While physician ownership of ambulatory surgery centers must be structured properly to avoid raising legal and regulatory red flags, a near-blanket Stark exemption and at least four safe harbors from the federal anti-kickback statute give surgeons plenty of berth to invest in these enterprises.
"The Stark self-referral law just doesn't apply to ASCs, because ASCs typically do not furnish designated health services under Stark," says Tom Bulleit, a healthcare attorney at Hogan & Hartson in Washington, D.C.
Legal questions could arise, however, when an ASC provides an ancillary service that falls within one of the 11 categories of designated health services.
Historically, these presented significant Stark compliance issues for those physician-owned ASCs that provided and separately billed Medicare for DHS, according to Ron Wisor, regulatory counsel for the Federated Ambulatory Surgery Association.
Yet these services often are furnished incidentally to the Stark-exempt ASC facility services, Wisor says.
Recognizing this contradiction, HCFA (now CMS) decided to create additional exemptions through the "extension of office" concept. The in-office ancillary services exemption applies when a DHS is an integral part of a surgical procedure furnished by a referring physician with a financial interest in a Medicare-certified ASC.
The most common exclusions are clinical laboratory services, diagnostic imaging and prosthetic devices, if they are reimbursed by Medicare as part of the bundled ASC facility payment and not billed separately.
"The government believes that when surgery is involved, physicians are less likely to order something that is not necessary because they retain liability for anything that would result," says Sanford Teplitzky, chair of the health law department at Ober, Kaler, Grimes and Shriver in Baltimore. "There seems to be less concern as long as the physician is the one who will perform the procedures at the center."
The "fuzzier but more pervasive constraint," according to Bulleit, arises from the Medicare anti-kickback law, which says there can be no remuneration for referrals. This law applies to all federal health programs and most of the federally funded block-grant programs operated by the states. Because it is intent-based, one must ask if the purpose of payment is as an incentive for the doctor to make referrals.
Four safe harbors with six to eight similar standards exist for physician-owned ASCs: surgeon-owned, single-specialty, multispecialty and hospital/physician joint ventures. The standards are aimed at assuring that doctors invest real money and are at financial risk for operating the business as opposed to being passive investors, Bulleit says. In most cases, at least one-third of each physician investor's practice income must come from performing procedures at the ASC.
Some hospitals losing business to ASCs are concerned whether physician owners are meeting all of the criteria to qualify for anti-kickback safe harbors.
Saint Joseph Regional Medical Center in South Bend, Ind., experienced a challenge when a multispecialty ASC owned by 80 local physicians opened its doors two years ago.
Robert Wade, general counsel and organizational integrity officer at Saint Joseph, speculates that physicians sometimes fail to notify patients of their investment interest, one of the conditions of the statute. "It is incredibly difficult for a hospital to compete when the physicians say their motivation to refer is based on quality reasons," he says. "How do you prove the doctor is motivated by referral unless a patient or doctor comes forward? Just ask a typical U.S. assistant attorney how difficult it is to prove intent."
A number of states have enacted self-referral regulations that have broader lists of designated services, and legal due diligence should include looking at state provisions.
In general, though, ASCs have been free from the same kind of scrutiny under state self-referral laws as other kinds of physician-owned enterprises, Bulleit says. "It is unlikely that, if it is not a Stark law problem, it will be a state law problem." Attorneys and compliance officers interviewed for this story say they are unaware of an ASC physician investor being investigated for or charged with any self-referral or anti-kickback violations.
Still, state licensure and certificate of need requirements vary considerably. (See chart, page 15.) Currently, 14 states have no CON law affecting either hospitals or ASCs. The CON laws of 10 others do not apply to ASCs. Even where CON is a consideration, application of the law often depends on ASC size, cost, structure and location.