Physicians News Health news for doctors and patients.
By Dennis Hursh, Esq.
Many physicians find themselves in the unenviable (and, for some, untenable) position of seeing their compensation for professional services decrease. At the same time, practice expenses are increasing at a rapid pace. One way of stopping this alarming spiral is to develop new sources of income. For many physicians (especially those in surgical specialties) the formation of an ambulatory surgery center (ASC) offers a way to capture income for both the professional and technical (i.e., facility) components of their services.
The profitability of ASCs has caused many physicians to consider the formation and operation of an ASC as an adjunct to their practice. The purpose of this article is to highlight the “fraud and abuse” concerns inherent in operation of an ASC, and to suggest methods of minimizing this risk.
Anti-Kickback Statute
The federal anti-kickback statute establishes criminal penalties with respect to any person who knowingly and willfully offers, pays, solicits or receives any remuneration to induce or in return for: (1) referring an individual to a person for the furnishing or arranging for the furnishing of any item or service payable in whole or in part under a federal health care program; or (2) purchasing, leasing, ordering, or arranging for, or recommending purchasing, leasing, or ordering any good, facility, service or item payable under a federal health care program. Remuneration is defined broadly to include the transfer of anything of value, in cash or in kind, directly or indirectly, overtly or covertly.
Violation of the anti-kickback statute constitutes a felony punishable by a maximum fine of $25,000, imprisonment up to five years, or both. Conviction will also lead to automatic exclusion from Medicare, Medicaid, and other federally funded health care programs. Exclusion from these programs may also be sought by the federal Department of Health and Human Services (HHS) through an administrative proceeding, irrespective of any criminal charges. In addition, under the Balanced Budget Act of 1997, violations of the anti-kickback statute are also subject to civil monetary penalties of up to $50,000 and damages of up to three times the amount of the illegal kickback.
The anti-kickback statute is expansive in scope and clearly prohibits payments for patient referrals. The applicability of the statute becomes less clear, however, when applied to arrangements that do not simply involve a payment per patient referral, but instead contemplate investment or business relationships between two or more individuals or organizations. The courts have interpreted this statute broadly. In 1985, in United States v. Greber, the federal Third Circuit (the appellate court for Pennsylvania) established the “one purpose” test, holding that the anti-kickback statute was violated where one purpose of the payment in question was to induce referrals, irrespective of the existence of other legitimate purposes.
In addition, while cases have interpreted the concept of inducement of referrals quite broadly, judicial guidance with respect to the criminal intent that must be shown in order to prove a violation of the anti-kickback statute has been inconsistent. Judicial inquiry into intent often involves a detailed examination of the facts, circumstances and structure of each transaction, especially the financial effects of the relationships and arrangements.
Safe Harbors
Because of the broad sweep of the anti-kickback prohibitions, Congress created a number of statutory exceptions to protect legitimate business arrangements. In addition, Congress authorized HHS to further establish “safe harbors” by regulation. In particular, HHS has established four separate and distinct safe harbors for four different types of ASCs: surgeon-owned ASCs; single-specialty ASCs; multi-specialty ASCs; and hospital/physician ASCs. In each safe harbor the ASC must be certified as a Medicare facility, whose operating and recovery room space is dedicated exclusively to the ASC. In addition, all patients referred to the ASC by an investor must be fully informed of the investor’s investment interest.
Each of the four safe harbors lists separate qualifications for potential investors. However, each safe harbor allows investors who are not employed by the entity or by any other investor, are not in a position to provide items or services to the ASC 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 (Outside Investors).
Each of the four safe harbors has its own set of standards which must be met. However, all four safe harbors require that the following standards be met (Common Standards):
· The terms on which an investment interest is offered to an investor must not be related to the previous or expected volume of referrals, services furnished, or the amount of business otherwise generated from that investor to the ASC.
· 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.
· The amount of 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 preoperational services rendered) of that investor.
· All ancillary services for Federal health care program beneficiaries performed at the entity must be directly and integrally related to primary procedures performed at the ASC, and none may be separately billed to Medicare or other Federal health care programs.
· The ASC and any physician investors must treat patients receiving medical benefits or assistance under any Federal health care program in a nondiscriminatory manner.
The distinct qualifications and standards for qualifying for each separate safe harbor are set forth below.
Surgeon-owned ASC
To qualify for the surgeon-owned ASC safe harbor, the investors in the ASC may consist only of individuals described below:
· 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.
· Surgical group practices composed exclusively of such surgeons.
· Outside investors.
To qualify for the surgeon-owned ASC safe harbor, the ASC must meet the Common Standards. In addition, at least one-third of each surgeon investor’s medical practice income from all sources from the previous fiscal year or previous 12-month period must be derived from the surgeon’s performance of procedures.
When used in the context of the safe harbor regulations, a “procedure” merely means a procedure or procedures on the list of Medicare-covered procedures for ASCs.
Single-specialty ASC
To qualify for the single-specialty ASC safe harbor, the investors in the ASC may consist only of Outside Investors or:
· 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.
· Group practices composed exclusively of such physicians.
In addition to meeting the Common Standards, the ASC must assure that at least one-third of each physician investor’s medical practice income from all sources for the previous fiscal year or previous 12-month period is derived from the surgeon’s performance of procedures.
Multi-specialty ASC
To qualify for the multi-specialty ASC safe harbor, the investors in the ASC may consist only of Outside Investors, or:
· Physicians who are in a position to refer patients directly to the entity and perform procedures on such referred patients.
· Group practices composed exclusively of such physicians.
In addition to meeting the Common Standards, the following two standards must also be met for an entity to qualify for the multi-specialty ASC safe harbor:
· At least one-third of each physician investor’s medical practice income from all sources for the previous fiscal year or previous 12-month period must be derived from the physician’s performance of procedures.
· At least one-third of the procedures performed by each physician investor for the previous fiscal year or previous 12-month period must be performed at the ASC.
Hospital/Physician ASC
To qualify for the hospital/physician ASC safe harbor, at least one investor must be a hospital. In addition, Outside Investors are allowed. The physician investors in a hospital/physician ASC must meet one of the other three above-referenced safe harbors.
In addition to meeting the Common Standards, the following standards must also be met to qualify for the hospital/physician ASC safe harbor:
· The hospital investor must treat patients receiving medical benefits or assistance under any federal health care program in a non-discriminatory manner.
· The ASC may not use space, including but not limited to, operating and recovery room space, located in or owned by any hospital investor, unless such space is leased in compliance with a “safe harbor lease” which otherwise qualifies under the anti-kickback safe harbors; nor may it use equipment owned by or services provided by the hospital investor unless such equipment is leased in accordance with the “equipment rental safe harbor” promulgated by HHS, and such services are provided in accordance with a contact that complies with the “personal services and management contracts safe harbor” promulgated by HHS.
· The hospital may not include on its cost report or any claim for payment from a federal health care program any costs associated with the ASC (unless such costs are required to be included by a federal health care program).
· The hospital may not be in a position to make or influence referrals directly or indirectly to any investor or the ASC.
If you are unable (or unwilling) to structure an ASC in a way which precisely matches the above safe harbor, this does not mean that the anti-kickback statute will be violated by a contemplated ASC. The government has specifically stated that failure to comply with a safe harbor does not necessarily mean that an arrangement is “suspect.” Nevertheless, the prudent approach will obviously be to comply with one of the above safe harbors if feasible.
An ASC may offer physician investors an opportunity to both control their destiny and the quality of care rendered to their patients, while having a salutary effect on the bottom line. However, experienced health care legal counsel should be consulted prior to proceeding with any contemplated ASC project. Otherwise, the best-intentioned project may inadvertently run afoul of the fraud and abuse laws, with potentially dire consequences to all the investors.
Dennis Hursh, Esq., is a principal in Hursh & Hursh, P.C., a Middletown, Pennsylvania law firm concentrating on representation of physicians and physician group practices.
