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Ambulatory Surgery Centers – ASC Safe Harbor Compliance

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 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.  For this reason, 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

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 (or hospital) 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. We are not concerned with the reimbursement applicable to the physician’s personally performed service.  What raises the issue is the physician receiving a portion of the technical component related to the use of the Ambulatory Surgery Center where the physician is in the position to make or influence referrals.  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 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.

 ASC Safe Harbors – The Four ASC Types Qualifying For Safe Harbor Protection

 The ASC Safe Harbor regulations identify four types of Ambulatory surgery center structures that can meet safe harbor protection.  These four types of ASCs include Surgeon-Owned ASCs, Single Specialty ASCs, Multi-Specialty ASCs and Hospital/Physician ASCs.  Each category has different requirements that must be met in addition to the threshold requirements identified above that are applicable to all ASCs to meet the safe harbor.

  • Surgeon-Owned ASCs

 Owners in a surgeon owned ASC can only include general surgeons or surgeons in the same surgical specialty.  The surgeons must be in a position to make referrals to the ASC and to perform surgical procedures in the ASC on the patients that they refer.  Each surgeon owner must meet a source of income test for the previous fiscal year or 12 month period.  Each surgeon must derive at least one-third of their total medical practice income from performing surgical procedures that require an ASC or Hospital surgical setting.  This does not require all of these procedures to be performed in the ASC in which they are an investor.  However, when the surgeons annual revenues are calculated at least one-third of the physicians medical practice revenues from all sources must be derived from the surgeon’s performance of procedures that are listed as Medicare covered services in an ASC.  The surgical services can be performed in an ASC or in a hospital outpatient department and are not limited to the procedures actually performed in the surgeon owned ASC.

  • Single-Specialty ASC

This safe harbor permits physicians within the same specialty, whether or not they are surgeons, to invest in an ASC to which they refer their patients and perform surgical procedures on their patients in the ASC.  Group practices composed of a single specialty may also own and refer to their own ASC.

 Multi-Specialty ASCs

This safe harbor permits physicians who are in a variety of specialties to form an ASC and make referrals to the ASC.  Physician investors in multi-specialty ASCs must meet the one-third practice revenue test described above in relation to surgeon owned ASCs.  However, unlike surgeon-owned ASCs, physicians in multi-specialty ASCs must actually perform one-third of their ASC procedures in the ASC in which they hold an investment interest.  This has become referred to as the “one-third/one-third” test.  The reasoning behind this requirement is that in these types of ASCs, the physicians are actually using the ASC as an extension of their medical office and this does not create significant incentives to generate referral revenues for other investors.  Group practices composed exclusively of physicians who meet the one-third/one-third test may also invest in multi-specialty ASCs.

  • Hospital/Physician ASC

Under this safe harbor, at least one hospital must be an investor in the Ambulatory Surgery Center.  The remainder of the investors must be physicians (or group practices) who meet the requirements for a surgeon-owned ASC. There are a number of additional requirements that must be met by physician/hospital ASCs.

Hospital Physician Owned ASC Safe Harbor Provisions

In a previous post, I discuss the requirements for a Hospital/Physician Owned Ambulatory Surgery Center to meet the ASC safe harbor requirements. Under the Hospital/Physician ASC safe harbor, at least one hospital must be an investor in the Ambulatory Surgery Center.  The remainder of the investors must be physicians (or group practices) who meet the requirements for a surgeon-owned ASC. There are some additional requirements that must be met by physician/hospital ASCs.

The ASC may not use an operating room, recovery room, or other space of the hospital unless it is properly leased from the hospital to the ASC under a lease agreement that meets the requirements of the safe harbor for space rental.  Likewise, any equipment provider by the hospital or services provided by the hospital must be pursuant to an agreement that complies with the equipment rental and/or services safe harbor provisions.

The hospital cannot be in a position to make or influence referrals to the ASC.  This excludes physicians who are employees of the hospital from becoming investors in the Ambulatory Surgery Center.  The hospital is also prohibited from including costs associated with the ASC in its Medicare cost report.


             The Anti-kickback Statute must be considered in any ambulatory surgical venture where potential referral sources could potentially receive remuneration of any kind.  The Anti-kickback Statute and safe harbors will have a large influence on the structure of most ASC ventures.  At the same time, the Anti-kickback Statute is not the only legal issue that must be considered when structuring ASCs.  In some cases, the Stark Law may be a consideration.  Even though ASC services are not “designated health services” under Stark, the ACS might provide other types of services that are covered by Stark.  Reimbursement issues may also have an impact on structure.  Where a hospital is involved, tax exempt tax issues will also play a role.

             For more information regarding Ambulatory Surgery Center structure and other health care law issues, contact John Fisher in the Ruder Ware Health Care Industry Focus Group.

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John H. Fisher

Health Care Counsel
Ruder Ware, L.L.S.C.
500 First Street, Suite 8000
P.O. Box 8050
Wausau, WI 54402-8050

Tel 715.845.4336
Fax 715.845.2718

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