Surgery centers must navigate legal complexities

A relatively obscure corner of health law can be hazardous to your clients’ legal health if it’s not handled properly.

Ambulatory surgery centers (ASCs) are a recent innovation focused on same-day surgical care, including diagnostic and preventive work. ASCs have gained a foothold by providing an alternative to hospital-based outpatient procedures.

The most common legal snarl when it comes to ASCs has to do with anti-kickback laws around Medicare and Medicaid. Under federal statute, if an entity is a certified ASC under the Medicare program, the operating and recovery room space must be dedicated exclusively to the ASC.

The statute also polices referrals. Patients referred to the ASC by a doctor who is an investor must be fully informed of the investor’s investment interest in the ASC.

“If you own an interest in a legal entity that’s providing medical care, and you refer a patient to it, that raises the question of whether there’s a violation of the anti-kickback statute,” said Claire Topp, a partner with Dorsey & Whitney. “You are referring to an entity that you’re likely to make some money from.”

According to the statute, the terms on which an investment interest is offered can’t be related to previous or expected volume of referrals, services furnished or the amount of business otherwise generated from the investor to the ASC.

“ASCs often deal with Medicaid and Medicare, so we see a lot of allegations of overbilling,” said David Holt, owner of Holt Law in St. Paul. “A lot expensive procedures are done, and there are lots of different options for codes. There are some gray areas that Medicare pushes back on during the billing process.”

The anti-kickback statute law applies generally to the payment or receipt of remuneration in exchange for arranging for provision of services that’s reimbursable through Medicare or Medicaid, according to Topp.

One legal wrinkle that can help keep ASCs in the clear is a safe harbor clause in the federal statute. To meet the requirement of the safe harbor, the operators of an ASC have to be using it  to provide services to their patients. There are also rules about the percentage of patients who actually use the center and its services.

The ASC safe harbor requires that physicians actually use that center for their patients, based on the notion that physicians are already making money off their professional services.

“Basically, if you meet the requirements of the safe harbor, you are immune from prosecution,” said Topp. “But just because you don’t meet a safe harbor doesn’t mean that you’re necessarily violating the anti-kickback statute. It just means they can look closer at the conduct. We advise clients to be in a safe harbor if they can.”

Julia Reiland, a partner with Lathrop GPM in Minneapolis, said a decent percentage of her practice is taken up with matters involving ASCs. She said that two main federal laws apply when there are compensation arrangements: the anti-kickback statute, and the other is the Stark Law, which prohibits physicians from referring Medicare and Medicaid patients to certain designated health services from entities that have a financial relationship with the physician.

“The Stark Law doesn’t apply to ASCs, so that creates more flexibility when it comes to compensation arrangements,” she said. “The Stark Law creates a lot of exposure, so when you can take that out of the equation, you have more room to operate as an ASC owner.”

The process of setting up an ASC can bring its own compliance challenges, according to Holt. To enroll as an ASC with Minnesota Health Care Programs, the facility must first get Medicare certification as a free-standing ASC from the state Department of Health (MDH). The business must also be registered with the Minnesota Secretary of State and a license obtained from the health department.

Also, any facility plans must be submitted to MDH for review, followed by an inspection by that department and the State Fire Marshal to ensure compliance with safety and structural standards. That step is optional for existing facilities, but mandatory for newly constructed or renovated centers.

“If I were a primary care clinic, unless I was doing more complex procedures, I would just have my professional license with the medical board,” said Holt. “Once that entity is set up, I’m pretty much good to go. With ASCs, you generally have to register with MDH as an outpatient surgery center. Also, if they’re going to get paid with public dollars, they have to be certified for that.”

“Much of the corporate work is routine,” said Reiland. “You can set up as a limited liability company, you have an operating agreement, and so on. But a lot of surgery centers are joint ventures between independent physicians and health systems, so that makes the corporate structure a little more complicated.”

Another restriction is that ASCs are not permitted to share space with a hospital or a critical-access hospital outpatient surgery department, or with a Medicare-participating diagnostic testing facility.

The main sticking point in owning an ASC, though, is in the making sure that it’s being used for its intended purpose.

“You can’t be a passive owner,” said Topp. “You can’t own an interest in an ASC and not use it for your patients. The whole idea is that you’re providing a service to the patients whom you’re doing work on.”