We're hearing more and more cases of third-party vendors approaching surgery centers with a new, creative and potentially dangerous type of offer. Here's how it works. A vendor marketing a new technology or piece of equipment proposes an arrangement whereby the vendor owns the equipment and bills the third-party payer for the technical component of procedures performed with the equipment. The vendor then pays the ASC a fee for its lease of ASC space to house the equipment. Such a lease arrangement, which sharply contrasts the traditional situation in which an ASC leases equipment from the vendor, then bills the third-party payer for services, raises four legal-compliance questions.

1. Does the equipment-lease agreement jeopardize the ASC's Medicare certification?
The Medicare ASC conditions of coverage require an ASC to be a distinct entity used exclusively for surgical services. ASC services are defined as "facility services furnished in an ASC." Accordingly, Medicare-certified ASCs have been discouraged from renting parts of their facilities while they are open to treat patients and from commingling ASC staff with other providers' staffs. A regulator could find that a third party using the ASC violates the distinct-entity requirement or the requirement that the facility be "operated exclusively as an ASC." You may argue that there is little difference between a procedure performed under a lease arrangement and many procedures that are billed globally. For example, some lithotriptors operate in this manner. In addition, plastic surgeons or plastic surgery groups often bill globally for the plastic surgery procedure and pay the ASC for use of the facility, rather than the ASC's billing the technical component of the procedure directly. Even though the billing and collection responsibilities are transferred to the vendor in such a lease arrangement, a regulator might assert the procedure is being performed under the ASC's protocols and medical staff bylaws and thus is an ASC procedure - which may only be billed by the ASC. CMS is constantly updating guidance on this and similar issues, so it's important to check.

2. Does the arrangement violate state-licensure requirements, and does it comply with certificate of need (CON) requirements?
Some state-licensure and/or CON laws make it illegal to sublease - in any way, shape or form - an ASC, assign a license to operate an ASC or assign a CON granted to an ASC. Ensure the vendor's proposed arrangement will not be considered a sublease or an assignment. At least one state agency has stated it would view such an arrangement as blatantly unlawful and would report it to CMS. A regulator may consider several factors in determining whether an arrangement amounts to a sublease or an assignment, including who credentials the physicians practicing at the facility, who owns the equipment used at the ASC, who is responsible for maintaining the equipment, which physicians use the ASC, who supervises the procedures the equipment is used in; and who is responsible for billing the procedure. Strong arguments may be made on each side of these issues, so you should contact your state health department and planning board for their views.

3. Does the arrangement comply with accreditation standards?
ASC-accrediting bodies certify the meaning and application of Medicare conditions and the meaning of state licensure standards as they apply to ASCs. Therefore, you should also confer with your facility's accrediting body regarding the impact of an equipment-lease arrangement on accreditation.

4. Does the arrangement withstand scrutiny from anti-kickback and self-referral perspectives?
You should explore whether an equipment-lease arrangement complies with state and federal self-referral laws. This is particularly true if the equipment vendor is partly physician-owned. If this is the case, and the physician-owners refer many patients to the ASC, the arrangement may be construed as a reward (for referrals in general or those related to the equipment) in the form of ASC services and facilities at a discounted charge. Even if the doctors do not refer patients for procedures involving the equipment, an equipment-lease arrangement could cause significant legal problems under the federal anti-kickback statute and state self-referral laws.

Play it safe
To be on the safe side, stick to traditional relationships with equipment vendors. That is, you rent the equipment from the vendor, then bill for the technical fee yourself. This appears to be more in line with the general certification and licensure rules applicable to ASCs.