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Legal Update
Can a Group Practice Own a Surgery Center?
Jerry Sokol
Publish Date: October 10, 2007

Jerry J. Sokol, Esq. If you're part of a multi-specialty group practice that includes primary care physicians or other non-utilizing physicians (NUPs), and your group practice owns an interest in an ASC, take note: You might be more likely to face government scrutiny, based on Office of Inspector General Advisory Opinion 03-05.

Jerry J. Sokol, Esq.\ We all know that direct ownership of an ASC by NUPs poses a significant risk of an anti-kickback statute violation. But there's been a longstanding view that indirect ownership by NUPs who are part of a group practice that owns an ASC wouldn't pose such a risk. This view was supported at least in spirit by many federal and state healthcare laws that afford protections to group practices. Take, for example, the Stark law in-office ancillary services exception. It generally permits PCPs and other physicians within a single group practice to profit from ancillary services they refer, including diagnostic services such as MRI and CT - areas more prone to abuse than surgery.

Stark doesn't apply to ASC facility fees, but this type of guidance had led many to view ASC ownership by multi-specialty group practices with NUPs as posing little anti-kickback risk, even if the ASC wasn't wholly owned by the group practice. OIG Advisory Opinion 03-05 departs from this conventional line of thought.

OIG guidance and analysis
Advisory Opinion 03-05 addresses a proposed ASC joint venture (JV) between a hospital (49-percent ownership) and a multi-specialty group practice (51-percent ownership). The OIG says the JV posed more than a minimal risk of fraud and abuse because it wouldn't fit into any of the four ASC investment safe harbors. The safe harbors apply only to physician-investors who use the ASC regularly as part of their practices and who are unlikely to use the investment as a vehicle for profiting from their referrals to other physicians who use the ASC. In this case, only a few physicians in the group would use the ASC. Cross referrals for services performed in the ASC would be likely. In all, the OIG equated the JV's risk with that of an ASC owned directly by surgeons and NUPs.

Safeguards to consider
The OIG has stated in past advisory opinions an arrangement that doesn't satisfy a safe harbor may be allowed if adequate safeguards are in place. Here are a few examples.

  • A conservative approach. Eliminate non-utilizer involvement in the economics of the ASC. If the NUPs don't participate in the profits generated by the ASC, there'd be no payments that could be construed an inducement for referrals from the NUPs. From a business perspective, this safeguard may create a high level of resistance from physician-investors.
  • An alternative approach. Apply the ASC profits in a manner that benefits the practice as a whole, but not the NUPs directly. This safeguard could potentially lower the level of regulatory risk by reducing the likelihood of a connection between referrals and remuneration.
  • The no-increase-in-referral approach. Monitor to ensure that there are no increases in referral volume or patterns after or because of the group practice's investment in the ASC. Without such an increase, it would be difficult to prove an intent to induce.

Separate from these safeguards, a multi-specialty group practice could fit within the group practice safe harbor to the Federal Anti-kickback Statute, which the OIG didn't reference in 03-05. This safe harbor protects investments in a group practice - and that potentially could include a group practice's ASC.

Don't disregard 03-05
While this advisory opinion isn't a general prohibition applicable to all arrangements (a group practice's ASC arrangement could differentiate itself from 03-05 by, for example, having a small percentage of NUPs), by all means don't disregard 03-05. Have legal counsel review your investment and ownership structure. This advisory opinion has raised the bar of Federal Anti-kickback Statute concern with multi-specialty group-practice ownership in ASCs when NUPs are part of the group.

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