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Legal Update
All Shares Are Not Created Equal
Jerry Sokol
Publish Date: October 10, 2007

C. Gregory Tiemeier, Esq. How much equity in your ASC should you sell to new physician-owners? The answer is never easy, but there's a widespread perception that, from a regulatory perspective, you must offer all investing physicians the same amount of equity on the same terms. Not true. Business (as opposed to regulatory) factors should guide how much of a stake you decide to offer for sale.

C. Gregory Tiemeier, Esq.\ The regulatory factor
The federal Anti-kickback Statute requires that the investment terms a surgery center offers to potential physician-investors not be related to the previous or expected volume of ASC procedures. Although this is considered an essential element of the Anti-kickback Statute, many have mistakenly interpreted this requirement as prohibiting you from offering different investment terms to different physicians.

If nothing else, remember this: You can offer different terms (including the percentage acquired) to different physicians, as long as you don't base the different terms (including the percentage acquired) on the physicians' relative prior or expected use of the ASC.

Proportional investment
Many factors beyond utilization justify different terms and ownership interests:

  • Seniority of the physicians. This is particularly true for ASCs set up by group practices.
  • Different levels of risk assumption. Physicians who were founders and became involved before ASC licensure or CON went out on more of a limb.
  • Time at which the physicians buy in. An ASC may decide at an initial syndication to offer all physicians up to 5 percent each, but during a subsequent syndication offer only up to 3 percent to new physicians buying in. The key is that the ASC must be able to fully substantiate that the rationale for different terms was unrelated to selling more, or otherwise giving better terms, to physicians who'll perform more procedures.

It's also helpful to note that the safe harbor specifically uses the word "offered." As long as you are offering all physicians the same share (say, up to 5 percent each), if they in fact buy different amounts for a reason unrelated to utilization, like their individual financial situation, the offering should not expose you to Anti-kickback Statute repercussions.

If you're looking at reshuffling ownership - at any time after opening - to bring the ownership, and thus the profit distribution, more in line with ASC utilization, it has the same anti-kickback implications as for initial sales.

Seeking advice
Understanding the true regulatory limitations regarding offering different terms to different physicians is extremely beneficial to physician-owners and their ASCs when deciding how much equity to sell. In any equity transaction, it's critical that you seek counsel regarding the regulations and the regulatory risks that apply to the transaction you're contemplating.

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