HHS' Office of Inspector General issued 22 advisory opinions in 2012. Six of these contain guidance specific to hospitals, surgery centers and other providers. These are briefly described below. The first three advisory opinions closely address issues that surgery centers and hospitals currently are facing while the remaining three address issues that may have peripheral importance, such as an advisory opinion concerning a radiology group that proposed to offer free pre-authorization services to physicians and patients which has potential application to hospital-based specialists and to independent practitioners.
This article also discusses (1) key concepts under the anti-kickback statute related to anesthesia-ASC relationships and (2) ASC anti-kickback safe harbor issues.
A. Advisory Opinion 12-22. OIG Advisory Opinion 12-22 involved a co-management arrangement between a hospital and a cardiology group wherein the cardiology group agreed to provide management and medical director services to the hospital's cardiac catheterization laboratories in exchange for compensation that included a performance bonus. Based on a highly fact-specific analysis, the OIG approved of the arrangement, despite first (i) expressing its concern over similar arrangements while acknowledging that such arrangements could be properly structured to meet valid goals; and (ii) identifying the regulatory schemas implicated by cost-savings programs like the one in the proposed arrangement:
C. Advisory Opinion 12-06. OIG Advisory Opinion 12-06 addressed anesthesia arrangements between surgery centers and anesthesia groups. In this opinion, the OIG disapproved two arrangements between anesthesiologists and surgery centers. Under the first arrangement, the anesthesia group proposed to serve as the surgery center's exclusive provider of anesthesia services while paying the surgery center a per-patient fee for certain management services rendered by the surgery center. Under the second arrangement, the anesthesia group proposed to provide certain anesthesia-related services on an exclusive basis to a subsidiary of the surgery center formed to provide the surgery center anesthesia services. The OIG perceived each arrangement as a means to facilitate kickbacks from the anesthesia group to the surgery center in exchange for referrals. The second arrangement in particular contained elements of a suspect joint venture arrangement as identified by the OIG in earlier guidance:
A. Advisory Opinion 12-01. In its first advisory opinion for 2012, the OIG offered guidance related to a group purchasing organization formed to service the resource management needs of a variety of healthcare organizations, facilities and providers. The requestor for this opinion proposed (i) to establish a GPO that would be wholly owned by an entity that would in turn wholly own many of the potential participants in the GPO and (ii) to pass through to participants in the GPO a portion of the administrative services fee paid by vendors to participate in the GPO. The key question underlying arrangements such as this is whether the vendors are in essence providing a kickback to induce the GPO buy their products. The OIG ultimately concluded that, based on the existence of certain precautionary features, the proposed arrangement presented an acceptable level of fraud and abuse risk. However, prior to making the foregoing conclusion, the OIG was careful to point out its growing skepticism toward the beneficial impact of GPOs:
C. Advisory Opinion 12-08. In this opinion, the OIG approved of a situation where an independent diagnostic testing facility proposed to hire a physician to read and interpret test results. The actions of the employed physician (e.g., reading and interpreting of test results) under scrutiny in this specific advisory opinion appeared relatively benign. Rather, it seemed that the requestor was seeking an advisory opinion for another purpose — for example, to use as a sales tool to show interested parties that it had received an advisory opinion even though the advisory opinion dealt only minimally with any sort of referral patterns and largely skirted issues that usually arise with the involvement of employed physicians. Questions that remain unanswered include: are employed physicians reading test results for other referring physicians? Is the IDTF structured to allow physicians to profit for services they refer but do not handle personally? It is unclear whether or not the OIG shared these suspicions; however, the OIG was clear that its opinion assumed that the employed physician qualify as a bona fide employee for purposes of the anti-kickback statute:
The June 2012 issuance of the OIG Advisory Opinion 12-06, regarding anesthesia services provided by physician-owned companies, coupled with the development of ASC-anesthesia arrangements where ASCs or their owners could profit from the arrangements has led to a great deal of discussion. This section provides seven key points to consider when analyzing such relationships.
1. The anesthesia-ASC relationships are not categorically illegal nor are they specifically covered by the Stark Act (42 U.S.C. 1395nn) and accompanying regulations (42 C.F.R. 411.350 et. al). Rather, they are service agreements, potentially raising anti-kickback issues under the anti-kickback/fraud and abuse statute (42 U.S.C. 1320a-7b).The Advisory Opinion discussed two proposed relationships:
3. The Advisory Opinion and earlier OIG alerts and bulletins on contractual joint ventures speak negatively of situations where a group or physicians enter into a business where they control the referral stream and another party, who is essentially the service provider, cuts the group or physicians into the business revenues. The OIG believes that Arrangement B exhibits certain common elements of a suspect joint venture arrangement. Five suspect elements in Arrangement B include the facts that:
5. The safest legal position is, of course, for the ASC and surgeons to stay out of the stream of profits. The OIG has also stated on numerous occasions, and reiterated in its Advisory Opinion, the OIG's view that the opportunity for a referring physician to earn a profit, including through an investment in an entity for which he or she generates business, could constitute an illegal inducement under the anti-kickback statute. It also states "that no safe harbor would protect the remuneration the [anesthesia company] would distribute to the [ASC]s’ physician-owners."
6. The OIG argues against the position that direct employment of the anesthesiologists would meet a safe harbor for the surgery center. That stated, there are arguments that a direct employment arrangement meets a safe harbor. The employee safe harbor excludes from the definition of "remuneration," for purposes of the anti-kickback statute, any amount paid by an employer to an employee who has a bona fide employment relationship with the employer. The OIG argues that even if the anesthesia service provider was considered a "bona fide" employee, this alone would not render the actual ASC safe harbor met. This may be a tough position for the OIG to prevail on.
7. ASCs and anesthesiologists also use other structures. The OIG only commented on two proposed structures. Each alternative structure will need to be judged based on the facts and circumstance of the structure. Examples of other organizational structures and arrangements include engaging the anesthesia on a per-diem or per-annum independent contractor basis or developing a joint venture with the anesthesia group. However, these alternative arrangements generally won't meet a safe harbor.
Redeeming interests in ASCs raises several business and regulatory issues and has led to a great deal of discussion over the last several years. This section briefly discusses ASC anti-kickback safe harbor requirements and issues that arise with redemption of physician investor ownership interests due to such safe harbor.
The anti-kickback statute prohibits an ASC, its physician owners, or any other person or entity from knowingly giving or getting anything of value in exchange for referrals or orders for items or services that may be covered by a federal healthcare program. A violation of the anti-kickback statute can result in civil and administrative penalties, regardless of any criminal liability. The broad scope of the anti-kickback statute and the uncertainties that it created for the healthcare industry led Congress to promulgate "safe harbor" regulations specifying those financial arrangements that will not be subject to liability under the anti-kickback statute.
1. The ASC safe harbors include both qualitative and quantitative tests. Some qualitative tests include requiring that physicians who invest in an ASC are not given more or less shares in the ASC based on the volume or value of referrals they provide to the center. Additionally, safe harbor qualitative tests require that physician investors disclose their investment interest to patients.
In addition to the qualitative tests, there are also two quantitative safe harbor tests that apply to ASCs. These include the two one-third tests. First, a physician must generate one-third of his medical practice income from the performance of procedures of the type performed at an ASC (the "one-third income test"). Second, for a physician investing in a multispecialty ASC, at least one-third of the procedures the physician performs must be performed at the ASC in which the physician has an investment interest (the "one-third procedure test").
2. The one-third procedure test generates a lot of controversy because it is contrary to all traditional fraud and abuse statute guidance. Traditionally, the fraud and abuse statute prohibited an entity, in any manner, from conditioning a physician investor's continued ownership in the ASC or any provider upon the physician investor's referrals to the center. The current one-third procedure test (i.e., the second 1/3rd test) is contrary to this traditional prohibition. That is, it requires physicians to perform cases at the center as a condition of safe harbor eligibility in multispecialty ASCs.
3. The purpose of the one-third procedure test was not to drive referrals to ASCs, but rather, to ensure that the referring physician is a direct performer of services provided to the patient versus an indirect referral source. When drafting the ASC safe harbors, the OIG was concerned that physicians would be awarded ownership interests in ASCs in exchange for providing referrals to other physicians in the ASC. HHS explained in a 1999 Federal Register that in the ASC context its "chief concern is that a return on an investment in an ASC might be a disguised payment for referrals." The one-third procedure aimed to combat this concern by ensuring that procedures were performed by the referring physician.
4. To the extent that a given financial arrangement qualifies for safe harbor protection by satisfying the qualitative and quantitative tests, the parties should be immune from liability under the anti-kickback statute. Immunity under a safe harbor for one financial arrangement does not, however, qualify all arrangements between the parties as safe harbor compliant. Further, a physician's or center's failure to meet a safe harbor does not necessarily mean the arrangement is unlawful.
5. Determining or requiring compliance with the one-third procedure test is a matter of significant conflict amongst lawyers. Some very well-respected lawyers, on the one hand, would tell you that if an ASC is trying to enforce the one-third procedure test but is not fully safe harbor-compliant for other reasons, that the ASC is essentially in the middle of the traditional prohibited arena where you cannot condition ownership on referrals.
On the other hand, many lawyers recommend an ASC to get as close to safe harbor compliant as possible, and that, even if a physician or ASC is not completely compliant, it is better to be closer to compliant than not at all.
6. When a physician is out of compliance, to lessen the chances of lawsuits over redemption, we generally encourage ASCs to provide significant notice to violating physicians and a relatively lengthy cure period to give the physician a chance to get in compliance with the safe harbor requirements. We also advise that consistent application is critical to an ASC's success in properly handling the redemption of a physician investor. When a center is redeeming a physician, it is important that the center generally treat all non-compliant physicians in the same manner. The center should not selectively choose which physician to redeem. For example, if two physicians fail to meet the safe harbor requirements, it will be problematic if the ASC chooses to redeem the physician who contributes fewer cases to the center and chooses not to redeem the physicians who also failed to meet the safe harbor requirements but nonetheless refers more cases (and value) to the center.
7. Typically the ASC governing document provides that if certain events, called terminating events, occur to a physician owner, the ASC or its owners will have the right to redeem or buy back such owner’s equity in the ASC. Many ASCs treat events of termination as adverse or non-adverse depending on whether the physician has breached the governing agreement. ASCs will want to label most events as adverse terminating events in the governing agreement to avoid physician investors from having "a put right" and the automatic ability to force redemption. However, even if an ASC would like to treat safe harbor non-compliance as an adverse event, many lawyers recommend such an event to be treated as non-adverse and provide the physician investor with the non discount value of their interest to lessen the argument that the redeemed physician is being penalized for failure to refer cases to the ASC.
8. Many ASCs today require that each physician investor make an annual attestation that he or she has complied with the safe harbor tests. In some cases a physician may attest that they have met the safe harbor standards, although they have not. This risk might be addressed by having the governing document allow the center to audit physician investor records to confirm compliance with the safe harbors.
9. If a physician does not meet the safe harbor requirements, the ASC must assess what action will be taken. The board of directors should discuss each year its choice on enforcement of the safe harbors. If the board enforces compliance with the safe harbor, it should be made clear that enforcement is due to compliance reasons and not due to a failure to generate referrals. If the board does not enforce compliance, the board should make clear that the failure to take action is not to reward or allow a physician to stay with the center as an indirect referral source.
This article also discusses (1) key concepts under the anti-kickback statute related to anesthesia-ASC relationships and (2) ASC anti-kickback safe harbor issues.
I. 22 Advisory Opinions Issue by the Office of Inspector General - 6 of Interest
1. Co-Management, Call Coverage and Anesthesia Arrangements
A. Advisory Opinion 12-22. OIG Advisory Opinion 12-22 involved a co-management arrangement between a hospital and a cardiology group wherein the cardiology group agreed to provide management and medical director services to the hospital's cardiac catheterization laboratories in exchange for compensation that included a performance bonus. Based on a highly fact-specific analysis, the OIG approved of the arrangement, despite first (i) expressing its concern over similar arrangements while acknowledging that such arrangements could be properly structured to meet valid goals; and (ii) identifying the regulatory schemas implicated by cost-savings programs like the one in the proposed arrangement:
B. Advisory Opinion 12-15. OIG Advisory Opinion 12-15 involved a per diem call coverage arrangement between hospitals and physicians. Ultimately, the OIG approved the proposed call coverage arrangement but did articulate concerns with covert kickbacks that might be in the form of call payments. In its analysis the OIG noted specific types of problematic competitive structures:
Properly structured, arrangements that compensate physicians for achieving hospital cost savings can serve legitimate business and medical purposes. Specifically, properly structured arrangements may increase efficiency and reduce waste, thereby potentially increasing a hospital's profitability. However, such arrangements can potentially influence physician judgment to the detriment of patient care. Our concerns include, but are not limited to, the following: (i) stinting on patient care, (ii) "cherry picking" healthy patients and steering sicker (and more costly) patients to hospitals that do not offer such arrangements, (iii) payments to induce patient referrals, and (iv) unfair competition among hospitals offering incentive compensation programs to foster physician loyalty and to attract more referrals.
Hospital cost-savings programs in general, and the Arrangement in particular, may implicate at least three Federal legal authorities: (i) the civil monetary penalty for reductions or limitations of services provided to Medicare and Medicaid beneficiaries, sections 1128A(b)(1)–(2) of the Act; (ii) the anti-kickback statute, section 1128B(b) of the Act; and (iii) the physician self-referral law, section 1877 of the Act.18.
There is a substantial risk that improperly structured payments for on-call coverage could be used to disguise unlawful remuneration. Covert kickbacks might take the form of payments that exceed fair market value for services rendered or payments for on-call coverage not actually provided. Problematic compensation structures that might disguise kickbacks could include, by way of example:
(i) "lost opportunity" or similarly designed payments that do not reflect bona fide lost income;
(ii) payment structures that compensate physicians when no identifiable services are provided;
(iii) aggregate on-call payments that are disproportionately high compared to the physician’s regular medical practice income; or
(iv) payment structures that compensate the on-call physician for professional services for which he or she receives separate reimbursement from insurers or patients, resulting in the physician essentially being paid twice for the same service.
C. Advisory Opinion 12-06. OIG Advisory Opinion 12-06 addressed anesthesia arrangements between surgery centers and anesthesia groups. In this opinion, the OIG disapproved two arrangements between anesthesiologists and surgery centers. Under the first arrangement, the anesthesia group proposed to serve as the surgery center's exclusive provider of anesthesia services while paying the surgery center a per-patient fee for certain management services rendered by the surgery center. Under the second arrangement, the anesthesia group proposed to provide certain anesthesia-related services on an exclusive basis to a subsidiary of the surgery center formed to provide the surgery center anesthesia services. The OIG perceived each arrangement as a means to facilitate kickbacks from the anesthesia group to the surgery center in exchange for referrals. The second arrangement in particular contained elements of a suspect joint venture arrangement as identified by the OIG in earlier guidance:
Like the Owner in the arrangement described in the Special Advisory Bulletin [titled “Contractual Joint Ventures”, 68 Fed. Reg. 23,148 (Apr. 30, 2003)], the Centers' physician-owners would be expanding into a related line of business — anesthesia services — that would be wholly dependent on the Centers' referrals. The Centers' physician-owners would not actually participate in the operation of the Subsidiaries but rather would contract out substantially all of the operations exclusively to the Requestor [(the anesthesia service provider)]. And, like the Owner in the Special Advisory Bulletin, the Centers' physician-owners' actual business risk would be minimal because they would control the amount of business they would refer to the Subsidiaries.
Other elements described in the Special Advisory Bulletin that are present in Proposed Arrangement B include:
a. the Requestor is an established provider of the same services that the Subsidiaries would provide, and otherwise would be a competitor providing the services in its own right, billing insurers and patients in its own name, and collecting and retaining all available reimbursement; and
b. the Requestor and the Centers' physician-owners would share in the economic benefit of the Centers' new business, with the Requestor receiving its share in the form of a negotiated rate and the Centers' physician-owners receiving their share in the form of the residual profits from the new business.
2. GPOs, Pre-Authorization Services and IDTFS
A. Advisory Opinion 12-01. In its first advisory opinion for 2012, the OIG offered guidance related to a group purchasing organization formed to service the resource management needs of a variety of healthcare organizations, facilities and providers. The requestor for this opinion proposed (i) to establish a GPO that would be wholly owned by an entity that would in turn wholly own many of the potential participants in the GPO and (ii) to pass through to participants in the GPO a portion of the administrative services fee paid by vendors to participate in the GPO. The key question underlying arrangements such as this is whether the vendors are in essence providing a kickback to induce the GPO buy their products. The OIG ultimately concluded that, based on the existence of certain precautionary features, the proposed arrangement presented an acceptable level of fraud and abuse risk. However, prior to making the foregoing conclusion, the OIG was careful to point out its growing skepticism toward the beneficial impact of GPOs:
B. Advisory Opinion 12-10. OIG Advisory Opinion 12-10 responded to a proposal by a radiology group to offer free insurance pre-authorization services to physicians and patients using the requestor's radiology services. Based upon the existence of legitimate business interests and various safeguards, the OIG approved the proposed arrangement. Notwithstanding this approval, it appears clear that the OIG has not diverted from its general opposition to the provision of free or discounted goods or services to referral sources:
In addressing this issue, we turn to the history of the GPO safe harbor. In 1986, Congress amended the anti-kickback statute to create an exception for amounts paid by vendors to GPOs, as long as certain conditions were met. According to the legislative history, Congress believed that GPOs could "help reduce health care costs for the government and the private sector alike by enabling a group of purchasers to obtain substantial volume discounts on the prices they are charged." Subsequently, the OIG promulgated the regulatory safe harbor described above. However, in the years following, both Congress and the OIG began to question whether GPOs were achieving this key goal — i.e., whether purchases made through GPOs actually reduce health care costs for the government and the private sector.
The OIG's position on the provision of free or below-market goods or services to actual or potential referral sources is longstanding and clear: such arrangements are suspect and may violate the anti-kickback statute, depending on the circumstances. For example, in 2005, the OIG issued its Supplemental Compliance Program Guidance for Hospitals, which explained that "[t]he general rule of thumb is that any remuneration flowing between hospitals and physicians should be at fair market value."
Obtaining pre-authorization from insurers is an administrative service with potential independent value to physicians; however, whether that service confers a benefit upon a particular referring physician depends on the facts and circumstances. Where a referring physician's contract with an insurer specifically allocates responsibility for obtaining pre-authorization to that physician, an imaging provider's free pre-authorization service would relieve that physician of having to perform administrative duties for which he or she otherwise would be responsible. In cases where a referring physician's contract with an insurer allocates responsibility for obtaining pre-authorization to imaging providers or patients — or does not allocate responsibility to any party — an imaging provider would not be relieving an express financial obligation the physician would otherwise be required to incur, but the physician may be receiving remuneration nonetheless (e.g., a physician whose staff is devoting considerable time to pre-authorizations might realize significant savings).
C. Advisory Opinion 12-08. In this opinion, the OIG approved of a situation where an independent diagnostic testing facility proposed to hire a physician to read and interpret test results. The actions of the employed physician (e.g., reading and interpreting of test results) under scrutiny in this specific advisory opinion appeared relatively benign. Rather, it seemed that the requestor was seeking an advisory opinion for another purpose — for example, to use as a sales tool to show interested parties that it had received an advisory opinion even though the advisory opinion dealt only minimally with any sort of referral patterns and largely skirted issues that usually arise with the involvement of employed physicians. Questions that remain unanswered include: are employed physicians reading test results for other referring physicians? Is the IDTF structured to allow physicians to profit for services they refer but do not handle personally? It is unclear whether or not the OIG shared these suspicions; however, the OIG was clear that its opinion assumed that the employed physician qualify as a bona fide employee for purposes of the anti-kickback statute:
The IDTF certified that it would hire the Physician as a bona fide employee whose only duties would be to read and interpret sleep tests and perform certain, related administrative duties. Whether an employee is a bona fide employee for purposes of the employee exception to the anti-kickback statute is a matter that is outside the scope of the advisory opinion process. See section 1128D(b)(3)(B) of the Act. Thus, for purposes of rendering this advisory opinion, we assume that the Physician would be a bona fide employee in accordance with the definition of the term set forth at 26 U.S.C. § 3121(d)(2) and IRS interpretations of that provision as codified in its regulations and other interpretive sources. If the Physician is not a bona fide employee under this definition, this advisory opinion is without force and effect. Because the Physician would be a bona fide employee, and he would be compensated for furnishing a service for which payment may be made in whole or in part under Medicare, Medicaid or other Federal health care program, we conclude that the Physician’s compensation under the Proposed Arrangement would be protected by the statutory exception and regulatory safe harbor for employee compensation.
II. Anesthesia-ASC Arrangements – 7 Key Concepts.
The June 2012 issuance of the OIG Advisory Opinion 12-06, regarding anesthesia services provided by physician-owned companies, coupled with the development of ASC-anesthesia arrangements where ASCs or their owners could profit from the arrangements has led to a great deal of discussion. This section provides seven key points to consider when analyzing such relationships.
1. The anesthesia-ASC relationships are not categorically illegal nor are they specifically covered by the Stark Act (42 U.S.C. 1395nn) and accompanying regulations (42 C.F.R. 411.350 et. al). Rather, they are service agreements, potentially raising anti-kickback issues under the anti-kickback/fraud and abuse statute (42 U.S.C. 1320a-7b).The Advisory Opinion discussed two proposed relationships:
2. The determination of whether an arrangement is legal or illegal will depend on the purposes of the arrangement and the facts and circumstances of the situation. In the Advisory Opinion, the OIG "conclude[d] that the Proposed Arrangements could potentially generate prohibited remuneration under the anti-kickback statute…[but] [a]ny definitive conclusion regarding the existence of an anti-kickback violation requires a determination of the parties' intent[.]” Examples of questions the OIG would ask in determining the parties' intent include: did the ASC or its surgeons tell the anesthesia groups "you must give us part of the profits to keep your contract" versus was the relationship developed to fit a real need? For example, did the ASC had coverage problems, issues with anesthesia contracting or patient requirements, or other issues with the anesthesia group that necessitated the relationship?
A. Arrangement A is where the anesthesia service provider would serve as the ASC's exclusive provider of anesthesia service, bill and retain collections from patients and third-party payors, and pay the ASC a "management services" fee. The OIG concluded Arrangement A raised anti-kickback issues because “there is risk that the [anesthesia service provider] would be paying the Management Services fees with regard to non-federal healthcare program patients to induce the Centers' referral of all of its patients, including federal healthcare program beneficiaries."
B. Arrangement B is where ASC physician-owners would establish separate companies for the purpose of providing anesthesia-related services to outpatients undergoing surgery at the ASCs. The OIG concluded "no safe harbor would protect the remuneration the [anesthesia company] would distribute to the [ASC]'s physician-owners under Proposed Arrangement B."
3. The Advisory Opinion and earlier OIG alerts and bulletins on contractual joint ventures speak negatively of situations where a group or physicians enter into a business where they control the referral stream and another party, who is essentially the service provider, cuts the group or physicians into the business revenues. The OIG believes that Arrangement B exhibits certain common elements of a suspect joint venture arrangement. Five suspect elements in Arrangement B include the facts that:
A. The [ASC]s' physician-owners would be expanding into a related line of business — anesthesia services — that would be wholly dependent on the [ASC]s' referrals;4. The Advisory Opinion sets forth in part the position prosecutors and investigators will take when reviewing anesthesia arrangements for anti-kickback concerns. While the position of the prosecutors and investigators is a very powerful position and one should tread carefully in setting up structures that are not consistent with the OIG's Advisory Opinion, one should recognize that such parties are the prosecutor and investigator, but not the ultimate judge of such relationships. As the Advisory Opinion stated, the absence of safe harbor protection is not fatal. A judge would ultimately determine whether the arrangement violates the kick-back statute.
B. The [ASC]s' physician-owners would not actually participate in the operation of the [anesthesia company] but rather would contract out substantially all of the operations exclusively to the [anesthesia service provider];
C. The [ASC]s' physician-owners' actual business risk would be minimal because they would control the amount of business they would refer to the [anesthesia company];
D. The [anesthesia service provider] is an established provider of the same services that the [anesthesia company] would provide, and otherwise would be a competitor providing the services in its own right, billing insurers and patients in its own name, and collecting and retaining all available reimbursement; and
E. The [anesthesia service provider] and the [ASC]s' physician-owners would share in the economic benefit of the [ASC]s' new business, with the [anesthesia service provider] receiving its share in the form of a negotiated rate and the [ASC]s' physician-owners receiving their share in the form of the residual profits from the new business.
5. The safest legal position is, of course, for the ASC and surgeons to stay out of the stream of profits. The OIG has also stated on numerous occasions, and reiterated in its Advisory Opinion, the OIG's view that the opportunity for a referring physician to earn a profit, including through an investment in an entity for which he or she generates business, could constitute an illegal inducement under the anti-kickback statute. It also states "that no safe harbor would protect the remuneration the [anesthesia company] would distribute to the [ASC]s’ physician-owners."
6. The OIG argues against the position that direct employment of the anesthesiologists would meet a safe harbor for the surgery center. That stated, there are arguments that a direct employment arrangement meets a safe harbor. The employee safe harbor excludes from the definition of "remuneration," for purposes of the anti-kickback statute, any amount paid by an employer to an employee who has a bona fide employment relationship with the employer. The OIG argues that even if the anesthesia service provider was considered a "bona fide" employee, this alone would not render the actual ASC safe harbor met. This may be a tough position for the OIG to prevail on.
7. ASCs and anesthesiologists also use other structures. The OIG only commented on two proposed structures. Each alternative structure will need to be judged based on the facts and circumstance of the structure. Examples of other organizational structures and arrangements include engaging the anesthesia on a per-diem or per-annum independent contractor basis or developing a joint venture with the anesthesia group. However, these alternative arrangements generally won't meet a safe harbor.
III. ASC Anti-Kickback Safe Harbor Issues – 9 Key Concepts for 2013.
Redeeming interests in ASCs raises several business and regulatory issues and has led to a great deal of discussion over the last several years. This section briefly discusses ASC anti-kickback safe harbor requirements and issues that arise with redemption of physician investor ownership interests due to such safe harbor.
The anti-kickback statute prohibits an ASC, its physician owners, or any other person or entity from knowingly giving or getting anything of value in exchange for referrals or orders for items or services that may be covered by a federal healthcare program. A violation of the anti-kickback statute can result in civil and administrative penalties, regardless of any criminal liability. The broad scope of the anti-kickback statute and the uncertainties that it created for the healthcare industry led Congress to promulgate "safe harbor" regulations specifying those financial arrangements that will not be subject to liability under the anti-kickback statute.
1. The ASC safe harbors include both qualitative and quantitative tests. Some qualitative tests include requiring that physicians who invest in an ASC are not given more or less shares in the ASC based on the volume or value of referrals they provide to the center. Additionally, safe harbor qualitative tests require that physician investors disclose their investment interest to patients.
In addition to the qualitative tests, there are also two quantitative safe harbor tests that apply to ASCs. These include the two one-third tests. First, a physician must generate one-third of his medical practice income from the performance of procedures of the type performed at an ASC (the "one-third income test"). Second, for a physician investing in a multispecialty ASC, at least one-third of the procedures the physician performs must be performed at the ASC in which the physician has an investment interest (the "one-third procedure test").
2. The one-third procedure test generates a lot of controversy because it is contrary to all traditional fraud and abuse statute guidance. Traditionally, the fraud and abuse statute prohibited an entity, in any manner, from conditioning a physician investor's continued ownership in the ASC or any provider upon the physician investor's referrals to the center. The current one-third procedure test (i.e., the second 1/3rd test) is contrary to this traditional prohibition. That is, it requires physicians to perform cases at the center as a condition of safe harbor eligibility in multispecialty ASCs.
3. The purpose of the one-third procedure test was not to drive referrals to ASCs, but rather, to ensure that the referring physician is a direct performer of services provided to the patient versus an indirect referral source. When drafting the ASC safe harbors, the OIG was concerned that physicians would be awarded ownership interests in ASCs in exchange for providing referrals to other physicians in the ASC. HHS explained in a 1999 Federal Register that in the ASC context its "chief concern is that a return on an investment in an ASC might be a disguised payment for referrals." The one-third procedure aimed to combat this concern by ensuring that procedures were performed by the referring physician.
4. To the extent that a given financial arrangement qualifies for safe harbor protection by satisfying the qualitative and quantitative tests, the parties should be immune from liability under the anti-kickback statute. Immunity under a safe harbor for one financial arrangement does not, however, qualify all arrangements between the parties as safe harbor compliant. Further, a physician's or center's failure to meet a safe harbor does not necessarily mean the arrangement is unlawful.
5. Determining or requiring compliance with the one-third procedure test is a matter of significant conflict amongst lawyers. Some very well-respected lawyers, on the one hand, would tell you that if an ASC is trying to enforce the one-third procedure test but is not fully safe harbor-compliant for other reasons, that the ASC is essentially in the middle of the traditional prohibited arena where you cannot condition ownership on referrals.
On the other hand, many lawyers recommend an ASC to get as close to safe harbor compliant as possible, and that, even if a physician or ASC is not completely compliant, it is better to be closer to compliant than not at all.
6. When a physician is out of compliance, to lessen the chances of lawsuits over redemption, we generally encourage ASCs to provide significant notice to violating physicians and a relatively lengthy cure period to give the physician a chance to get in compliance with the safe harbor requirements. We also advise that consistent application is critical to an ASC's success in properly handling the redemption of a physician investor. When a center is redeeming a physician, it is important that the center generally treat all non-compliant physicians in the same manner. The center should not selectively choose which physician to redeem. For example, if two physicians fail to meet the safe harbor requirements, it will be problematic if the ASC chooses to redeem the physician who contributes fewer cases to the center and chooses not to redeem the physicians who also failed to meet the safe harbor requirements but nonetheless refers more cases (and value) to the center.
7. Typically the ASC governing document provides that if certain events, called terminating events, occur to a physician owner, the ASC or its owners will have the right to redeem or buy back such owner’s equity in the ASC. Many ASCs treat events of termination as adverse or non-adverse depending on whether the physician has breached the governing agreement. ASCs will want to label most events as adverse terminating events in the governing agreement to avoid physician investors from having "a put right" and the automatic ability to force redemption. However, even if an ASC would like to treat safe harbor non-compliance as an adverse event, many lawyers recommend such an event to be treated as non-adverse and provide the physician investor with the non discount value of their interest to lessen the argument that the redeemed physician is being penalized for failure to refer cases to the ASC.
8. Many ASCs today require that each physician investor make an annual attestation that he or she has complied with the safe harbor tests. In some cases a physician may attest that they have met the safe harbor standards, although they have not. This risk might be addressed by having the governing document allow the center to audit physician investor records to confirm compliance with the safe harbors.
9. If a physician does not meet the safe harbor requirements, the ASC must assess what action will be taken. The board of directors should discuss each year its choice on enforcement of the safe harbors. If the board enforces compliance with the safe harbor, it should be made clear that enforcement is due to compliance reasons and not due to a failure to generate referrals. If the board does not enforce compliance, the board should make clear that the failure to take action is not to reward or allow a physician to stay with the center as an indirect referral source.