One of the most impactful things an ambulatory surgery center (ASC) can do to continue to grow and develop the center is to bring in new physician partners through the sale of equity. In addition to the numerous business, operational and interpersonal considerations involved with identifying appropriate physician partners and selling shares to such partners, there are a variety of key legal considerations that any ASC should also keep in mind. This article addresses such considerations, including federal and state anti-kickback laws, state and federal securities laws and other legal considerations.
I. FOUR CORE CONCEPTS
Subsequent sections of this article will address the legal rationale for these core concepts in greater detail. However, ASCs can ensure appropriately structured sales of shares in they are mindful of the following four concepts:
- Physician investors who refer patients to the ASC should ideally not be passive indirect referral sources.
- Physician investors should invest real capital and take real business risk on their investment.
- Physician investors should pay fair market value for their shares.
- The terms of investment for physician investors should not be tied in any way to the volume or value of their referrals to the ASC.
II. FEDERAL AND STATE FRAUD & ABUSE CONSIDERATIONS
The Federal Anti-Kickback Statute
The most relevant federal statute applicable to ASCs is the Federal Anti-Kickback Statute, 42 U.S.C § 1320a-7b(b). This generally prohibits anyone from offering, paying, soliciting, or providing anything of value (i.e., remuneration) to another person in exchange for the referral of healthcare business to another person or entity. The concept of remuneration under the Anti-Kickback Statute has been defined broadly. It means to prohibit several types of payments, discounts or transfers of anything of value in exchange for referrals.
A violation of the Anti-Kickback Statute is considered a felony. Individuals or providers who violate the Statute may be subject to penalties, including fines of up to Twenty-Five Thousand Dollars ($25,000) per violation, imprisonment for up to five (5) years, or both. Additionally, the Secretary of the Department of Health and Human Services (DHHS) has the authority to exclude providers, including individuals or entities, who have committed any of the prohibited acts, from participation in the Medicare or Medicaid programs.
When selling shares to physicians in an ASC, ensuring compliance with the Anti-Kickback Statue is critical. In 1999, the Office of Inspector General (OIG) promulgated the “ASC Ownership Safe Harbor” regulations.
There are actually four different “ASC Ownership Safe Harbors”. These are based on a different ownership structure (physician-hospital JV, physician only JV, multispecialty JV and single specialty JV). However, there are numerous common elements among all four variations of the ASC Ownership Safe Harbors.
Joint ventures that are structured consistent with all elements of the applicable ASC Ownership Safe Harbor are deemed immune from prosecution under the Anti-Kickback Statute as to certain ownership issues. Thus, ASC companies generally strive to ensure that their joint ventures, including the sale of shares to physicians, are structured in accordance with the ASC Ownership Safe Harbor.
Core Qualitative Elements
The core qualitative elements of the ASC Ownership Safe Harbor are as follows:
- The terms on which an investment interest is offered to an investor. These must not be related to the previous or expected volume of referrals, services furnished, or the amount of business otherwise generated from that investor to the entity.
- The entity or any investor (or other individual or entity acting on behalf of the entity or any investor). They must not loan funds to or guarantee a loan for an investor if the investor uses any part of such loan to obtain the investment interest.
- The amount of payment to an investor in return for the investment. This must be directly proportional to the amount of the capital investment (including the fair market value of any pre-operational services rendered) of that investor.
- All ancillary services for federal healthcare program beneficiaries performed at the entity. These must be directly and integrally related to primary procedures performed at the entity. None may be separately billed to Medicare or other federal healthcare programs.
- The entity and any surgeon investors. They must treat patients receiving medical benefits or assistance under any federal healthcare program in a non-discriminatory manner.