Ambulatory Surgery Centers As Investments

By Mathew J. Levy, Esq. and Mauro Viskovic, Esq

Investments in ambulatory surgery centers (“ASC”) appear to be on the rise. On April 29, 2021, the Office of Inspector General (“OIG”) posted an important advisory opinion¹ in which it concluded that a specific investment in an ASC by certain medical providers would not result in sanctions under the Anti-Kickback Statute (“AKS”)².

The transaction at issue involved a health system, individual surgeons and a medical management company that wished to invest in an ASC. As a general matter, AKS prohibits medical providers from paying or receiving kickbacks, remuneration, or anything of value in exchange for referrals of patients who will receive treatment paid for by government healthcare programs such as Medicare and Medicaid, and from entering into certain kinds of financial relationships.  As such, AKS would be a potential impediment to the contemplated investment because the offer or payment of investment returns from an ASC to an investor constitutes remuneration under AKS.      

In concluding that the transaction would not result in sanctions under AKS, the OIG cited numerous factors mitigating the risk that the investment returns to the medical providers would be problematic under AKS, including the following factors:

  • All ASC investors would invest directly in the ASC.  That is, no investor would hold any ownership through a pass-through entity, which could be used to redirect revenues to reward referrals or otherwise erode the safeguards provided by direct investment.
  • The management company certified that it would not make or influence referrals, directly or indirectly, to the surgeon investors or to the new ASC; and (ii) no surgeon investor has or would have ownership in the management company.
  • The health system certified that the surgeon investors would use the new ambulatory surgery center on a “regular basis” as part of their medical practices. In referring to this aspect, it is interesting to note that OIG concluded the surgeon investors would fail to meet the hospital-physician ASC safe harbor provision requirement that a physician investor derive 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 ASC-qualified procedures.
  • The contemplated arrangement would contain 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 by the health system to its affiliated physicians for services furnished would be consistent with fair market value and would not be related, directly or indirectly, to the volume or value of referrals such affiliated physicians may make to the ASC or its surgeon investors. In addition, the health system certified that it would refrain from any action to require or encourage its affiliated physicians to refer patients to the ASC or to its surgeon investors and would not track referrals made to the ASC by its affiliated physicians.
  • Neither the ASC, nor any investor, would loan funds to or guarantee a loan for any investor to obtain ownership in the ASC. The ASC would not offer ownership to any party based on the previous or expected volume or value of referrals made. In addition, capital contributions and profit distributions would be made in proportion to an investor’s ownership in the ASC. 
  • Certain safeguards would be implemented to reduce the risk that the ASC’s investors would receive profit distributions for referrals of patients to the ASC. The health system certified that any space or equipment leased by the ASC from the health system or an affiliated real estate company would comply with AKS safe harbors for space rental and equipment rental, as applicable, and any services performed by the health system or the real estate company for the ASC would comply with the safe harbor for personal services and management contracts and outcomes-based payments. 
  • Additional safeguards would be adopted that are designed to reduce fraud and abuse risks (e.g., improper billing). The ASC, the health system, the surgeon investors, and the management company would treat patients receiving medical benefits or assistance under any Federal health care program in a nondiscriminatory manner. Further, the health system certified that all ancillary services provided to Federal health care program beneficiaries performed at the ASC would be related directly and integrally to primary procedures performed at the ASC and would not be billed separately to Medicare or any Federal health care program. The health system also certified that it 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.
  • The ASC and its investors would provide written notice to patients referred by ASC investors to the ASC of the referral source’s investment interest in the ASC.

This OIG Advisory Opinion provides helpful guidance for analyzing the AKS implications of a contemplated ASC investment by a medical provider.  It is critical to note, however, that the advisory opinion is limited in scope to the specific arrangement described therein, has no applicability to any other arrangements, and cannot be relied on by other parties.

Should you have any questions regarding the structuring of investments in ambulatory surgery centers, please contact Mathew Levy at 516-926-3320 or MLevy@weisszarett.com.

About the Authors: 

Mathew J. Levy is a Partner of the firm and co-chairs the Firm’s corporate transaction and healthcare regulatory practice. Mr. Levy has extensive experience in, defending healthcare professionals in actions brought by State licensing authorities and the Federal agencies (OIG, Medicare, OMIG, Medicaid, DEA, OSHA, OCR OSHA, Hospital Review Boards, Office of Professional Medical Conduct and Office of Professional Discipline.) Mr. Levy has successfully defended numerous healthcare providers in actions involving the US Attorney’s Office investigations, Medicare Fraud Waste and Abuse investigations, Medicaid Fraud Control Unit investigations, OPMC, OPD, Medicare, Medicaid as well as commercial insurance audits including Prepayment Review, Post Payment Review, Medicare Hearings and Hospital Discipline Investigations.

Mr. Levy has successfully structured and negotiated joint venture agreements, private equity transactions, venture capital transactions, stock purchase agreements, asset sale agreements, shareholders agreements, partnership agreements, employment contracts, managed care agreements and commercial leases. Among the areas in which he focuses are coordinating mergers and acquisitions, compliance programs, ambulatory surgery centers, the establishment of diagnostic and treatment centers, HIPAA privacy regulations, fee-splitting issues, Stark law issues, fraud and abuse rules and regulations and Medicare/ Medicaid, Oxford, Americhoice, Fidelis, Healthfirst and other third-party payor settlements.

Mauro Viskovic is a Partner in the Firm’s corporate and transactions practice group, where he focuses on providing high quality and cost-effective solutions to clients’ legal matters.  He represents entrepreneurs through all stages of their ventures’ development, including advice on structure, initial company formation and organization, private financings, commercial transactions, mergers and acquisitions and liquidity events.  In addition, Mauro represents investors in all aspects of corporate finance transactions and also focuses his practice on the representation of private investment fund advisers and portfolio managers

Weiss Zarett Brofman Sonnenklar & Levy, P.C. is a Long Island law firm providing a wide array of legal services to the members of the health care industry, including corporate and transactional matters, civil and administrative litigation, healthcare regulatory issues, bankruptcy and creditors’ rights, and commercial real estate transactions.

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¹OIG Advisory Opinion 21-02.
²42 USC § 1320a-7b(b).