New OIG Advisory Opinion Begs the Question: Is It Time to Reform the ASC Safe Harbor?

Health Highlights

On April 26, 2021, the Office of Inspector General of the U.S. Department of Health and Human Services (OIG) issued a favorable advisory opinion involving a proposed ambulatory surgery center (ASC) joint venture between a health system, a management company and certain surgeons. While the rationale set forth in Advisory Opinion No. 21-02 (the Opinion)—the OIG’s first on this topic in over a decade—is not particularly novel and dovetails with the safeguards highlighted in prior OIG guidance, the opinion reinforces the latitude that hospitals, health systems and other providers have to structure ASC arrangements that do not fit precisely within the applicable safe harbor. In addition, the flexibility underscored in this, and other past advisory opinions, calls into question whether the ASC safe harbor’s rigid and overly technical standards continue to make sense, particularly given the push toward coordinated, value-based care.

The Opinion focuses on a proposed arrangement in which a health system (the System), five orthopedic surgeons and three neurosurgeons employed by the System (collectively, the Physician Investors), and a management company (the Manager) would invest in a new ASC (the Proposed Arrangement).1 The System would own 46% of the new ASC entity; the Manager would own 8%; and the Physician Investors, each investing in his or her individual capacity, would own 46% as a collective group. The System certified that at least one-third of the procedures performed by Physician Investors each year that would be payable by Medicare when performed in an ASC (ASC-Qualified Procedures) would be performed at the new ASC. Further, each orthopedic surgeon Physician Investor—but not each neurosurgeon Physician Investor—would receive at least one-third of his or her medical practice income during a given fiscal year or 12-month period from the performance of ASC-Qualified Procedures.

The new ASC was slated to operate in a newly constructed facility owned by a real estate joint venture between the System, the Physician Investors, and the Manager. The new ASC would, in turn, enter into space and equipment leases, as well as services agreements, with the System and the real estate company. The System certified that any such ancillary agreements would comply with the Anti-Kickback Statute (AKS) safe harbors for space rental, equipment rental, or personal services and management contracts and outcomes-based payment arrangements, as applicable.

The OIG’s analysis noted that the safe harbor applicable to ASCs jointly owned by hospitals and physicians potentially applied to the Proposed Arrangement. Under this safe harbor, remuneration for AKS purposes does not include any payment that is a return on an investment interest, as long as the investment entity is a certified ASC and certain additional requirements are met. Such conditions include, in pertinent part, that (i) there is at least one hospital investor, which may not be in a position to make or influence referrals directly or indirectly to any investor or the ASC entity; and (ii) all physician investors are surgeons, physicians of the same specialty, or multi-specialty physicians who would be in a position to refer and perform surgeries at the ASC.2 The OIG’s long-standing rationale for the ASC safe harbor has been to protect physician investments in ASCs that represent a legitimate extension of their active medical practice and not simply a means of generating profits in return for their referrals.

With respect to the Physician Investors’ and System’s investment interests, the Opinion concludes that any returns on such parties’ investment would fail to qualify for protection under the ASC safe harbor because, among other reasons, (i) the System would be in a position to make or influence referrals directly or indirectly to the Physician Investors and to the new ASC, and (ii) certain Physician Investors (i.e., the neurosurgeons) would fail to satisfy the one-third medical practice income test incorporated by reference into the hospital/physician ASC safe harbor provision. Notwithstanding these facts, the OIG concluded that the Proposed Arrangement presents a sufficiently low risk of fraud and abuse under the AKS, such that the OIG would not impose administrative sanctions on the requestors. In reaching this determination, the OIG relied on a wide range of mitigating factors, including the following:

  • The System’s attestation that the neurosurgeon Physician Investors, while failing to satisfy the one-third medical practice income test, would still use the new ASC “on a regular basis as part of their medical practices.” In addition, the System certified to the OIG that Physician Investors would rarely refer patients to each other for ASC-Qualified Procedures and, in fact, would personally perform all but a de minimis volume (i.e., less than 1%) of the procedures they referred to the ASC. 
  • The System’s certification that any compensation paid by the System to its affiliated physicians (e.g., pursuant to employment or professional services agreements) would be consistent with fair market value and not related, directly or indirectly, to the volume or value of referrals such physicians may make to the ASC or the Physician Investors. The System also represented that it would refrain from taking any action to require or encourage—and  and would make no effort to track—System-affiliated physicians’ referrals to the ASC or its Physician Investors. 
  • Neither the ASC, nor any investor, would loan funds to or guarantee a loan for any investor to obtain ownership in the new ASC; ownership interests would not be offered to any party based on the previous or expected future volume or value of referrals made by such party; capital contributions and profit distributions would be made proportional to an investor’s ownership interest; and all Physician Investors would invest directly in the ASC, as opposed to holding their interests through a less transparent “pass-through” entity. 
  • The System’s certification that all ancillary agreements associated with the ASC’s operations would comport with the applicable AKS safe harbors. 
  • The Proposed Arrangement would comply with other fundamental ASC safe harbor requirements designed to reduce fraud and abuse risk, including investors’ written disclosure of their investment interests to patients referred to the ASC; treatment of federal health care program beneficiaries in a nondiscriminatory manner by all parties involved; and the System’s exclusion of all costs associated with the new ASC from any cost report or claim submitted for payment, unless otherwise required by the applicable federal health care program. 

Many of the factors upon which the OIG relied in blessing the Proposed Arrangement are not exceptional or new. To that end, it is virtually never the case that a hospital investor in a hospital-/physician-owned ASC would not be in a position to make or influence referrals, whether directly or indirectly, to other investors or the ASC itself. In apparent recognition of this fact, and when the hospital agreed to similar safeguards as articulated above, the OIG has overlooked failure to satisfy this particular safe harbor requirement on other occasions and provided a favorable opinion.3 Further, the OIG has shown similar flexibility with respect to the one-third medical practice income test where (i) it can be demonstrated that the physicians are otherwise engaged in a legitimate surgical practice, including through the performance of procedures that may require a hospital operating room setting; (ii) the physician investors who do not meet the one-third income test represent a minority of the investors; and/or (iii) physician investors generally do not refer patients to the ASC for procedures other than those they personally perform.4

This latest opinion from the OIG reinforces what has always been the case: that failure to structure an ASC arrangement in complete compliance with the relevant safe harbor’s requirements is not fatal and, in fact, it is possible to develop and implement such arrangements in a manner that presents acceptably low risk under the AKS. Moreover, the continued leeway the OIG has provided when evaluating these types of arrangements—assuming appropriate safeguards are in place—arguably constitutes a tacit acknowledgment on the government’s part that the technical safe harbor requirements promulgated over two decades ago may no longer be practical or viable. Unfortunately, modifications to the ASC safe harbor provisions were not among the extensive round of changes that the OIG made, effective January 19, 2021, as part of modernizing the AKS to promote the transition to coordinated, value-based care. Yet, it may be only a matter of time before these arcane and, in some respects, arbitrary requirements are revised to reflect the more practical approach taken in the Opinion and other OIG precedent.

1 OIG Advisory Opinion No. 21-02 (Apr. 26, 2021).

2 42 C.F.R. § 1001.952(r)(4).

3 See, e.g., OIG Advisory Opinion No. 09-09 (July 22, 2009); OIG Advisory Opinion No. 03-2 (Jan. 13, 2003); OIG Advisory Opinion No. 01-21 (Nov. 16, 2001); OIG Advisory Opinion No. 01-17 (Oct. 10, 2001).

4 See, e.g., OIG Advisory Opinion No. 08-08 (July 18, 2008); OIG Advisory Opinion No. 03-2.



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