Is the Office of Inspector General interested in promoting, rather than restricting, the development of physician-hospital ambulatory surgery centers? OIG Advisory Opinion 08-08 certainly suggests so — as long as physicians adopt appropriate protections against fraud and abuse.

Even though the opinion states that a proposed hospital-physician joint venture ASC didn't meet federal Anti-kickback Statute safe harbors for physician ownership, the opinion is favorable to hospitals, management companies and others with business interests in the ASC industry.

Lessons learned
While the OIG's ruling (see "On the Web") is based on specific situational facts, and experienced legal counsel should carefully evaluate its rationale before applying it to your circumstances, it offers the following four lessons:

• Opinion 08-08, issued on July 25, demonstrates that a hospital-physician joint venture can be established outside the strict confines of the ASC safe harbors as long as appropriate safeguards are in place to minimize the likelihood of fraud and abuse.
• The opinion also endorses the ability of physicians to own their interests in ASCs through investment vehicles, not just through direct physician ownership, and provides guidelines as to how you might structure such arrangements.
• Additionally, the opinion approves ownership by physician-investors who won't be using the ASC as a true extension of their practice as long as appropriate safeguards against profiting from passive referrals are in place.
• Finally, the OIG's position on hospital investors that employ physicians further clarifies and comforts hospitals and health systems that may have shied away from ASC investments due to regulatory concerns.

The joint venture in question
The joint venture at issue involved a hospital and 18 orthopedic surgeons from a multi-site physician group. Each surgeon-investor owned an equal interest in a limited liability company, which in turn owned a 70 percent interest in the surgical center. The hospital owned the remaining 30 percent.

Fourteen of the surgeons met the ASC safe harbor one-third income test, which requires physicians to generate at least one-third of their medical practice income for the fiscal year through Medicare-covered ASC procedures — which is to say, to use the ASC as an extension of their practices.

While the remaining four surgeons didn't meet this test, each one derived at least one-third of his practice income from procedures requiring a hospital OR. Each certified that he wouldn't refer patients to the ASC unless the referring surgeon was to perform the procedure.

The OIG's view
This proposed joint venture didn't qualify for safe harbor protection, but the OIG's review of the facts determined that it didn't violate the Anti-kickback Statute. Concluding that the arrangement incorporated substantial safeguards to minimize the likelihood of fraud and abuse, the OIG concluded that it wouldn't impose sanctions.

In its advisory opinion, the OIG raises and answers a few concerns. The first involves the physicians' indirect ownership through a limited liability company, which isn't specifically permitted by the Anti-kickback Statute's safe harbor. The OIG warns that such an investment vehicle might be used to redirect revenues and reward referrals, but on the other hand it notes that each physician's ownership interest is proportional to his investment and it provides the same return as direct investment in the ASC would.

A second concern addresses the physician-investors who don't meet the one-third income test, a rule that keeps physicians from simply using their investment to profit from their referrals. In this case, though, the OIG points out that the physicians who fall short of the one-third test:

• certify that they rarely refer patients for ASC procedures;
• net at least one-third of their incomes from hospital OR procedures;
• would personally perform any ASC referrals that they make; and
• comprise a small portion of the total number of investors.

These facts differ from riskier arrangements in which few investing physicians use the ASC (as seen in Advisory Opinion 03-05) or in which investing physicians are significant potential referral sources for the ASC's other users.

A final concern is that the hospital investing in the joint venture is potentially poised to make or influence referrals to the ASC and its physician-investors, which isn't permitted under the Anti-kickback Statute's physician-hospital ASC safe harbor. This has discouraged many hospitals employing primary care physicians from pursuing ASC ventures. But the OIG points out that the hospital in this proposed arrangement has agreed to impose restrictions that impede its ability to influence referrals, such as vowing not to track the volume or value of referrals made by the hospital's physicians to the ASC.