This article describes the key federal and state issues you must recognize to effectively develop a surgery center. Some of these issues specifically relate to the development of an ASC with a hospital partner or to developing an ASC that grows out of the acquisition of a hospital outpatient department.

1 Medicare/Medicaid Fraud and Abuse Anti-kickback Statute
The goal: The Anti-kickback Statute aims to keep any ASC that provides Medicare or Medicaid services from paying money or providing remuneration to physicians in exchange for federally funded referrals.

How to comply: To comply, you must follow, at minimum, five rules.

• A party can't offer more or fewer shares to a physician based on the physician's referrals to the ASC.
• Returns on investment must be related to the ownership of shares and may not be related to the number of referrals an investor makes to the ASC.
• Investors must pay fair market value for shares.
• The ASC must not reallocate shares based on whether an investor brings cases to or generates business for the ASC.
• No party should pay any amount to physicians for services unless such payments are fair market value and such services are unrelated to the volume or value of referrals generated for the ASC.

Safe harbors or exemptions: While it may appear that the Anti-kickback Statute is particularly restrictive, the government has adopted ASC-specific safe harbors that let you safely structure equity ownership and gain immunity from prosecution based on that ownership.

The ASC safe harbors include specific safe harbors for single-specialty surgery centers, multi-specialty surgery centers and surgery centers with hospital partners. You'll find six general elements in each safe harbor.

• The ASC must be Medicare-certified.
• No investor may receive loans for the purpose of investing in the ASC from the ASC or its other investors.
• The same terms must be offered to each investor without regard to the potential volume or value of referrals.
• All ancillary services must not be separately billed or reimbursable and provided only through the ASC rate.
• The ASC and its investors must not discriminate against Medicare or Medicaid program beneficiaries.
• Physician-owners must disclose their ownership interests to patients.

Each safe harbor has its own nuances. For example, the single-specialty ASC safe harbor requires that at least one-third of each physician investor's medical practice income for the previous year derive from the physician's performance of certain ASC procedures. The multi-specialty ASC safe harbor requires a physician investor to perform at least one-third of those procedures at the ASC in which he's invested.

2 Stark Act
The goal: The Ethics in Patient Referrals Act, also know as the Stark Act, prohibits physician investment in, and referrals to, facilities that provide certain types of services called designated health services. These designated health services include inpatient and outpatient hospital services.

How to comply: The Stark Act generally doesn't apply to ambulatory surgical services and other services billed pursuant to a bundled ASC payment rate. However, it does come into play if a physician group or related group buys into a hospital outpatient department that will subsequently be converted to a freestanding surgery center - as procedures are still technically provided by the HOPD, they are considered designated health services.

The Stark Act also comes into play if physicians are managing the surgery department of a hospital or operating pursuant to an "under arrangements" agreement with a hospital. In those situations, it's critical that all payments be at fair market value and meet a Stark Act exception; they also must not be intended to induce or require referrals.

Safe harbors or exemptions: Although ambulatory surgical services aren't designated health services, some procedures performed in an ASC include prosthetic, DME and orthotic implantation procedures - and they're on the list of designated health services. However, when performed in an ASC setting, implants provided as part of a surgical procedure are specifically excepted from the Stark Act prohibition. Performing an implant procedure in an ASC must not, of course, violate the Anti-kickback Statute, and all billing and claims submissions must be proper. In addition, the exception doesn't protect arrangements between physicians and implant manufacturers or distributors in which the manufacturers or distributors furnish designated health services, for example, through subsidiaries or affiliates.

3 State self-referral issues
The goal: Many states have physician self-referral or anti-kickback statutes that are very similar to the Stark Act or the federal Anti-kickback Statute.

How to comply: The lawyer you retain for your startup should be able to guide you and your investors to ensure that the venture complies with state self-referral laws. Many of these state laws can be more general than the Anti-kickback Statute or Stark Act, applying to all services and not just Medicare or Medicaid services. Some states' laws are more restrictive than the federal statutes. For example, federal law provides an exception that lets physicians own an interest in a hospital. In Nevada, however, physician ownership in a hospital is generally prohibited.

Safe harbors or exemptions: As with federal requirements, exemptions vary; consult your lawyer.

4 Certificate of need laws
The goal: In more than 25 states, a state-granted certificate of need is required to develop an ASC. In most states, a party developing an ASC must either obtain a CON or develop the surgery center pursuant to an exemption from the state CON requirement. These regulations are said by proponents to prevent an over-abundance of healthcare services.

How to comply: In many states, it's difficult to obtain a CON - it can be a long and convoluted process of proving the need for surgical services and your facility's ability to meet its volume projections. In some states, the burden is eased significantly if your ASC has a hospital partner.

Safe harbors or exemptions: More states are developing practice-based or minimum-size CON exemptions, but operating under such an exemption may hamper the ability to sell the ASC to a third party or to obtain the services and capital of a management company. In Illinois, you can develop a practice-based ASC without a CON if the office is used less than 50 percent of the time for surgery and isn't Medicare-certified as an ASC.

5 Antitrust laws
The goal: Antitrust laws generally restrict competitors from having price-fixing arrangements or allocating markets between the competitors. Antitrust laws also impact other activities, such as when a hospital operates an outpatient surgical department and also invests in an ASC.

How to comply: Especially when a physician-owned surgery center partners with a hospital, all parties should comply with antitrust laws. The hospital and the ASC may be deemed competitors for purposes of antitrust laws. Thus, the hospital and the ASC must set their prices separately and may not jointly attempt to price services with third-party payers. You should proceed with caution and legal counsel in deciding who - the hospital or the ASC - will serve which sections of the local outpatient surgery market. Antitrust issues may also arise when a hospital and an ASC combine in an attempt to have greater market power in the local area.

Safe harbors or exemptions: The safest and most notable safe harbor concepts involve situations in which the hospital owns greater than 75 percent to 80 percent of the joint-venture entity.