OIG posted a copy of Advisory Opinion 07-05 on its website (http://oig.hhs.gov/fraud/docs/advisoryopinions/2007/AdvOpn07-05C.pdf). This opinion relates to the sale of a partial (40%) interest in a physician-owned ASC to a nonprofit hospital. Terms were represented to be consistent with fair market value. OIG concluded that the arrangement could generate prohibited remuneration under the Anti-kickback Statute, and on the facts presented, OIG noted that the transaction presents "a heightened risk of fraud and abuse," though OIG stopped short of concluding there was a violation (noting that would depend on the parties’ intent).
The owners of the ASC were three Orthopedic Surgeons (who held a 94% interest), two Gastroenterologists and two Anesthesiologists. Among the facts OIG focused on were that only the Orthopedic Surgeons were selling, not the other physician investors, and the hospital was the only prospective buyer approached by the Orthopedic Surgeons. In OIG’s view, this may suggest that one purpose of the arrangement is to reward or influence referrals. OIG also noted that the transaction did not infuse additional capital into the ASC for expansion or enhancement of its operations, but rather resulted in the Orthopedic Surgeons realizing a gain on their original investment. Finally, OIG took a strict view of the proportionate return criteria for the ASC investment safe harbor, noting that: "the return on the investment would not be directly proportional to the amount of the capital invested by each investor. The amounts payable to the investors [, the three Orthopedic Surgeons,] would be proportional to their ownership interest in the Company; however, because the Hospital would pay more per ownership unit than the Orthopedic Surgeons paid, the Orthopedic Surgeons would receive a higher rate of return on their remaining shares than the Hospital would receive on its newly-purchased shares."
Although the opinion is limited to the facts of this case, and there is no definitive conclusion that the Anti-kickback Statute was or would be violated by the transaction, it does suggest OIG will subject hospital buy-outs of physician interest in joint ventures to heightened scrutiny, particularly when it is a partial buy out and one involving less than all physician investors. It is not clear from the opinion whether the parties also sought guidance from the IRS or CMS, or whether the transaction after it became clear OIG would not issue a favorable advisory opinion.