HHS inspector generals office last week gave a yellow light to a proposed deal in which a not-for-profit hospital wanted to buy a piece of an ambulatory surgery center from some of the physicians who started it.
The advisory opinion, posted June 19, left at least one lawyer who often works with transactions involving physicians groups wondering whether it could ever be safe under the anti-kickback laws for doctors to sell to a hospital for more than they paid to start their business.
And health lawyers were at odds over what exactly troubled the inspector generals staff and how broadly to apply the reasoning in the letter, which doesnt include the names of the parties involved and implies some questions that arent answered.
Lewis Morris, chief counsel at the inspector generals office, while addressing an American Bar Association conference June 22, cautioned not to read too much into the letter and that not all the facts the staff looked at were made public. We approach these things (advisory opinions) with a great deal of caution. ... If its a close call or there are questionable features, were going to say no, Morris said.
But the guidance for future, similar transactions may be muddied nonetheless.
In this case, according to the limited set of facts, three orthopedic surgeons own 94% of the enterprise and four other doctors share the remaining interest. The surgeons would have sold enough of their interest in the business to give the hospital 40%, and they certified in their request for guidance that the price tag was fair market value.
The opinion identifies three troubling aspects and cautions the parties to proceed at their own risk. The inspector generals office noted that none of (the three) factors, whether standing alone or in combination, indicates fraud or abuse.
First, the surgeons would collect cash from the purchase rather than get an infusion of capital into their business. Second, only the three surgeons but not their partners would profit, raising the possibility that the hospital was trying to reward the surgeons because their referrals are valuable. Third, the surgeons would be getting a better rate of return on their investment because they bought in at a lower price than the hospital was going to pay.
Scott Becker, a partner in the law firm McGuireWoods in Chicago, said he is working on several deals that involve hospitals buying interests in surgery centers. Those hospitals absolutely have to be sure that whatever they do can be differentiated from these facts. He said the inspector generals office was most likely ruffled by the possibility that the surgeons were getting special treatment.
He downplayed the concern from the inspector generals office that the hospital would collect a lower rate of return than the original investors, noting that it puts the deal outside the laws safe harbors but is a fact of life when a deal involves a party buying partial interest from original investors.
Health lawyer Gerald Griffith, a partner in the law firm Jones Day in Chicago, said the inspector generals staff might have questioned whether the amount of money changing hands was in fact a fair pricea matter thats generally outside the scope of advisory opinions. If it really means what it says, then thats troubling, because its a very strict interpretation of the safe harbor, Griffith said.
Ken Davis, a partner in the law firm Katten Muchin Rosenman in Chicago, said he worried that the opinions discussion of proportional return went beyond whether the deal would fall within a safe harbor. Before the issue is ever mentioned, the letter establishes that the deal misses the safe harbor for other reasons. The logic, he said, cant help but have a chilling effect.
The questions the OIG has raised in this opinion would prompt you to ask yourself: Can a physician ever sell to a hospital for more than what they invested? Davis said.