Ambulatory Surgery Center – Anti-kickback Issues and Safe Harbor Regulation Compliance

More and more procedures are being performed in Ambulatory Surgical Centers. The CMS has recently expanded the procedures that it considers to be safely performed in an ASC. Clearly, the trend is to move many procedures to an outpatient facility unless the health care needs of the patient clearly require an inpatient presence. One of the primary sources of capital for these new ASC ventures is often the physicians who are involved in performing procedures in the ASC or sending business to the ASC. From a purely business point of view, it makes sense to have investors who have a direct financial interest in seeing that the business succeeds, However, from the point of view of the party paying for the care, this same financial interest can lead to an increased and arguably unnecessary levels of procedures performed in the facility. The Medicare and Medicaid program, and many states, have enacted the Anti-kickback Statutes and other anti-referral laws that prohibit, or at least limit, the financial interests that a referring provider can have with an organization where there is any control over the referral flow to that entity.

Anti-Kickback Statute Prohibition

This is where the Federal Anti-kickback Statute comes into play by prohibiting the payment of any form of remuneration between parties where referrals are involved. The federal Anti-Kickback Statute proscribes the offering, payment, solicitation or receipt of any remuneration in exchange for a patient referral or referral of other business for which payment may be made by any Federal health care program. Violations of the Anti-Kickback Statute is a federal felony and can result in substantial prison time and criminal monetary penalties. Violation of the Anti-Kickback Statute can also serve as a basis for imposition of Civil Monetary Penalties. Enforcement of the Federal Anti-kickback Statute has been on the rise since the mid-1980s. Today, the federal government has made health care fraud one of its top priorities. We are hearing about new prosecutions on an almost daily basis as the government ramps up its enforcement through the creation of the HEAT program.

ASC Ownership and the Federal Anti-Kickback Statute

When we look at a typical Ambulatory Surgical Center venture, the primary concern is when the physicians who make referrals to the entity and provide services in the entity receive remuneration from the entity, This normally will involve remuneration in the form of a return on an investment interest. The referring physician may purchase an ownership or investment interest in the company that is set up to operate the ASC.  The ASC can be set up with capital contributions from a number of physicians or it may involve a hospital sponsored ASC that seeks additional capital investment from physicians.

Regardless of the exact structure, the Anti-kickback Statute will come into play to govern the structure and ongoing operation of the ASC. The ASC venture must be structured from the start to comply with the Anti-Kickback Statute. It must also be monitored on an ongoing basis to assure that it does not fall out of compliance with the Anti-Kickback Statute.

Medical Director Agreements – Stark Law Compliance

The recent case of the United States v. Campbell, 2011 U.S. Dist. LEXIS 1207 (Jan. 2011) is one of the more recent reminders of the potential exposure to Stark Law liability arising through medical director arrangements.  The Campbell case involved an effort on behalf of the University of Medicine and Dentistry of New Jersey to increase referrals of cardiothoracic patients.  This effort resulted in the hospital entering into clinical assistant professor (“CAP”) agreements with a number of cardiologists.  These clinical assistant professor agreements purported to require the physicians to perform a variety of teaching-related services.  Physicians were paid between $50,000 and $180,000 per year under these contracts. 

The United States contended that the primary service performed under the CAP agreements was the referral of patients for private cardiology services to the hospital.  Although there were services described in the agreement, there was little indication that many of these services were ever actually performed. 

The court found that the Stark Law was violated because the physician was not compensated at fair market value, and the arrangement was not commercially reasonable.  Both fair market value compensation and commercial reasonableness are requirements in order to comply with the Stark Law.  The court pointed out that there is no requirement to actually perform the duties that were listed in the agreement and that any excess compensation over fair market value was considered impermissible payments in violation of the Stark Law.

Although this case involves an agreement that was defined as a critical assistant professor agreement, the analogy to a medical director agreement is obvious.  There have been a long line of cases and settlements with the Office of Inspector General involving medical director agreements.  Some of these applicable cases include the following:

1)  The San Jacinto Methodist Hospital in Texas agreed to pay over $21,000 in civil monetary penalties for a physician medical director who occupied hospital space for private use and utilized hospital personnel for clerical assistance, presumably while performing medical director services to the hospital.

 2)  Jewish Hospital and St. Mary’s Health Care in Kentucky paid $130,000 in civil monetary penalties for allegedly paying the medical director compensation in excess of his medical director agreement and providing free nurse services to the medical director’s private practice.

 3) Cushing Memorial Hospital paid $50,000 in civil monetary penalties related to a cardiologist who was medical director of a cardiac rehabilitation unit and was paid without the agreement having been signed.

 It is worthy of note that the above three described cases involved self-disclosure to the Office of Inspector General and likely the self-disclosure mitigated the amount of penalties that were paid by the reporting providers.

These cases and the Campbell case raise a number of compliance issues relative to the medical director agreements.  First, the medical director agreement should be in writing, and the agreement should be signed.  The agreement should include a detailed description of the services to be performed and should also set forth in detail the qualifications of the specific physician to provide the medical director services.  There should be follow-up to be certain that the services are actually performed.  The physician should be required to submit regular time records documenting the services.  In all cases, the institution should document the commercial reasonableness and necessity of the medical director arrangement.  The compensation should always be at fair market value and should be supported by a fair market value opinion that is credible and considers all factors relevant to the specific medical director arrangement.

Finally, the organization should monitor the terms of each medical director agreement to be certain that there is no termination of the agreement at a time when compensation continues.  There must always be a writtten medical director agreement in place in order to justify even fair market value compensation for the services performed by the medical director.

For more information on medical director agreements, Stark Law, compliance in the fair market value  of physician compensation arrangements, contact John Fisher at Ruder Ware.