July 6, 2021 Legal Intelligencer article by Lamb McErlane PC Health Law partner Vasilios J. Kalogredis with contributions by associate Kelly A. Jurs.

On April 26, 2021, the Office of Inspector General for the U.S. Department of Health and Human Services (“OIG”) issued Advisory Opinion 21-02, approving a proposal whereby a Health System, certain orthopedic surgeons and neurosurgeons employed by the Health System (the “Physician Investors”), and the Manager would invest in a new ambulatory surgery center (the “New ASC”).

The requestors of Advisory Opinion 21-02 seek to invest in the New ASC and the Manager, who develops and manages ambulatory surgery centers nationwide, would provide management, consulting, administrative, and other services to the New ASC. The Physician Investors would consist of five orthopedic surgeons and three neurosurgeons. The Manager would not make or influence referrals, directly or indirectly, to the Physician Investors or to the New ASC.

The Proposed Arrangement

Under the proposed arrangement the Health System would own 46 percent of the New ASC, the Physician Investors collectively would own 46 percent, and the Manager would own 8 percent.  The Physician Investors individually would own interests in the New ASC ranging from 4 to 8 percent each.  All New ASC investors would invest directly in the New ASC and neither the New ASC nor any investor would loan funds to, or guarantee a loan for, any investor to obtain ownership in the New ASC. Ownership in the New ASC would not be predicated in any way based upon prior or future referrals by any potential investor.  Capital contributions and profit distributions would be made in proportion to an investor’s ownership in the New ASC.

The Health System would not encourage physicians who are its employees independent contractors or medical staff members (“Affiliated Physicians”) to refer patients to the New ASC or to the Physician Investors.  In addition, the Health System would not track referrals made to the New ASC by Affiliated Physicians and no Affiliated Physician arrangement would require the Affiliated Physician to refer to the New ASC. Any compensation for services would be consistent with fair market value and would not be tied in any way to referrals.

At least one-third of procedures performed by Physician Investors that would be payable by Medicare when performed in an ASC (“ASC – Qualified Procedures”) would be performed at the New ASC. Each orthopedic Physician Investor would receive at least one-third of his or her medical practice income for the previous fiscal year or previous 12-month period from ASC-Qualified Procedures. The Manager would monitor compliance with these requirements.

Despite the concern that not all neurosurgeon Physician Investors would derive one-third of their medical practice income from the performance of ASC-Qualified Procedures, the Health System indicates that neurosurgeon Physician Investors would use the New ASC on a regular basis as part of their medical practices. Further, Physician Investors would rarely refer patients to each other for ASC-Qualified Procedures.

As to the physical location of the proposed New ASC, it would operate in a newly constructed medical facility owned by a real estate joint venture owned by the Health System, the Physician Investors, and the Manager (the “Real Estate Company”).  Any space or equipment leased by the New ASC from the Health System or the Real Estate Company and any services performed for the New ASC would comply with the Federal anti-kickback statute safe harbors for space rental, equipment rental, or personal services and management contracts and outcomes-based payment arrangements, as applicable.

The New ASC would provide written notice to patients referred to the New ASC by any investor of that investor’s ownership in the New ASC. Any ancillary services provided to Federal health care program beneficiaries at the New ASC would be related directly and integrally to primary procedures and would not be billed separately to any Federal health care program. The Health System would not include on any cost report or any claim for payment from a Federal health care program any costs associated with the New ASC unless required by a Federal health care program.

OIG’s Analysis

OIG noted that the proposed arrangement would generate two remuneration streams that implicate the Federal anti-kickback statute (“AKS”), AKS makes it a criminal offense to knowingly and willfully offer, pay, solicit or receive remuneration to induce or reward the referral of federally reimbursable items or services. First, the offer or payment of investment returns from an ASC to an investor constitutes remuneration under the Federal anti-kickback statute, as the Manager may be in a position to directly or indirectly influence referrals of items or services reimbursable by a Federal health care program to the new ASC. Second, with respect to the Physician Investors’ and the Health System’s investment interest, the OIG concludes that both parties would be in a position to make or influence referrals for items and services reimbursable by a Federal health care program furnished by the New ASC. In particular, the Health System would be in a position to influence referrals to the New ASC through its financial arrangements with Affiliated Physicians, and Physician Investors would profit from their referrals to other Physician Investors who perform procedures at the New ASC.

Despite finding that the proposed arrangement could potentially generate prohibited remuneration under the federal anti-kickback statute if the requisite intent were present and constitute grounds for the imposition of sanctions under the exclusion authority of the Social Security Act or the Civil Monetary Penalty Law (which prohibits a person or entity from offering or providing any remuneration to a Medicare or Medicaid beneficiary that the offeror knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier), OIG concluded that it would not impose administrative sanctions on the requestor based on the following:

1. The Physician Investors would not be significant sources of cross-referrals to other Physician Investors to generate new ASC profit distributions.
2. The Proposed Arrangement would contain certain safeguards to reduce the risk that the Health System would make or influence referrals to the New ASC or the Physician Investors.
3. Certain factors in the Proposed Arrangement reduce the risk that investors who are referral sources for the New ASC would be rewarded for their referrals either through the offer of ownership based on future or past referrals or new ASC profit distributions that are disproportionate to their ownership in the New ASC and are tied to referrals.
4. Certain safeguards within the Proposed Arrangement reduce the risk that the New ASC’s investors would receive profit distributions for referrals of patients to the New ASC.
5. The Proposed Arrangement contains other safeguards designed to reduce fraud and abuse risks, such as improper billing.

Conclusion

Based on the relevant facts certified in the request for an advisory opinion and supplemental submissions, the OIG concluded that, although the Proposed Arrangement, if undertaken, would generate prohibited remuneration under the Federal anti-kickback statute if the requisite intent were present, the OIG would not impose administrative sanctions on Requestors in connection with the Proposed Arrangement under sections 1128A(a)(7) or 1128(b)(7) of the Act, as those sections relate to the commission of acts described in the Federal anti-kickback statute.

Limitations

This advisory opinion set forth the usual limitations applicable to opinions such as this one including the following:

• This advisory opinion is limited in scope to the Proposed Arrangement and has no applicability to any other arrangements that may have been disclosed or referenced in your request for an advisory opinion or supplemental submissions.
• This advisory opinion is issued only to Requestors. This advisory opinion has no application to, and cannot be relied upon by, any other person.
• This advisory opinion may not be introduced into evidence by a person other than Requestors to prove that the person did not violate the provisions of sections 1128, 1128A, or 1128B of the Act or any other law.
• This advisory opinion applies only to the statutory provisions specifically addressed in the analysis above. The OIG expressed no opinion herein with respect to the application of any other Federal, state, or local statute, rule, regulation, ordinance, or other law that may be applicable to the Proposed Arrangement, including, without limitation, the physician self-referral law, section 1877 of the Act (or that provision’s application to the Medicaid program at section 1903(s) of the Act).
• This advisory opinion will not bind or obligate any agency other than the U.S. Department of Health and Human Services.
• We express no opinion herein regarding the liability of any person under the False Claims Act or other legal authorities for any improper billing, claims submission, cost reporting, or related conduct.

Click here to view the article online at the Legal Intelligencer.

__________________________________________________

Vasilios J. (Bill) Kalogredis, Esq. has been exclusively advising physicians, dentists, and other health care professionals and their businesses as to contractual, regulatory and transactional matters for over 45 years. He is Chairman of Lamb McErlane PC’s Health Law Department. bkalogredis@lambmcerlane.com. 610-701-4402.

*Kelly A. Jurs, Esq., an associate with Lamb McErlane PC contributed to this article. She focuses her practice in the areas of Commercial and Real Estate Transactions, Business Law, Contracts, Municipal Finance and Health Law. kjurs@lambmcerlane.com. 610-701-3277.