The HHS-OIG recently released Advisory Opinion No. 26-04, which provides additional guidance regarding physician transfers of ownership interests in a Medicare-certified ambulatory surgical center and the applicability of the safe harbor regulations for single-specialty and multi-specialty set forth in 42 C.F.R. § 1001.952(r)(2) and (r)(3).
Specifically, the OIG concluded that the proposed arrangement to be undertaken by the requesting entity and its sole physician shareholder would generate — if the requisite intent were present — prohibited remuneration under the Antikickback Statute. However, the OIG would not impose administrative sanctions under sections 1128A(a)(7) or 1128(b)(7) of the Social Security Act because of the sufficiently low risk of fraud and abuse in the context of bona fide estate planning with appropriate documentation.
Proposed Arrangement
The requestor is wholly owned by “Physician A,” who practices alongside his two children, “Physician B” and “Physician C.” All three physicians are engaged in the same medical specialty of pain management. Physician A is married to a non-physician, who would not be employed by or furnish any services to the requestor. The arrangement constitutes a bona fide estate planning strategy, supported by trust documents and family business plans.
The arrangement proceeds in three phases. In the first phase, Physician A would (i) retain 610 Class A shares and 100 Class B shares; (ii) gift 290 Class A shares to the Non-Physician Investor at no cost to her and (iii) offer Physician B and Physician C the option to purchase up to 50 Class A shares each at fair market value. Physician A would retain a minimum of 510 Class A shares if Physician B and Physician C were to exercise their option to purchase the maximum 100 Class A shares and retain a maximum of 610 Class A shares if Physician A and Physician B did not exercise their option.
In the second phase, Requestor would offer up to 100 Class B shares at fair market value to future physician investors, who may practice in the specialty of pain management or another specialty, potentially converting the Ambulatory Surgery Center (ASC) into a multi-specialty facility. During this second phase, Physician A would retire from the practice of medicine and provide a written certification that he would not directly or indirectly influence referrals to the requestor. Notably, Physician A would not formally transition or assign his patient panel to Physician B or Physician C, nor would he maintain any administrative or governance role with the Requestor following retirement.
The third phase commences upon the deaths of both Physician A and Physician A’s spouse (the non-physician investor), at which point their ownership interests would transfer as gifts to Physician B and Physician C.
Implication of Anti-Kickback Statute
The OIG acknowledged that the arrangement implicates the Anti-Kickback Statute because the physician investors would hold ownership interests in the requestor while referring patients to it for services reimbursable by federal health care programs. However, the OIG concluded that during Phase 1 of the proposed arrangement, the arrangement would be protected by the single-specialty ambulatory surgical centers safe harbor and Phases 2 and 3 of the proposed arrangement would be protected by the multi-specialty safe harbor.
Single and Multi-Specialty Ambulatory Surgical Centers Safe Harbors
The single-specialty ambulatory surgical centers safe harbor protects financial distributions to a physician and non-physician investor if all of the following six conditions of the safe harbor are met:
(vi) The terms on which an investment interest is offered to an investor must not be related to the previous or expected volume of referrals, services furnished, or the amount of business otherwise generated from that investor to the entity.
(vi) At least one third of each physician investor’s medical practice income from all sources for the previous fiscal year or previous 12-month period must be derived from the surgeon’s performance of procedures.
(vi) The entity or any investor (or other individual or entity acting on behalf of the entity or any investor) must not loan funds to or guarantee a loan for an investor if the investor uses any part of such loan to obtain the investment interest.
(vi) The amount of payment to an investor in return for the investment must be directly proportional to the amount of the capital investment (including the fair market value of any pre-operational services rendered) of that investor.
(vi) All ancillary services for federal health care program beneficiaries performed at the entity must be directly and integrally related to primary procedures performed at the entity, and none may be separately billed to Medicare or other federal health care programs.
(vi) The entity and physician investor must treat patients receiving medical benefits or assistance under any federal health care program in a nondiscriminatory manner.
The multi-specialty ambulatory surgical centers safe harbor includes all the same elements as the single-specialty ASC safe harbor, plus it also requires that at least one-third of the procedures performed by each physician investor for the previous fiscal year or previous 12-month period must be performed at the investment entity. In addition, all of the investors must be:
- Physicians engaged in the same medical practice specialty in a position to refer patients directly to the entity and perform procedures on such referred patients; or
- Investors not employed by the entity or by any investor; are not in a position to provide items or services to the entity or any of its investors; and are not in a position to make or influence referrals directly or indirectly to the entity or any of its investors.
OIG’s Analysis
The OIG concluded that financial distributions during Phase 1 would be protected by the single-specialty ASC safe harbor, given the requestor’s certifications regarding fair market value terms, income thresholds, non-discriminatory treatment of federal health care program beneficiaries, and the satisfaction of the other safe harbor conditions. The OIG concluded that financial distributions during Phases 2 and 3 would be protected by the multi-specialty ASC safe harbor, which imposes the additional requirement that at least one-third of procedures performed by each physician investor be performed at the ASC.
While the OIG said that the financial distributions would be protected under the safe harbor, the gifting of the shares to the non-physician Investor during the first phase would not satisfy the safe harbor. Nonetheless, the OIG concluded that the gifting of shares from a husband to his wife would present a sufficiently low risk of improper referrals because the wife is not in a position to refer or influence referrals as she has no clinical background.
The OIG said that while the transfer of ownership interests in Class A shares to Physician A and Physician B during the first phase pursuant to the options did not satisfy the safe harbor, the certification from the requester that the purchases would be for fair market value as part of bona fide estate planning strategy was sufficient for the OIG to conclude that the risk of fraud and abuse was sufficiently low to issue a favorable advisory opinion for the first phase.
The OIG said that the transfer of ownership interests in Class B shares to future physician investors during the second phase did not satisfy the safe harbor. Nonetheless, the OIG found the risk of fraud and abuse was sufficiently low to issue a favorable advisory opinion to the second phase because of the certifications from the requester that the future physician investors would pay fair market value as part of a bona fide estate planning strategy.
With respect to the third phase when both Physician A and non-physician Investor have died, the financial distributions to Physicians B and C and future physician investors would satisfy the safe harbor for multi-specialty ASCs. At same time, the OIG said the gift of ownership interests to Physician B and Physician C would not satisfy the safe harbor. Because of the certification of the requestor that the arrangement is a bona fide estate planning strategy, and its certification is supported by appropriate documentation, the OIG concluded there was sufficiently low risk for the OIG to issue a favorable advisory opinion with respect to the third phase.
Key Takeaways
Arrangements that are formulated as part of bona fide estate planning may be found sufficiently low risk of fraud and abuse even though they do not satisfy each element of a safe harbor.
The OIG placed considerable weight on certifications and supporting documentation of bona fide estate planning, suggesting that practitioners structuring similar transactions should ensure robust documentary support for such assertions. Wherever doubt exists regarding an arrangement, it is recommended to request formal OIG guidance for clarity and protection.
