Safe harbors extended to four types of ASCs

A newly published regulation will allow safe harbor exceptions to federal fraud and abuse laws for four types of ambulatory surgery centers (ASCs): surgeon-owned ASCs, single-specialty ASCs, multispecialty ASCs, and hospital-physician ASCs.

"This is good news," says Michael Blau, Esq., partner in charge of the Boston health law department for McDermott, Will, and Emery. "At least we have relative specificity for various categories of ASCs."

For example, the government has said that a hospital-physician ASC can quality for safe harbor protection. "In the original [proposed] safe harbor, we were unsure whether any hospital-physician ASC could fall under a safe harbor," he says.

Others aren’t so upbeat. The Federated Ambula-tory Surgery Association (FASA) in Alexandria, VA, released a statement saying, "Although FASA believes finalizing the safe harbor is an important step forward, we recognize that the safe harbor is limited and in some ways more restrictive than warranted. FASA will continue to work to improve the interpretation of this law."

The proposed additions to the safe harbors, which covered only ASCs that were entirely owned by surgeons, were published Sept. 21, 1993. The interim final rule on the safe harbors additions was published in the Federal Register Nov. 19, 1999. (The interim final rule can be obtained from www.dhhs.gov/progorg/oig/ new.html or from the Federal Register in most public libraries.) Comment was received on the interim final rule until Jan. 18, 2000, and the interim final rule is subject to change.

Some of the most important changes between the proposed and final safe harbor additions are:

• It’s now clear that safe harbor protection is allowed for physician-hospital ASCs, multispecialty ASCs, and single specialty ASCs in which only some of the physicians are surgeons.

• For single-specialty ASCs, not all physicians must be surgeons. They simply have to all practice the same specialty. "That’s a significant improvement from the proposed safe harbors," Blau says.

• There’s now a disclosure requirement for physicians who have an investment interest in an ASC and refer patients to their facility. Patients must be fully informed of the investor’s interest.

The disclosure must be documented, Blau emphasizes. "From a physician standpoint, it’s another piece of paper in the registration process that patients are going to have to sign. Make sure it says they read it and understood what they read."

This requirement is an opportunity for surgeons, says Stephen W. Earnhart, MS, president and CEO of Earnhart & Associates, a Dallas-based ambulatory surgery consulting firm specializing in all aspects of surgery center development and management.

"I would put a picture of the surgery center on my office wall and probably laminate my ownership share and tack that up there beside it," Earnhart says. "I would tell every one of my patients that, I am an owner of the Earnhart Surgery Center, and I hand-picked every staff member there, approved all the equipment purchases, and oversee all the supplies we use. Therefore, I am proud to book your surgical procedure at this great facility.’"

Earnhart’s firm encourages its physician partners to let their patients know that the surgery is going to be done in a facility where the surgeon has an opportunity to influence the quality of care and patient safety. "This is golden opportunity for the physician to market not only the surgery center, but themselves," he says.

New one-third requirement

For all four types of surgery centers, there is a new requirement that at least one-third of each physician investor’s medical practice income during the previous 12 months has to be derived from the surgeons’ performance of ambulatory surgery procedures, but not necessarily in the ASC where he or she has an investment interest.

The reason is that the Health Care Financing Administration (HCFA) and the Office of Inspector General (OIG) view the ASC safe harbor as a workplace exception, Blau says. "If the physician or surgeon is referring him- or herself, and the surgeon is going to perform the surgery on his or her own patient, the surgeon is really using the ASC as an extension of the practice — really his or her own workplace," he says.

The one-third requirement won’t disqualify very many, Blau says. "On the other hand, it will draw a line and allow one to distinguish passive investors who aren’t surgeons, who might otherwise be people interested in an investment interest simply to get a financial return and who are in a position to refer to surgeons. That’s what OIG is trying to carve out."

There is another "one-third" test that applies only to multispecialty ASCs under the new safe harbor. For those facilities, at least one-third of the procedures performed by each physician investor during the previous 12 months needs to have been provided in an ASC where the physician has an investment interest. The reason for this requirement is that in multispecialty ASCs, the OIG was concerned that an investment interest might create incentives for surgeons or physicians to cross-refer among each other, rather than using the ASC as a workplace exception.

"All it does it cut out those who would be more passive investors, in a position to refer, in contrast to surgeons using the ASC on regular basis," Blau says.

Touchy area for hospitals

For hospitals that are interested in becoming partners with doctors in ASCs, safe harbors are helpful, Blau says. "There were serious questions about whether this was permissible."

There is one touchy area for hospitals. The OIG made it clear: If a hospital is going to be a partner in an ASC, and the ASC wants safe harbor protection, the hospital has to disqualify itself from being able to refer to the ASC, Blau says.

The hospital can address this concern by entering into a written stipulation under which the hospital contractually agrees that it won’t refer or attempt to influence referrals to the ASC, he says. Examples of violations include patient overflow that is sent to a joint venture ASC or a situation in which a hospital-based physician or members of a hospital-affiliated group practice refer to the ASC. Such referral decisions are imputed to the hospital. "It would be as if the hospital made those referrals," Blau says.

The impact of these safe harbors additions should be a "call for action" for hospitals to start taking care of their surgeons as well as they have been taking care of the patients, Earnhart says. "Like it or not, the patients will stay with the physician — not the hospital — when forced to chose between the two."

Many hospitals find it difficult to compete with physician-owned ASCs, Earnhart says. "Hospitals and surgeons need to start working together on ambulatory surgery programs, or the industry will become so fragmented and unprofitable, with surgery centers on every corner, that everyone loses."

A safe harbor isn’t required

Even if your situation doesn’t fall within one of the safe harbor additions, you haven’t necessarily violated any fraud and abuse laws, Blau emphasizes. "Safe harbors are limited definitions of financial transactions that OIG has specifically said has such a small or no potential for fraud and abuse that they’ll immunize from prosecution or sanction or penalty."

However, just because you don’t meet the narrow definitions doesn’t mean your conduct is illegal. "It just means it’s outside the safe harbor and subject to scrutiny," Blau says. "Many financial transactions don’t meet every standard and parameter of safe harbor, but are completely legally defensible arrangements."

In fact, an ASC might fall under another safe harbor, such as the small entity or underserved area safe harbors.

So what’s the bottom line, according to Blau? "Is the arrangement intended to induce referrals, inappropriately, particularly from physicians who are in a position to refer and not perform surgery on their own patients, or is it a legitimate workplace where physician can provide quality care at a cost-effective price for patients as an extension of their practice?" n

For more information on the safe harbor, contact:

Michael Blau, Esq., McDermott, Will, and Emery, 28 State St., Boston, MA 02109-1775. Telephone: (617) 535-4010. Fax: (617) 535-3800. E-mail: mblau@mwe.com.

Stephen W. Earnhart, MS, President and CEO, Earnhart & Associates, 5905 Tree Shadow Place, Suite 1200, Dallas, TX 75252. E-mail: searn hart@earnhart.com. Web: www.earnhart.com.

Vicki L. Robinson, Office of Counsel to the Inspector General, Washington, DC. Telephone: (202) 619-0335.

Joel Schaer, Office of Counsel to the Inspector General, Washington, DC. Telephone: (202) 619-1306.