April 2000 Bulletin

OIG opens safe harbors

Rule makes it easier to become investors in ASC

By Janice G. Cunningham, JD

On Nov. 19, 1999, the Office of Inspector General (OIG) published a new final rule designed to provide further guidance to health care practitioners on complying with the federal "anti-kickback" law. Specifically, this new final rule establishes eight new safe harbors and clarifies six of the previous 11 safe harbors.

Of particular interest to orthopaedic surgeons is the new safe harbor regarding investment in ambulatory surgery centers (ASCs). The new rule establishes four categories for physician investment in ASCs. Although the safe harbor does not remove all restrictions implicated by the "anti-kickback" statute, it does offer significant new opportunities for orthopaedic surgeons.

In the current changing reimbursement environment, orthopaedic surgeons must look beyond traditional sources of medical revenue and consider diversifying. The push to control costs while maintaining quality continues to impact orthopaedic practices.

The increased demand to increase or maintain high patient volume places a premium on a surgeon’s time, making convenience in location and scheduling for surgical procedures a high priority. All of these factors make ownership in an ASC a viable option.

By publishing its long-awaited safe harbors final rule, the OIG has, in effect, made it easier for orthopaedic surgeons to become investors in ASCs, without fear of unexpected legal actions taken against them by the federal government.

Here’s an overview of the law.

Federal "anti-kickback" statute: The federal "anti-kickback" statute provides criminal penalties for any individual or entity that, knowingly and with intent, offers, solicits, pays or receives, directly or indirectly, remuneration in exchange for referrals for services reimbursable by federal or state health care programs. The penalties are stiff, including fines of up to $25,000 and imprisonment of up to five years per violation.

Because of the broad language of the law, some innocuous and perhaps even beneficial business arrangements might be construed as violations. "Safe harbors" detail circumstances under which these business arrangements will not be suspect. So long as practitioners meet all of the requirements specified in a safe harbor, the arrangement will be immune from the "anti-kickback" statute.

Federal "Stark II" law: The Stark II statute prohibits practitioners from making referrals for certain "designated health services" to entities in which they have a financial interest. This law also includes a number of situations that constitute exceptions to the general rule. Penalties for violation include monetary fines.

In general, Stark II does not apply to ASCs, as the services usually provided are not "designated health services." However, since ancillary services offered at an ASC may be designated health services, careful design of an ASC is necessary.

Stark II, although somewhat related, is separate and distinct from the anti-kickback law. Stark II compliance does not ensure compliance with the new safe harbor under the anti-kickback statute, and vice versa.

The new rule borrows from Stark II. For example, it uses the definitions of "group practice" and "in-office ancillary services" embodied in Stark II. However, the OIG has no intention of squaring the two separate laws. The Stark II law is a civil statute, while the anti-kickback law is a criminal statute. This legal distinction provides the OIG with two strong tools for use in fighting abuse. Compliance with the Stark II law will not shield a provider from prosecution under the anti-kickback statute if the intent to induce referrals exists.

State laws: In addition to the federal laws, most states have enacted their own "anti-kickback" laws and prohibitions against self-referrals. State fee-splitting laws also impact on business arrangements of health care providers. Before establishing any business venture, review all the applicable federal and state statutes and regulations.

The primary purpose and intent of any safe harbor is to virtually eliminate or at least greatly reduce the opportunity for illegal remuneration in exchange for referrals. This may include creating situations in which the value of remuneration, if any, is relatively insignificant.

To develop the ASC safe harbor, the OIG considered the typical reimbursement for surgical procedures. The bulk of the reimbursement goes to the physician performing the procedure for the professional fee, and the facility fee is significantly smaller in comparison, according to the OIG.

Thus, the OIG reasoned that the financial benefit of ownership in an ASC for a physician who performs procedures in the ASC is not a significant inducement for referrals. The bulk of the physician’s financial benefit derives from the professional fee, which the physician would receive regardless of where the procedure is performed. The OIG considered the ASC to be an extension of the investor-physician’s practice of medicine.

Moreover, there are other good business reasons to motivate a physician-investor to own an ASC. These include better quality control, cost containment and convenience for patients and physicians.

Compare this with the ASC physician-investor who refers to the ASC but does not perform procedures there. In this case, the physician-investor receives the financial benefits of ownership for doing virtually nothing. The value of the benefit increases with each referral to the ASC. The OIG did not view the ASC as having a legitimate business purpose or as an extension of such an investor’s practice.

Additionally, safe harbors seek to promote business relationships that ultimately save money. The OIG recognized that the cost of procedures performed in an ASC is significantly less than those same procedures performed in a hospital setting.

Prior to the new rule published in November 1999, there was a proposed safe harbor that sought to protect only ASCs owned by surgeons performing procedures in them. The new rule now distinguishes four types of ASCs that will not violate the federal anti-kickback statute:

This expansion represents new opportunities for orthopaedic surgeons, provided that each requirement of the safe harbor for the specific type of ASC is met. Safe harbors are "bright-line" rules, meaning that being "substantially" in compliance is not enough. For an arrangement to be protected, it must meet all of the specified standards.

Certain elements of the safe harbor apply to all four types of ASCs:

In addition to these general requirements, each of the four categories has additional standards.

The first three types of ASCs are similar in nature and share all of the same additional requirements:

The surgeon-owned and multi-specialty types of ASCs may apply to orthopaedic specialists.

The additional standards for all three of these ASCs are that all investors are either physician-investors who are in a position to make referrals to the ASC and perform procedures on those patients so referred; or group practices that meet the group practice safe harbor and are comprised of such physician-investors. Or, they are investors who:

Also, physician-investors must have derived at least one-third of their medical practice income (from all sources) from procedures that require either an ASC or hospital surgical setting in the previous fiscal year or prior 12-month period.

Hospital/physician-owned ASCs are comprised of at least one hospital-investor and other investors who qualify for the safe harbor as previously explained. The additional standards for this type of ASC are:

The promulgation of the ASC safe harbor is a significant benefit for orthopaedic surgeons contemplating investing in an ASC. The OIG has provided much awaited guidance for physicians and, in general, the requirements are not terribly onerous.

That is not to say that there will be no confusion, especially in squaring the "anti-kickback" statute with the Stark II laws. State laws also may impact, especially in the areas of fee-splitting and anti-self-referral rules. While many states have significantly relaxed Certificate of Need ("CON") laws, physicians must know and comply with CON requirements.

As with all business decisions, physicians should consult with a knowledgeable health care attorney for advice specific to their particular situation.

Janice G. Cunningham is a consultant with Health Care Group® and an attorney with Health Care Law Associates based in Plymouth Meeting, Pa.

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