OIG Issues Advisory Opinion 08-08

From the health law department at King Spalding (www.kslaw.com):

On July 15, 2008, the Department of Health and Human Services Office of Inspector General (“OIG”) issued a favorable advisory opinion regarding the operation of a hospital and physician owned ambulatory surgical center (“ASC”). Although the arrangement carries some risk of kickbacks, the OIG will not impose administrative sanctions unless there is intent to induce or reward referrals.

The arrangement involves the development and operation of an ASC for the provision of orthopedic procedures. Eighteen orthopedic surgeons have an equal investment interest in a partnership formed for the purpose of having ownership in the ASC. That partnership will have a seventy percent ownership in the ASC, and the hospital will own the remaining thirty percent. Patients will receive written notification regarding the physicians’ interest in the ASC prior to receiving treatment. The ASC will also have an exclusive contract with the hospital-owned physician practice for the provision of anesthesia services.

The OIG found that although the arrangement does not meet all of the necessary requirements for safe harbor protection, proper safeguards are in place to reduce the risk of fraud and abuse. First, the physician investors do not have a direct ownership relationship with the ASC allowing the potential for the intermediate entity to redirect revenue to compensate referrals. However, the risk of paying for referrals is mitigated because each physician’s ownership is proportional to their investment.

Second, four of the eighteen orthopedic surgeons did not receive at least one third of their medical practice income from the previous fiscal year by performing ASC qualified procedures. The OIG found these surgeons were not likely to profit from referrals to the ASC; and in the rare instance when a referral would be made by any of them to the ASC, the referring physician would perform the procedure. Specifically, the requestors of the advisory opinion certified to the OIG that these physicians would not refer to the ASC any pain management procedures they did not personally perform there.

Third, the hospital put substantial safeguards in place to reduce its ability to make or influence referrals to the ASC through the physicians that are employed by or contract with the hospital. Lastly, even though the medical director agreement (an employed physician of the hospital-owned physician practice will serve as medical director of the ASC) does not meet the personal services safe harbor due to a lack of specificity of the part time schedule, all of the services to be provided are enumerated in the agreement, reasonable and necessary, compensated by a fixed fee not related to the volume or value of referrals, and will be well documented.

The OIG shows a continued willingness to allow hospitals and physicians to jointly own ASCs when the parties have taken significant measures to reduce the potential for fraud and abuse within the federal health care programs. The advisory opinion is accessible by clicking here. Reporter, Tizgel High, Atlanta, 404-572-3576, thigh@kslaw.com.

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