1. Use of pass-through entity
First, the Arrangement does not qualify for the protection of the hospital/physician-owned ASC safe harbor, because the Surgeon Investors do not hold their investment interests in the ASC either directly or through a group practice composed of qualifying physicians. Rather, the Surgeon Investors hold their individual ownership interests in the Surgeon Partnership. The Surgeon Partnership, in turn, holds an interest in the Company that owns and operates the ASC. We have previously expressed concern that intermediate investment entities could be used to redirect revenues to reward referrals or otherwise vitiate the safeguards provided by direct investment, including distributions of profits in proportion to capital investment. However, in this case, the use of a ‘pass-through’ entity does not substantially increase the risk of fraud and abuse. Each Surgeon Investor’s ownership in the Surgeon Partnership is proportional to his or her capital investment.1 The Surgeon Partnership’s ownership interest in the Company is, in turn, proportional to its capital investment. Thus the individual Surgeon Investors receive a return on their ASC investments that is exactly the same as if they had invested directly.”
2. Four surgeons don’t pass one-third tests
“Second, four of the eighteen Surgeon Investors (the Inpatient Surgeons) fail to meet the safe harbor requirement that at least one-third of a physician investor’s income from medical practice for the previous fiscal year or previous 12-month period be derived from the performance of ASC-Qualified Procedures.2 This ‘one third’ test helps ensure that the safe harbor applies only to investment income to physicians who are unlikely to use the investment as a vehicle for profiting from their referrals to other physicians using the ASC. Safe harbor protection is limited to physician-investors who, because they perform a substantial number of ASC-Qualified Procedures, are likely to use the ASC on a regular basis as part of the medical practices.”
3. Rare referrals; all surgeons; small portion of total surgeons
“In the circumstances presented, notwithstanding that four Inpatient Surgeons will not regulatory practice at the ASC, we conclude that the ASC is unlikely to be a vehicle for them to profit from referrals. The Requestors have certified that, as practitioners of subspecialties of orthopedic surgery that require a hospital operating room setting, the Inpatient Surgeons rarely have occasion to refer patients for ASCQualified Procedures (other than pain management procedures, which are discussed below).3Moreover, like the other Surgeons Investors, the Inpatient Surgeons are regularly engaged in a genuine surgical practice, deriving at least one-third of their medical practice income from procedures requiring a hospital operating room setting. The Inpatient Surgeons are qualified to perform surgeries at the ASC and may choose to do so (and earn the professional fees) in medically appropriate cases. Also, the Inpatient Surgeons comprise a small proportion of the Surgeon Investors, a majority of who will use the ASC on a regular basis as part of their medical practice. This Arrangement is readily distinguishable from potentially riskier arrangements in which few investing physicians actually use the ASC on a regular basis or in which investing physicians are significant potential referral sources for other investors or the ASC, as when primary care physicians invest in a surgical ASC or a cardiologist invests in a cardiac surgery ASC.”
4. Pain management
The OIG also comments on the fact that the physicians certified that no surgeon investor would refer patients for pain management procedures (i.e. “indirect referrals”) unless he or she personally performed the surgery.
“As noted above, the Inpatient Surgeons do have occasion to refer patients for pain management procedures that are ASC-Qualified Procedures. This raises the possibility that an Inpatient Surgeon or other Surgeon Investor might refer patients to other practitioners for pain management procedures performed at the ASC, for the purpose of generating a facility fee for the ASC. The Requestors have certified, however, that no Surgeon Investor will refer patients for pain management procedures to be performed at the ASC, unless the procedure is to be performed personally by the referring Surgeon Investor. This serves to mitigate the potential for abusive referrals, with regard to this type of procedure.”
5. Hospital prophylactic steps
The Advisory Opinion also commented positively on the steps taken to avoid the hospital driving referrals to the venture. Here, the arrangement included certain commitments limiting the ability of the hospital corporation to direct such referrals.
“Third, the Arrangement does not qualify for the safe harbor for ASCs jointly owned by physicians and hospitals, because the Hospital Corporation is in a position to make or influence referrals to the ASC and to the Surgeon Investors. However, the Arrangement includes certain commitments limiting the ability of the Hospital Corporation to direct or influence such referrals. The Hospital Corporation refrains from any actions to require or encourage Hospital-Affiliated Physicians to refer patients to the ASC or to its Surgeon Investors; it does not track referrals, if any, by Hospital-Affiliated Physicians to the ASC or to its Surgeon Investors; any compensation paid to Hospital-Affiliated Physicians is at fair market value and does not take into account any referrals Hospital- Affiliated Physicians may make to the ASC or to its Surgeon Investors; and the Hospital Corporation informs Hospital-Affiliated Physicians annually of these measures. In light of these safeguards, the ability of the Hospital Corporation to direct or influence referrals to the ASC is significantly constrained.”
6. Limitations on indirect pain management referrals; full disclosure to patients; hospital steps
This is the type of advisory opinion that a couple of years ago should have been extremely easy to attain. However, currently, the OIG has expressed great concerns with both indirect referrals and is also concerned regarding issuing advisory opinions which may serve as examples or precedent to others. Currently, it takes a great deal longer than would have otherwise been anticipated to receive an opinion.
There are eighteen Surgeon Investors, of whom fourteen meet the following test: Each received at least one-third of his or her medical practice income for the previous fiscal year or previous 12-month period from the performance of procedures payable by Medicare when performed in an ambulatory surgery center (“ASC-Qualified Procedures”). The four remaining Surgeon Investors (the “Inpatient Surgeons”) do not meet this test. Each of the Inpatient Surgeons derives at least one-third of his or her medical practice income from procedures requiring a hospital operating room setting, but receives little or no medical practice income from the performance of ASC-Qualified Procedures. The Requestors have certified that the Inpatient Surgeons rarely have the occasion to refer patients to other physicians for ASC-Qualified Procedures, except for pain management procedures. The Requestors also have certified that none of the Surgeon Investors will refer patients for pain management procedures to be performed at the ASC, unless the pain management procedure is to be performed personally by the referring Surgeon Investor.
“The Surgeon Investors inform patients of their ownership interest in the ASC by posting notices in the two offices in which Surgeon Investors practice and through a written notice to each individual patient. The Requestors have certified that, in the future, in the absence of exigent circumstances, such written notice to individual patients will be provided prior to the date of the procedure in the ASC.
“The Hospital Corporation is in a position to make or influence referrals to the ASC. The Requestors have certified that, in order to limit such ability, the Hospital Corporation has refrained and will refrain from any actions to require or encourage physicians who are employees independent contractors, and medical staff members (‘Hospital-Affiliated Physicians’) to refer patients to the ASC or to its Surgeon Investors, and has not and will not track referrals, if any, by Hospital-Affiliated Physicians to the ASC or to its Surgeon Investors. The Requestors have further certified that any compensation paid by the Hospital Corporation to Hospital-Affiliated Physicians has been and will be consistent with fair market value and has not been and will not be related, directly or indirectly, to the volume or value of any referrals Hospital-Affiliated Physicians may make to the ASC, its Surgeon Investors, or the Surgeon Group. The Hospital Corporation will inform Hospital- Affiliated Physicians annually of these measures.
” Mr. Becker (sbecker@mcguirewoods.com) and Ms. Szabad (mszabad@mcguirewoods.com) are attorneys for McGuireWoods.
- We express no opinion with regard to any future sales of membership interests in the Surgeon Partnership that may result in individual investors having ownership interests that are not proportional to their investment.
- The safe harbor for hospital/physician-owned ASCs (42 C.F.R. § 1001.952(r)(4)) incorporates by reference this requirement of the safe harbor for surgeon-owned ASCs (42 C.F.R. § 1001.952(1)(ii)).
- If this certification proves incorrect, this advisory opinion is without force and effect.
