Ambulatory Surgery Centers

The Anti-Kickback Statutes (AKS), the Stark Laws and the California Physician Ownership and Referral Act (PORA) strictly define health care violations. However, each has its own body of “safe harbors” or exceptions to the general rules, thereby providing a legal basis to uphold the integrity of health care transactions strictly complying with the safe harbor requirements. Under one or more federal statutes and regulations referenced above, as a general rule any ambulatory surgery center (ASC) exists in violation of law. The ASC safe harbor, however, affords adequate protection under which most ASCs exist. The ASC safe harbor consists of four categories: (1) surgeon-owned; (2) single-specialty; (3) multi- specialty; and (4) non-physician owned (such as a hospital and physician joint venture). Most likely the transactions at issue with Respondent are either surgeon-owned, single-specialty or multi-specialty.

Irrespective of the category, an ASC must meet the following requirements to fall within the safe harbor protections:

  1. The ASC must be certified under 42 C.F.R. Part 416 (Ambulatory Surgical Services), and in particular 42 C.F.R. § 416.2, as well as be in compliance with State licensure requirements (42 C.F.R. § 416.40);
  2. The ASC is prohibited from making loans to other individuals for the purpose of investing in the ASC;
  3. The ASC must offer investment interests on terms not related to the volume or value of referrals;
  4. Ancillary services must be directly or integrally related to primary procedures performed at the ASC (and none may be separately billed to Medicare or any other federal health care program); and
  5. Neither the ASC nor physicians practicing at the ASC can discriminate against federal health care program beneficiaries. [Generally speaking, “ASC qualified procedures” refer to procedures that are more intense than those performed in a physician’s office, but do not require a hospital stay. ASC procedures refer to any procedure on the list of Medicare- covered procedures for ASCs.  42 C.F.R. § 1001.952(r)(5).]

For surgeon-owned ASCs, each safe harbor requires that physician-investors satisfy the One-Third Practice Income Test. This test mandates that each physician-investor generate at least one-third of his or her medical practice income in the previous twelve months from procedures that require an ASC or hospital surgical setting. Multi-specialty ASCs require an additional standard that at least one-third of the physician-investors’ procedures requiring an ASC or hospital setting must be performed at the ASC in which he or she is an investor.

The fundamental concept inherent in these regulations is the fair market requirements. The term “fair market value” is defined in 42 U.S.C. Section 1395nn(h)(3) to mean: “[T]he value in arm’s length transactions, consistent with the general market value.(repeated below) . . .” Regulations set forth in 42 C.F.R. Section 411.351 expand upon this definition:

“Fair market value means the value in arm’s-length transactions, consistent with the general market value. ‘General market value’ means the price that an asset would bring as the result of bona fide bargaining between well-informed buyers and sellers who are not otherwise in a position to generate business for the other party, or the compensation that would be included in a service agreement as the result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party, on the date of acquisition of the asset or at the time of the service agreement. Usually, the fair market price is the price at which bona fide sales have been consummated for assets of like type, quality, and quantity in a particular market at the time of acquisition, or the compensation that has been included in bona fide service agreements with comparable terms at the time of the agreement, where the price or compensation has not been determined in any manner that takes into account the volume or value of anticipated or actual referrals . . . .”

The OIG has issued guidance on fair market value and commercial reasonableness. This guidance has taken many forms and includes compliance program information, advisory opinions and special fraud alerts. Under the personal services and management contracts exception, a payment by a principal to an agent as compensation for services is not considered “remuneration” if:

  • The agency agreement is set out in writing and signed by the parties;
  • The agency agreement covers all of the services the agent provides to the principal for the term of the agreement and specifies the services to be provided by the agent;
  • If the agency agreement is intended to provide for the services of the agent on a periodic, sporadic or part-time basis, rather than on a full time basis for the term of the agreement, the agreement specifies exactly the schedule of such intervals, their precise length, and the exact charge for such intervals;
  • The term of the agreement is for not less than one year;
  • The aggregate compensation paid to the agent over the term of the agreement is set in advance, consistent with fair market value in arm’s- length transactions and is not determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties for which payment may be made in whole or in part under Medicare, Medicaid or other federal health care programs; [CMS commented on the determination of fair market value – “with respect to determining what is “commercially reasonable,” any reasonable method of valuation is acceptable, and the determination should be based upon the specific business in which the parties are involved, not business in general. In addition, we strongly suggest that the parties maintain good documentation supporting valuation.” (See 42 C.F.R. § 411.357(l).)]
  • The services performed under the agreement do not involve the counseling or promotion of a business arrangement or other activity that violates any state or federal law; and
  • The aggregate services contracted for do not exceed those that are reasonably necessary to accomplish the commercially reasonable business purpose of the services. [CMS commented on the “commercially reasonable”  standard  of  the personal service arrangements exception – “An arrangement will be considered ‘commercially reasonable’ in the absence of referrals if the arrangement would make commercial sense if entered into by a reasonable entity of similar type and size and a reasonable physician (or family member or group practice) of similar scope and specialty, even if there were no potential referrals.” (See 42 C.F.R. § 411.357(d).)]

With respect to physician groups, in 2000 the OIG issued compliance program guidelines entitled the Compliance Program for Individual and Small Group Physician Practices Guidance. These guidelines focused on seven components for physician practices to utilize when developing a compliance program: monitoring and auditing, compliance and practice standards, having an individual serve as the compliance officer, establishing training and education, promoting response to offenses and corrective action, communication and enforcing disciplinary standards. The OIG identified particular risk areas that affect physician practices,  including improper inducements, kickbacks and self- referrals.

The OIG indicated that relationships of particular concern include those between physicians and hospitals, hospices, nursing facilities, home health agencies, durable   medical  equipment   suppliers,   pharmaceutical   manufacturers   and vendors. The OIG recommended that, to ensure compliance with the AKS when establishing arrangements with other providers and suppliers, physician practices should enter into arrangements only on a fair market value basis and should have legal counsel review any such arrangement. Additionally, the OIG advised physician practices to adopt standards and procedures that encourage compliance with the AKS in arrangements with other healthcare providers. The standards and procedures should address possible risk factors, such as:

  • Financial arrangements with outside entities to whom the practice may refer federal health care program business;
  • Joint ventures with entities supplying goods or services to the physician practice or its patients;
  • Consulting contracts or medical directorships;
  • Office and equipment leases with entities to which the physician refers; and
  • Soliciting, accepting or offering any gift or gratuity of more than nominal value to or from those who may benefit from a physician practice’s referral or federal health care program business.