May 7, 2021

OIG Issues Advisory Opinion 21-02 Showing Flexibility with ASC Investment Safe Harbor

By Meghan V. Hoppe, Esq.

On April 29, 2021, the United States Department of Health and Human Services, Office of Inspector General (“OIG”) posted Advisory Opinion No. 21-02 regarding a proposed arrangement among a health system, certain surgeons employed by the health system and a management company seeking to invest in a new ambulatory surgery center (“ASC”) (the “Proposed Arrangement”). Under the Proposed Arrangement, the health system would own 46% of the ASC, the surgeon investors would own 46% of the ASC and the management company would own the remaining 8% of the ASC. Although the Proposed Arrangement could potentially generate prohibited remuneration under the Federal Anti-Kickback Statute, 42 U.S.C. § 1320a-7b (“Anti-Kickback Statute”) if the requisite intent existed, the OIG determined that it would not impose sanctions in connection with the Proposed Arrangement.

The offer or payment of investment returns from an ASC to an investor constitutes remuneration under the Anti-Kickback Statute.  However, the Anti-Kickback Statute also contains safe harbors that protect arrangements from liability if they meet certain criteria.  For example, there is a safe harbor that protects payments of investment returns by an ASC to owners who refer patients to the ASC (“ASC Safe Harbor”). See 42 CFR § 1001.952(r). The ASC Safe Harbor will protect physician investors who have derived at least one-third (1/3) of their medical practice income from the performance of procedures that will be reimbursed by Medicare if performed in the ASC for the previous fiscal year or 12-month period (“1/3 Test”).

Under the Proposed Arrangement, some of the surgeon investors could not meet the 1/3 Test in order to qualify for the ASC Safe Harbor.  Nevertheless, the OIG concluded that the Proposed Arrangement presented a sufficiently low risk of fraud and abuse under the Anti-Kickback Statute and that it would not impose administrative sanctions on the health system or management company (as the requestors of the Advisory Opinion) in connection with the Proposed Arrangement. The OIG based this decision on the following factors:

  • Most notably, although one or more of the surgeon investors would fail to meet the 1/3 Test, the health system certified that the surgeon investors would use the ASC on a “regular basis” as part of their medical practices and would personally perform “almost all” of the procedures that he or she referred to the ASC (i.e., surgeon investors would not be significant sources of cross-referrals to other surgeon investors to generate ASC profit distributions). The health system estimated that the number of qualified procedures referred by surgeon investors to the ASC and performed by other surgeon investors would be less than 1% of the aggregate procedures performed at the ASC each year.
  • The Proposed Arrangement contained certain safeguards to reduce the risk that the health system would make or influence referrals to the ASC or the surgeon investors. For example, the health system certified that any compensation paid to surgeon investors for services furnished under an employee or personal services arrangement would be consistent with fair market value and the health system would not track referrals made by the surgeon investors to the ASC.
  • The Proposed Arrangement was structured in a manner that reduces the risk that surgeon investors would be rewarded for referrals to the ASC.  For example, (i) neither the ASC, nor any investor, would loan funds to or guarantee a loan for any investor to obtain ownership in the ASC, (ii) the ASC would not offer ownership to any party based on previous or expected volume or value of referrals, (iii) capital contributions and profit distributions would be made in proportion to an investor’s ownership in the ASC, and (iv) all investors would invest directly in the ASC.
  • The Proposed Arrangement included other safeguards that would reduce the risk that investors would receive profit distributions for referrals of patients to the ASC since the health system certified that any space or equipment leased by the ASC or any services performed for the ASC would comply with the applicable Anti-Kickback Statute safe harbors and the ASC and its investors would provide written notice to patients referred to the ASC of the referral source’s investment interest in the ASC.
  • Additionally, the Proposed Arrangement would reduce the risk of fraud and abuse by (i) treating patients receiving medical benefits or assistance under any Federal health care program in a nondiscriminatory manner, (ii) ensuring ancillary services performed at the ASC to Federal health care program beneficiaries that are not related directly and integrally to primary procedures performed at the ASC and billed separately to any Federal health care program, and (iii) 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 ASC, unless such costs are required to be included by a Federal health care program.

With respect to the management company’s involvement in the Proposed Arrangement, the OIG found that although the management company may be in a position to directly or indirectly influence referrals of items or services reimbursable by a Federal healthcare program to the ASC, which would implicate the Anti-Kickback Statute, the following certifications made by the management company adequately mitigated this risk: (i) it would not make or influence referrals, directly or indirectly, to the surgeon investors to the ASC; and (ii) no physician has or would have ownership in the management company.

While recognizing that the Proposed Arrangement could potentially generate prohibited remuneration under the Anti-Kickback Statute, the OIG determined that both the proposed arrangement presented a minimal risk of fraud and abuse and advised that it would not impose sanctions. Thus, the OIG has demonstrated flexibility in its interpretation and enforcement of the Anti-Kickback Statute by approving an arrangement with a low risk of fraud and abuse, despite not satisfying the conditions of the ASC Safe Harbor.

For more information on the OIG Advisory Opinion No. 21-02 or other health care legal issues, please feel free to contact any member of the firm’s Health Care Law Practice Group for further discussion.

DISCLAIMER: This Alert is designed to keep you aware of recent developments in the law. It is not intended to be legal advice, which can only be given after the attorney understands the facts of a particular matter and the goals of the client.