OIG Allows Joint Venture of Ambulatory Surgery Center by a Hospital and LLC
OIG permitted joint venture of Ambulatory Surgery Center (ASC) by a hospital and LLC. In its Advisory Opinion 09-09 released yesterday, the Office of Inspector General (OIG) analyzed a situation in which a Hospital and an LLC (Surgeon LLC), owned by seven orthopedic surgeons (Surgeon Investors), would jointly own a company that will own and operate an ASC (Hospital-Surgeon ASC). Among other considerations, the OIG considered whether this arrangement posed a violation to the Federal anti-kickback statute. The OIG concluded that it did not and thus, the OIG “would not impose administrative sanctions on…the ‘Requestors.'”
While the anti-kickback statute does have “a safe harbor for investment income from ASCs jointly-owned by physicians and hospitals,” the OIG considered reasons why the proposed arrangement would not be protected under the safe harbor and how the proposed arrangement would pose “a minimal risk under the anti-kickback statute.”
The first concern was whether or not the Hospital would be able to minimize its influence over referrals. Because the Hospital would go to great lengths to ensure there were no internal referrals (for instance, the employees of the hospital will not refer to the Hospital-Surgeon ASC and the Hospital will not track referrals), the OIG determined that “the ability of the Hospital to direct or influence referrals to the Hospital-Surgeon ASC or to its Surgeon investors is significantly constrained.” The second concern was whether having a “pass through” entity (i.e., using the Surgeon LLC to own a Company that owns and operates the Hospital-Surgeon ASC) to hold the investment interests in the ASC would increase a risk of fraud and abuse. The OIG determined that this arrangement is no different than each Surgeon Investor directly owning part of the Hospital-Surgeon ASC (which is the method under the anti-kickback safe harbor) and is, thus, permissible. Finally, the OIG considered whether “obtaining appraisals of the tangible assets of the ASCs at the time of their merger, with either party (the Surgeon LLC or the Hospital) contributing cash, if necessary to equalize the value of their respective contributions” is an adequate method of giving the investors returns on their investments. The OIG concluded that there is a low risk of abuse associated with this method.
Concluding that the aforementioned concerns posed a low-minimum risk of fraud and abuse, the OIG determined that the proposed arrangement probably would not result in administrative sanctions from the OIG.
For more information, please call Adrienne Dresevic, Esq. or Carey F. Kalmowitz, Esq. at (248) 996-8510 or visit The HLP website.