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Archive for the ‘Anti-kickback Statute’ Category

Treatment Center Plead Guilty to Anti-kickback Statute Violations Involving Alcohol and Drug Addiction Treatment Centers

Tuesday, May 22nd, 2018

Substance Abuse Treatment Center Fraud Scheme Results in Guilty Plea

Treatment Center Fraud PleaThe Department of Justice recently announced the guilty plea of two individual alcohol and substance abuse treatment center owners for their participation in what DOJ labeled a “multi-million dollar health care fraud and money laundering scheme.”  The two individuals owned a licensed substance abuse service provider (or treatment center) offering clinical treatment services for persons suffering from alcohol and drug addiction. The treatment center also offered medication-based treatment for opioid addiction.

The government had accused the two owners of paying illegal kickbacks/bribes to “sober homes” in exchange for the referral of the sober homes’ insured residents to treatment program. The sober homes provided safe and drug-free residences for individuals suffering from drug and alcohol addiction. This made them a prime source of potential referrals to the treatment program.

The accusations against these defendants read like a laundry list of thinly veiled kickback schemes.  Some of the specific accusations included:

  1. Providing funds used to purchase or rent several sober home properties under purchase agreements or leases that were in the names of other parties so as to disguise the source of funds.
  2. Paying remuneration for referrals in the form of free or reduced rent, insurance premium payments, and other benefits to individuals with insurance who agreed to reside at the sober homes and attend drug treatment.
  3. Using a separate entity to pay insurance premiums for treatment patients so that the treatment program could continue to bill the patients’ insurance companies for treatment expenses.
  4. Hiring a doctor to serve as the medical director who frequently pre-signed prescriptions that were used to dispense controlled substances.
  5. Continuing to employ the medical director after the doctor’s license was suspended.
  6. Failing to inform the Florida Department of Children and Families that it could not continue to operate when the treatment center lost the medical director.
  7. Submitting insurance claims that falsely stated that testing and treatment was medically necessary.

If the allegations made by the government are to be believed, the treatment center is an illustration of exactly what intentional fraud looks like.  This was not a mistake.  Rather, it appears that the defendants deliberately set up a system intended to generate referrals and providing financial benefits to individuals in a position to make or influence those referrals.  In short, this is what health care fraud looks like.

Providers that we deal with go to great lengths just to make certain that they proactively look for potential risk areas and take affirmative and proactive actions to be certain that they are not making mistakes that could inadvertently result in an overpayment or imputed knowledge.  A great deal of expense goes into assuring that these providers are in complete compliance.   By contrast, cases like the one involving these treatment programs illustrate the very reason why well providers with the best of intentions find it necessary to look over their shoulders.

Investment Interest in Radiation Therapy Anti-kickback Statute Settlement

Sunday, May 20th, 2018

Radiation Therapy Referral Kickback Arrangements with Investors.

Anti-kickback Statute Radiation Therapy InvestmentsA national operator of radiation therapy centers, has agreed to settle a False Claims Act action alleging that it submitted claims violated the Anti‑Kickback Statute by paying of $11.5 million and entering into a 5 year Corporate Integrity Agreement with the Office of Inspector General.  The arrangement involved payments to investors who were allegedly targeted because of their referral potential to the therapy centers.  The challenged arrangement involved a series of leasing companies that accepted investments from referring physicians.  The investment interests resulted in the payment of investment returns that the government considered to be remuneration for referrals in violation of the Anti-Kickback Statute.  The whistleblower who originally raised the issue will receive up to $1.725 million.

This case involves a garden variety claim of a kickback by investment interest.  The typical investment case involves targeting potential investors who are in a professional position to make referrals to the company in which they are asked to invest.  The referral source has a financial incentive to increase referrals.  This might be an excellent financial investment scenario, but the problem is that the investment return might well be an illegal kickback; which is potentially a federal felony.

Whistleblower Settlements Increase Compliance Risk for Providers

Wednesday, May 16th, 2018

Recent Fraud Settlements Emphasize Risk of Whisttleblowers

Dermatology Risk Areas Fraud and AbuseOne of the reasons why compliance officers and health care attorneys read fraud settlements is to identify the issues that the government is focused on.  The cases that the government decides to pursue are very indicative of the areas of fraud enforcement that they feel are important.  These are not the only issues that should be considered, but government enforcement actions certainly tell us what types of arrangements the government considers important.

The misfortune of the defendants involved in these cases hold a potential learning experience for everyone else.  Others have an opportunity to focus on their own operations to identify whether they are at risk in any of the areas involved in these cases.

An ancillary lesson that these settlements hold is that each was initially raised by a whistleblower.  The False Claims Act gives whistleblowers a portion of the settlement in cases where the government decides to intervene.  This in effect creates a universe of potential claimants that can include almost anyone with original knowledge of the alleged practice.

Common whistleblowers include former or disgruntled employees.  It really does not matter of the employee is or was the worst employee in the world, they can still bring an action as a whistleblower.  Not only are they protected by a host of laws, they can also profit greatly if the claim is eventually decided in their favor.  Whistleblowers often receive awards in the millions of dollars.  This makes the area ripe for plaintiff’s attorneys who often take these cases on a contingency fee basis.  This makes it a relatively low-cost proposition for a whistleblower to bring a case forward, at least from the perspective of attorney fees.

Health Law Firm Opens Green Bay Office

Tuesday, May 1st, 2018

Green Bay Health Care Lawyer – Opening Office in Green Bay Wisconsin

I just wanted to let readers of our health care blog know that Ruder Ware will be opening a Green Bay office and that three Green Bay attorneys will be joining our firm. This will provide us with a presence in the Green Bay/Appleton Markets that will enhance our community presence and enable us to better serve our client in eastern Wisconsin. Our health care and compliance practice with be greatly enhanced as a result of this move.

This move will provide a local platform through which we can better serve our health care clients.

Health Care Law Practice – Green Bay Health Lawyers Ruder Ware

Ruder Ware has a long history of representing health care clients.  The firm recognizes that the highly regulated and complex nature of the industry demands the attention of a team of attorneys who, as a group, monitor constantly evolving laws and regulations and their impact on our health care clients.  At Ruder Ware, we offer a full-service solution to clients as our focus team consists of health care, business, employment, and litigation attorneys with knowledge of the health care industry.   As a result, we are able to take best practices from other industries and apply them to the health care industry, thereby increasing the ability to respond promptly to the rapidly changing health care environment.

Members of the focus team have served on the governing bodies of various health care organizations.  This service has provided our attorneys with the opportunity to counsel the health care community.  

Our dedicated team of attorneys represents health care providers in various matters including:

 Health Care Business Transactions and Corporate Law

Our attorneys have substantial expertise representing various health care providers such as:

Below is the official press release:

Media Contact:
Jamie Schaefer
COO
Ruder Ware, L.L.S.C.
P: 715.845.4336
E: jschaefer@ruderware.com

For Immediate Release

Attorneys Ronald Metzler, Christopher Pahl, and Chad Levanetz to join
Ruder Ware at its new Green Bay Office

WAUSAU, WI – April 27, 2018 – Ruder Ware is pleased to announce the opening of its Green Bay office and that Attorneys Ronald Metzler, Christopher Pahl, and Chad Levanetz will be joining the firm. The new office will be located at 222 Cherry Street, Green Bay, Wisconsin, which is the current location of Metzler, Timm, Treleven, S.C.

Attorney Ron Metzler – Having practiced law for over 30 years, Ron is a well-respected and well-known commercial attorney with close ties to the banking industry.

Attorney Chris Pahl – With his strong ties to the Green Bay community, Chris has built his practice around real estate development and condominium law as well as commercial transactions and estate planning.

Attorney Chad Levanetz – A seasoned litigation attorney, Chad counsels clients in the areas of real estate, construction, and general business disputes.

Stew Etten, Ruder Ware managing partner, stated, “Ruder Ware is always looking for outstanding attorneys to join our firm. With the opportunity to add Attorneys Metzler, Pahl, and Levanetz, the time was right to open a Green Bay office. We’re very excited to have attorneys of their caliber join our team of professionals.”

About Ruder Ware
Founded in 1920, Ruder Ware is the largest law firm headquartered north of Madison. With offices in Wausau, Eau Claire, and Green Bay over 40 attorneys provide legal and business advice to clients with operations of all sizes. Areas of practice include: Employment, Benefits & Labor Relations, Litigation & Dispute Resolution, Business Transactions, Trusts & Estates, and Fiduciary Services. Ruder Ware, Business Attorneys for Business Success. www.ruderware.com

Media Contact:
Jamie Schaefer
COO
Ruder Ware, L.L.S.C.
P: 715.845.4336
E: jschaefer@ruderware.com

Gainsharing Arrangement Addressed in New Advisory Opinion

Thursday, January 11th, 2018

 OIG Advisory Opinion 17-09

OIG Advisory Opinion Gain SharingThe Office of Inspector General (“OIG”) recently released a new advisory opinion (Advisory Opinion 17-09 – January 5, 2018), addressing a gainsharing arrangement between a group of neurosurgeons and a health center.  Under the proposed arrangement, a neurosurgery group agreed to implement measures to reduce the costs associated with a defined scope of surgical procedures.  As part of its agreement with the health center, the neurosurgeons were to participate in a portion of the cost savings that resulted from the implementation of the measures.

The OIG has historically issued around a dozen Advisory Opinions addressing gainsharing arrangements.  However, the OIG had not issued an advisory opinion in the gainsharing area since the passage of the Medicare Access and CHIP Reauthorization Act (known as MACRA) in 2015.  That law made modifications to Civil Monetary Penalty provisions that are applicable in the gainsharing area by removing some of the impediments to gainsharing arrangements that previously existing in the Civil Monetary Penalty laws.

Gainsharing arrangements have emerged as a way to align the economic interests of hospitals and physicians in efforts to work together to reduce cost and enhance quality of care.  A gainsharing arrangements provides doctors with economic incentives to adhere to practices that reduce the hospital’s costs associated with defined procedures or treatment courses.  Under traditional fee-for-service reimbursement, a financial incentive is created for physicians to provide more service to maximize reimbursement.  A properly structured gainsharing arrangement creates incentives for appropriate levels of service and rewards physicians for efficiencies and quality outcomes.  Interests are aligned because the facility and the physician, who is often the engine driving the level of care, share in the savings.

Prior to the passage of MACRA in 2015, the OIG expressed suspicion about gainsharing through Special Advisory Bulletins as well as advisory opinions.  This has the effect of chilling the proliferation of gainsharing arrangements because providers were cautious about potential regulatory issues. A major impediment prior to 2015 was the CMP law that restricted hospitals from compensating physicians in order to induce a reduction or limitation on services provided to Medicare and Medicaid beneficiaries.  MACRA clarified that the CMP law was only violated if the payment to the physician is for purposes of reducing services that are medically necessary.  This subtle yet significant change opened the door for the proliferation of gainsharing arrangements.

Coming full circle to Advisory Opinion 17-09, the OIG concluded that the specific gainsharing arrangement described in the opinion would not result in sanctions under the Civil Monetary Penalty rules or the Federal Anti-kickback Statute.  The OIG acknowledged that both the CMP laws and the Anti-kickback had potential implication but that the structural issues of the particular arrangement between the neurosurgeons and the health system would not result in the OIG pursuing sanctions.

By their very nature, Advisory Opinions only apply to the requesting party.  However, we can gain useful concepts from the analysis and conclusions of the OIG relating to the specific facts that formed the basis of their opinions.

Fair market value will always remain an issue in gainsharing arrangements.  The Federal Stark Law, Anti-kickback Statutes, and applicable state laws will require adherence to fair market value standards when payment is made between a referring party and the provider of a service. Advisory Opinion 17-09 provides us with some useful guidance regarding some of the consideration that should go into establishing fair market value and structuring a gainsharing arrangements.  Fair market value concepts in these arrangements are often subtle and must be well thought out to avoid regulatory issues. In addition, concepts of commercial reasonableness, which has emerged as a related but distinct issue impacting payments must be considered in addition to fair market value.

Advisory Opinion 17-09 is worth a review to anyone involved in structuring gainsharing arrangements. By no means should 17-09 be the only guidance that you rely upon because the opinion only touches on a few considerations that were relevant to the structure of the specific arrangement.  Some important factors to keep on your radar when structuring a gainsharing arrangement relate to the determination of baselines that are used to measure cost savings through program implementation.  The frequency and method of calculating available gainsharing amounts is subtle but important for regulatory compliance.  Of course the specific protocols or description of the method for reducing costs should be described in detail, together with a method for determining the level of compliance with those protocols.  Another issue that often arises in these arrangements involves the scope of costs that are allocated to the program.  It is important that costs allocated be reasonable to avoid potential disguised kickbacks.

If you require additional information regarding this article, gainsharing arrangements, or health care issues in general, please contact us through the contact section of this blog.

Safe Harbor Permits Some Free Transportation to Patients

Sunday, June 11th, 2017

Free Patient Transportation Safe Harbor

A new safe harbor was recently issued by the HHS Office of Inspector General that permits eligible health care providers to offer free or discounted transportation to established patients.  The safe harbor addresses concerns that offering free goods and/or services to patients might be considered payment of illegal “remuneration” in exchange for referrals. Use of free offers in connection with overt marketing remains a suspect practice, but the new safe harbor opens a limited window to permit providers to offer much needed transportation services to existing patients.

Provided that a number of specific requirements are met, the transportation safe harbor permits certain health care providers to offer regular route “shuttle service” and/or transportation to established patients.  The transportation service can only be provided within a 25 mile radius (50 miles in rural areas) for the purpose of obtaining medically necessary services.

Most health care service providers, such as hospitals, physician offices, skilled nursing facilities, ambulatory surgery centers, and others are eligible to provide transportation services.  However, organizations that primarily supplies health care items, such as providers of durable medical equipment and pharmacies, cannot take advantage of the safe harbor.  In its commentary, the OIG noted that many types of entities that do not directly render health care services to patients, such as Medicare Advantage organizations, managed care organizations, accountable care organizations, clinically integrated networks and charitable organizations, may qualify for safe harbor protection as long as they do not shift the cost to federal health care programs or payers.

Providers that operate transportation programs should adopt policies and procedures that define the operation of their program and which include requirements that minimize potential risk of providing free transportation service.  Reliance on the safe harbor required that the free or discounted local transportation services be included in policy that is applied uniformly and consistently.  The program cannot be offered in a manner related to the past or anticipated volume or value of federal health care program business.  Free transportation must be offered to all patients regardless of the level or profitability of their service.

Complete compliance with the new safe harbor is the best way to assure compliance.  Policies should include reference to the various safe harbor requirements, for example, free or discounted services are subject to the following limitations:

  • The services may only be provided to established patients.  An “established patient” is a person who has selected and initiated contact to schedule an appointment with a provider or supplier to schedule an appointment, or who previously has attended an appointment with the provider or supplier.
  • The services cannot include air, luxury, or ambulance-level transportation;
  • The services cannot be publicly marketed or advertised by the eligible entity or the driver during the course of the transportation, and the drivers or others arranging for the transportation cannot be paid on a per-beneficiary-transported basis;
  • The services may only be provided within 25 miles of the health care provider or supplier to or from which the patient would be transported, or within 50 miles if the patient resides in a rural area;
  • The services can only be for the purpose of obtaining medically necessary items and services; and
  • Associated costs cannot be shifted to Medicare, a state health care program, other payers, or individuals.

The safe harbor also protects the offering of a shuttle service by eligible entities.  The term “shuttle” is defined as a vehicle that runs on a set route and on a set schedule.  The final rule allows eligible entities to provide shuttle services by complying with most of the criteria that are applicable for services to existing patients.  If the service is operated on a defined and regular route, the service is not limited to existing patients.  Most of the other provisions of the safe harbor for existing patients will apply to the shuttle service.

Organizations that provide shuttle or patient transportation services should review their programs in view of the new safe harbor regulations.  The new regulations mandate written policies and procedures which must be uniformly enforced and followed.  This requires records to be maintained that documents compliance with safe harbor requirements.  Transportation programs that do not strictly meet all of the requirements of the safe harbor do not necessarily violate the anti-kickback statute.  However, safe harbor compliance is the best way to mitigate potential risk.

Using Self-Disclosure Protocols – CMS and OIG Self Disclosure Process

Tuesday, April 11th, 2017

Self-Disclosure Has Become a Normal Part of the Compliance Process

As the OIG and CMS make self-disclosure easier for providers, we have noticed an increase in the rate of cases that are being filed.  Assisting providers in making decisions whether to self-disclose, conducting internal investigations, and guiding the self-disclosure process when appropriate has become a large part of our compliance practice.  Here are just a few of the articles and other resources that we have released regarding self-disclosure issues:

Exercising Reasonable Care to Identify and Address Potential Overpayments

Criminal Exposure for Failing to Repay Known Overpayment

When to Use the OIG’s Self Disclosure Protocols

Excluded Party Cases Dominate OIG Published Self Disclosure Settlements

Self-Disclosure Process – Voluntary Self Disclosure Decisions are not Always Easy

When Does An Overpayment Become Fraud? How Simple Inattention Can Expose You to Penalties for Fraudulent Activities

Provider Self-Disclosure Decisions – Voluntary Disclosure Process

Provider Self Disclosure Process

For more information on the self-disclosure process and legal updates impacting the process, watch this space.

Differential Valuations and the Anti-kickback Statute

Monday, April 3rd, 2017

Ambulatory Surgery Case Demonstrates Differential Value Theory of Renumeration

ASC Fraud and Abuse RemunerationA relatively recent case involving buy-in terms in an ambulatory surgery center demonstrates how different valuations for referral sources and non-referral sources can be evidence of remuneration under the Medicare Anti-Kickback Statute (42 U.S.C. § 1320a-7b(a)-(b)).  The case also demonstrates how the initial investment terms that favor referral sources can foreclose reliance on safe harbor regulations.

The case involved an ambulatory surgery center management company what purchased an interest in an ambulatory surgery center.  The company then offered shares of the company for investment to physicians who were in a position to refer surgical cases to the surgery center.  The physician investment was structured to meet the terms of the safe harbor regulations for ambulatory surgery center investments (“ASC Safe Harbors”).  The ASC Safe Harbors provide protection from remuneration that is received by a referring physician as a return on investment as long as the physician meets certain minimum practice revenue and surgical volume requirements. Physician investors must generally receive at least 1/3 of their practice income from the provision of surgical procedures and perform at least 1/3 of their surgical procedures in the center in which they hold an investment interest.

The problem with the way that the investment interest was structured was the different valuation that applied to the purchase that was made by the management company and the investment offer made to the referring physicians.  The management company purchased its investment at a much higher price than was offered to the physicians.  The differential valuation violated a threshold requirement of the safe harbor regulations that prohibits the initial investment interest to be based, in whole or in part, on the volume or value of referrals that the investor might make to the entity.  It was very difficult for the parties to justify the different value applied to physician investment.  The only apparent difference appeared to be that the physician investors were the referral sources for the surgery center.

This case specifically involved an ambulatory surgery center investment but the concept of differential valuation could apply in other situations involving the Anti-Kickback Statute.  Different values paid to or received from referral sources and non-referral sources can suggest that at least one of the reasons for the differential is the volume or value of potential referrals.  This points out a general area of risk assessment for all health care providers.  Areas where different pricing is applied to referral sources and non-referral sources could signify a potential violation of the Anti-Kickback Statute.

Self Disclosure Process – Voluntary Self Disclosure Decisions are not Always Easy

Monday, February 13th, 2017

Provider Self Disclosure Decisions – Voluntary Disclosure Process

The HHS Office of Inspector General offers providers and opportunity to self-disclose certain violations in exchange for avoiding some of the more draconian penalties that may otherwise apply under applicable regulations.  Even though the OIG’s self-disclosure offer can be very compelling, the decision on whether to utilize the OIG’s self-disclosure protocols is often very difficult.

Unfortunately, it is not always clear whether a violation of a regulatory requirement has occurred.  Those involved in health care law are familiar with the level of ambiguity that often exists with respect to specific billing rules and other regulatory standards.  On the other hand, the potential liability for making the wrong call about whether an infraction has actually occurred can be quite significant.  Clearly, if a provider is deciding whether they have violated a regulation, they have knowledge that the situation has occurred.  The failure to act once knowledge is obtained or imputed can lead to sanctions being multiplied.  For example, failing to repay a known overpayment within 60 days can triple the amount of penalties and add up to $22,000 per claim to the price tag.

The current regulatory scheme places a very high price tag on being “wrong” about whether a regulatory violation is present.  The potential high damages for an incorrect decision forces a provider to take an overly expansive view of when (or whether) a regulatory infraction has occurred.

Clearly not every situation where there has been a billing error amounts to fraud or wrongdoing requiring use of the self-disclosure protocol.  Many over-payments that are identified through audit can be dealt with at the intermediary level.  Where investigation raises questions about whether incorrect bills are “knowingly” submitted, the self-disclosure process may provide some mitigation of potential loss.  Situations where the provider perhaps “should have known” raise more difficult issues of analysis.

The Office of Inspector General’s self-disclosure process is available when there is a potential violation of Federal law that could result in the imposition of Civil Monetary Penalties. A simple determination that a billing error may have led to an overpayment is generally not covered by the protocol.  It is only when the error presents potential CMPs that the protocol can be used to self-disclose the violation to the Federal government.  For example, self-disclosure might be considered where an overpayment is not repaid within 60 days after discovery by the provider or where there is a violation of the anti-kickback statute discovered.

To complicate matters even further, once a provider obtains actual knowledge that a billing error occurs, it is always possible that the government will take the position that the infraction “should have” been known to the provider at an earlier date.  This impacts when the 60 day clock that triggers the application of the False Claims Act begins to run.  Once you discover an error, you would like to think that you have 60 days to self disclose and avoid the damage inflating False Claims Act.  Whether you should have discovered the infraction earlier through a properly functioning compliance program will always overshadow these cases.  The only thing that a provider can really do to reduce the stress of this type of impossible situation is to have a strong compliance program in place well in advance.

The situation is also complicated because a potential whistle-blower may view a situation much differently than a provider who finds what it believes to be an innocent mistake through the audit process.  A provider may sincerely believe that there was no “wrongdoing” and that a simple mistake has been identified.  Finding such a mistake may actually be evidence that the provider’s compliance efforts are working.  On the other hand, there is a whole legal profession out there now that is advertising for people to come forward as whistleblowers.  With potential recovery under the False Claims Act of 3 times the over-payment plus up to $22,000 per claim, whistleblower lawyers have strong incentive to attempt to turn what the provider believes to be an innocent mistake into a false claim. The damage calculation creates a big payday for whistleblower plaintiffs and their lawyer, who take these cases on a contingency fee basis.

Generally speaking, when errors are discovered, the providers best bet is to be forthright and deal with the matter “head on.”  A complete internal investigation should be conducted to determine the precise nature of the issues and to identify the extent of wrongdoing.  Based on the outcome of the investigation, the provider can determine whether a simple repayment can be used or whether there may be reason to go through the formal self-disclosure process.

Anyone who has worked with reimbursement rules will realize that payment policies, rules and regulations are not always clear.  It is often difficult to determine whether there is even a violation of applicable rules or whether an overpayment actually exists.  Legal ambiguities further complicate the self-disclosure decision.  The precise nature of any legal ambiguities involved in the specific case need to be completely documented.  If a decision is made that there has been no wrongdoing, the legal analysis should be laid out in writing and in detail and a reasonable judgment should be made regarding the interpretation of applicable legal standards.  If self-disclosure is made in situations involving legal ambiguities, those ambiguities should be explained in detail as part of the self-disclosure.

In the end, a provider facing potential self- disclosure must follow a reasonable process to make a reasoned decision in the face of significant risk and uncertainty.  Perhaps most importantly, it is never a good alternative to pretend that the situation will never be discovered or brought to light.  These cases can arise in strange and unexpected ways.  It is best to assume that a discovered compliance violation will eventually be brought to light.  In most cases it is advantageous for the provider to affirmatively bring the matter forward rather than waiting for the government or a whistleblower to bring a claim.  When that happens, it is much more difficult to resolve the issue.

John H. Fisher, CHC, CCEP is a health care attorney at the Ruder Ware law firm.  John is actively involved representing clients on legal and compliance issues.  He has represented clients in creating compliance programs and in a variety of operational issues.  He also assists providers in addressing risk areas and potential compliance issues including preparing self-disclosure and working with the government to resolve disclosed compliance issues and overpayment.  John consults as a subject matter expert and provider legal backup to other attorneys and law firms from around the country on specialized compliance, regulatory and health care issues.  John has followed legal issues impacting health care provider for over 25 years.  As such, he is knowledgeable on the current legal standards as well as the historic perspective that is often relevant to an appropriate analysis.  

Ambulatory Surgery Center Exclusions – ASC Safe Harbor Compliance

Monday, February 13th, 2017

Excluding Non-performing Positions from a Physician Owned Surgery Center

Many surgery centers are eventually faced with decisions about how to treat investing physicians who do not perform as many procedure procedures in the surgery center as others.  Under-performing physicians can create political issues in ASCs because investors who perform more surgeries or higher value procedures at the center feel that the other investors are taking a ride on their efforts. Over time, higher producers may start to view those with lower surgery levels as “dead wood”. This dynamic is a perfect set up for violating the anti-kickback statute which specifically prohibits basing investment offering on the actual or expected volume or value of referrals.

​The anti-kickback statute standards that apply to surgery centers are somewhat counter-intuitive. The safe harbors that protect ASC investment interests actually require an investor to make certain levels of referral in order to receive the benefits of the safe harbor. This is different from other types of services which consider additional referrals to be suspect.

​The conditions included in the ambulatory surgery center safe harbors act as a proxy for determining when an investing referrer actually uses the ASC as a natural extension of his or her office practice. If the investor does not meet the Safe harbor threshold they may still use the ASC is a natural extension of their office. The Safe harbor merely provides absolute protection if the thresholds are met.

Where the specific requirements of the safe harbor is not met, the referring physician may still be using the facility as an extension of his or her medical practice. It might just be that the nature of the practice does not support as many referrals as other types of practices.  This does not necessarily mean that the lower volume provider presents any additional risk of violating the anti-kickback statute than a provider that comes closer to meeting the safe harbor standards.

Depending on the practice type, the lower level of referrals might very well still be indicative that the physician uses the facility as an extension of his or her practice.  This may not be what the higher referring physicians wish to hear.   In reality, they may feel that lower volume providers are taking a ride on their higher profitability that is created by there more lucrative practice.  In these cases, strict adherence to the one-third tests for multi specialty ambulatory surgery centers can support the positions of the high-volume surgeons to the detriment of the lower volume surgeons who still realistically create very little risk under the anti-kickback statute. However it becomes convenient that those who are responsible for more income being produced by the ASC can rely upon the number of procedures and percentage of income tests to exclude physicians who legitimately use the ASC is an extension of practice from participation but who have lower surgical volumes.

These types of cases run significant risk of being challenged under the anti-kickback statute by excluded investors or governmental enforcement agencies.  Great care must be taken in surgery centers that contain this dynamic to assure that frustrations of higher volume producers do not lead to actions that create regulatory risk for the surgery center.

Many operating agreements that govern the rules relating to ambulatory surgery center ownership actually create legal compliance risk.  It is critical that the procedures for excluding providers be established in advance, are uniformly followed, and do not raise any inference that additional referrals are being required in order to maintain an investment interest. Efforts to bring investors closer to compliance with safe harbor standards can easily be “turned inside out” and be re-characterized as requiring additional referrals.

Once investors own interests in an ambulatory surgery center, it is very difficult to force redemption without creating a lot of legal risk.  ASCs that use the failure to meet safe harbor standards as a reason to exclude investors run substantial risk.  The ASC Safe Harbor provisions exist to protect arrangements from further scrutiny where they contain elements that the federal government has indicated are reflective of there being a lower level of risk of abuse.  The safe harbors were never intended to be used as a tool to replace a complete risk analysis presented by investors who do not meet all of the terms of the safe harbor.  In this respect, the ASC Safe Harbors are different from other safe harbor provisions under the anti-kickback statute.  The primary difference involves that fact that the safe harbor actually requires certain levels of referrals to be made to the ASC.

With other safe harbors, structuring an arrangement to come close to a safe harbor can be a valid risk mitigation approach.  This is not the case with the ASC safe harbor because requiring investors in an ASC to come closer to the referral threshholds in the ASC Safe Harbor actually invoke the referral prohibition.  Forcing this doctor out of the ASC for simply not meeting the safe harbor creates a violation.

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

Ruder Ware is a member of Meritas Law Firms Worldwide

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