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Legal Update
Can We Convert Our ASC to a Hospital Outpatient Department?
Daniel Melvin
Publish Date: October 10, 2007

The gap between ASC rates and hospital outpatient rates for the same procedures is wide and about to get wider. That's if CMS pays ASCs 62 percent of HOPD rates when it unveils its restructured outpatient payment system. In reaction to this, many ASC investors will convert their ASCs into hospital-based sites so they can bill at the higher rates. To help you understand whether you might want to explore such an undertaking, here are the short answers to 10 frequently asked questions on ASC-to-hospital conversion.

1. How do you convert an ASC to a hospital-based site? The first step in conversion is to structure a surgical facility management arrangement between the operating entity for the ASC and a hospital that satisfies the Medicare criteria for an HOPD, then to de-certify the site as an ASC.

2. Is it illegal to increase a facility's Medicare reimbursement by converting an ASC to a hospital-based site? There's no federal statute or regulation that prohibits an ASC or its investors from converting the facility to a hospital-based site as long as the facility satisfies the regulatory criteria for an HOPD. A hospital may, but isn't required to, obtain a formal determination from CMS that confirms the surgical facility satisfies the regulatory criteria for an HOPD.

3. How difficult is it for an ASC to qualify as a hospital-based site under Medicare rules? Generally it's not very difficult, as long as you take care to fulfill the criteria. You can assuage your fears with a formal determination from CMS.

4. Is there any risk under federal law associated with converting an ASC to a hospital-based site? A conversion would create a new compensation arrangement between your ASC's operating entity and the hospital's. The ASC's physician-investors would be making referrals to the hospital, not to the ASC. As with any direct or indirect financial arrangement between a hospital and referring physicians, the arrangement should be evaluated for risk under the federal physician self-referral (Stark Law), the federal healthcare program Anti-kickback Statute and the federal civil False Claims Act.

5. Is it possible to resolve any doubts beforehand about whether the conversion violates the Stark Law and the Anti-kickback Statute? Perhaps; you could request an advisory opinion from CMS and the Office of the Inspector General, though to date neither agency, if it has received such requests, has commented on ASC-to-hospital conversions.

6. Is state law implicated by converting an ASC to a hospital-based site? State certificate or determination of need laws and state licensing laws may bear on your ability to re-characterize your facility as a hospital-based site, so be sure to check your state laws and file any necessary paperwork.

7. Have any commercial payers refused to pay a hospital, or refused to pay a hospital its contracted hospital rates, when the hospital starts billing for ambulatory surgeries formerly billed by an ASC? Not to our knowledge.

8. Does the hospital have to control the surgical facility? The hospital would contract with your ASC's current operating entity to manage the facility, but, if your facility is located off the main campus of the hospital, the hospital must do the following in order to meet Medicare's requirements:

  • Directly employ (not lease) the non-physician clinical staff;
  • have final responsibility for administrative decisions, contracts with outside parties, personnel actions, personnel policies (such as fringe benefits or codes of conduct) and medical staff appointments; and
  • manage the management contract for the surgical facility.

9. How does Medicare define a campus? A campus includes the main hospital building and other structures within 250 yards of the main hospital building.

10. How far from the hospital's main campus can a hospital-based surgical facility be? Your surgical facility must generally be within a 35-mile radius of the hospital's main campus (as the crow flies), but it can be even more distant from the main hospital campus if you can present evidence that satisfies certain criteria to prove that the two facilities serve the same patient population.

For further exploration
These answers aren't intended to be legal advice, but rather are intended to help you make a more informed decision whether to pursue conversion to hospital-based status. If you would like to explore further, it's recommended that you consult with your facility's lawyer or legal counsel who specialize in joint-venture projects.

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