Because the hospital was in a position to make referrals to the ASC and/or the physician investors, the hospital agreed to limit its ability to make referrals in the following manner:

•       Hospital would take no action to require or encourage medical staff to refer patients to the ASC or its investors, and would not track any such referrals;

•       Compensation paid to any physician by the hospital would be based on fair market value and would not in any way relate to referrals to the ASC or its investors; and

•       Hospital would continue to operate its own ASC.

        Generally, the Medicare and Medicaid Anti-kickback Statute prevents knowingly and willfully offering, paying, soliciting, or receiving any remuneration to induce or reward referrals for items or services reimbursable by a Federal health care program. There are limited “safe-harbor” regulations defining transactions that are not subject to Anti-kickback regulations. With respect to ASCs, the safe-harbor provision requires, in part, that:

                1.   The terms of investment be unrelated to previous or expected volume of referrals, services furnished or amount of business;

                2.   The amount payable to an investor in return for the ASC investment must be directly proportional to the amount of the capital investment;

                3.   An investor hospital must not be in a position to directly or indirectly make or influence referrals to the ASC; and

                4.   Physician investors who are in a position to make referrals to the ASC must meet specific requirements for ASC ownership, related to whether the ASC is surgeon- owned, single-specialty or multi-specialty.

     In its opinion, the OIG reiterated its concerns regarding joint venture arrangements by those in a position to refer business since such arrangements pose an increased risk that the income from such ventures will be payment for referrals to the venture or investors. The OIG found the proposed transaction did not qualify for safe-harbor protection and posed at least minimal risk under the Anti-kickback statute. Although the Surgeons’ return on investment was directly proportional to their ownership interest, the hospital would pay more per ownership share that the Surgeons paid initially and the Surgeons would receive a higher rate of return on their remaining shares than the hospital would receive on its newly-purchased shares.

        Moreover, the OIG found that it could not sufficiently determine that the proposed transaction was not motivated by reward or influence. In reaching this conclusion, it noted that only some physician investors were selling their shares at an appreciated price,” and that the money to be paid would directly benefit the Surgeons and not be used to invest in the expansion or enhancement of the ASC itself. The OIG found this raised the possibility that the Surgeons were being rewarded by the hospital for valuable referrals to the ASC or hospital. Taking all facts and circumstances into account, the OIG found it could not conclude that a difference in cost of capital acquisition which resulted in financial gain to the Surgeons in a position to make valuable referrals was unrelated to the volume of referrals or business generated between the parties.

      In light of this Opinion, parties to similar transactions should be advised that simply paying fair market value for an ownership interest may not be enough to prevent regulatory scrutiny if there has been an appreciable increase in an ASC’s value since initial investment, or if only a portion of investors are involved in the transaction. In this regard, it will be even more critical when entering similar transactions to give clear indication of intent to not base any from of remuneration on referrals or generated business.