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.