of a Safe Harbor only means an arrangement must be analyzed against the provisions of the Anti-Kickback Statute and will not automatically be considered to be a protected arrangement or in violation of the Statute.

The new ASC Safe Harbor can benefit those physicians who have already invested in an ASC and can conform their existing ASC to fit within the parameters of the ASC Safe Harbor. In addition, physicians are now able, if the transaction is structured properly, to participate in the burgeoning ASC marketplace as a physician-investor and protect themselves via the ASC Safe Harbor from violating the Anti-Kickback Statute.

Bruce D. Armon, Esq., is a member of the Saul, Ewing, Remick & Saul LLP Health Law Department in its Philadelphia office.

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