Written by Jack Hawkins, Ryan Mendez, and Colin Park, CPA/ABV, ASA
The following article was published by Becker’s ASC Review
2022 saw a continuation of 2021 trends as the healthcare industry further rebounded from the coronavirus (COVID-19) pandemic. The Ambulatory Surgery Center (ASC) subindustry largely recovered in 2021, but certain specialties that lagged in 2021 saw a further recovery in 2022. The ASC industry continued to consolidate throughout 2022 despite not having the major platform-level transactions that were observed in 2021. There were trends that started pre-pandemic that continued to be observed in 2022 such as the shift of higher-acuity procedures from the inpatient setting to the outpatient setting, consolidation of ASCs by management companies, and a push by hospitals to grow their ambulatory footprint with a particular focus on the outpatient setting.
Along with these recurring trends, the subindustry was impacted by macroeconomic trends related to upward pressure on labor, supply, and general costs resulting from a tight labor market and elevated inflationary pressures. The continued trend of increased Medicare reimbursement rates saw its largest escalation ever as a direct result of these pressures.
In March 2020, the world was impacted by the spread of the COVID-19 pandemic, and subsequently, 2021 was a year of rebuilding and recovering from the lasting effects brought on by the pandemic. ASCs in 2021 had an increase in case volumes across almost all specialties. This was primarily due to patients who were willing to resume elective procedures that were postponed and centers that kept their doors open.
In 2022, ASCs saw case volume return to pre-pandemic levels or experienced continued growth if they had not already experienced a return to normal operations. Specialties that were hit especially hard by COVID-19, such as ENT, returned to pre-COVID levels in 2022 as schools and school activities returned to pre-pandemic normalcy. In 2022, the impact of the pandemic on ASCs was less related to revenue and more related to expenses. The lingering effects of COVID-19 were related to the shortage of healthcare workers and the supply chain issues that continued to pressure the profitability of surgery centers. Looking into 2023, controlling labor and supply costs will be a point of focus for ASCs.
The trend of higher-acuity procedures shifting from an inpatient or HOPD setting to a freestanding ASC setting continued throughout 2022. In 2022, specialties that increased their footprint in ASCs included cardiology, orthopedics, and higher-acuity spine procedures. According to data from the ASC Association, orthopedics was the most common specialty serviced by ASCs in 2022.
Director of ASC Operations at Virtua Health Catherine Retzbach said ASCs that perform these high acuity cases “offer patients more options to have procedures be performed in a high-quality, low-cost environment.” Furthermore, according to the most recent Ambulatory Surgery Center report published by Research and Markets, ASCs are projected to perform half of all cardiology procedures by the mid to late 2020s.
The ASC subindustry continues to focus on higher-acuity specialties when considering both organic growth and M&A opportunities. President of Tenet Saum Sutaria noted the continued focus of the ASC business toward higher-acuity service lines in the company’s Q3 2022 earnings call. Tenet is the parent company of USPI and is the largest outpatient surgery center operator in the United States. The company reported that these procedures made up 20% of USPI’s year-to-date volume due to growth in their orthopedic and spine business. Sutaria further said “the [USPI] team is focused on organic growth, [and] increase in higher-acuity services and M&A.” These insights highlight the ASC subindustry’s focus on higher-acuity service lines, and indicate the shift towards ASCs for these types of procedures is likely to continue in the future.
In 2022, we saw the continued expansion of a prominent large-level ASC platform player highlighted by the finalization of a large platform-level transaction that began in 2020. In addition, there were a significant number of transactions at the individual-facility level. Consistent with the observed larger platform-level transaction, the fragmented ASC industry has continued to consolidate. It is worth noting that although the industry continues to consolidate approximately 70% of ASC facilities remain independent as of 2022. This leaves room for further consolidation at the individual-facility level.
In 2020, Tenet Health finalized a deal for $1.1 billion to acquire 45 ASCs from SurgCenter Development. This was the first stage of a multi-part acquisition, and in Q4 of 2021, USPI entered a $1.2 billion deal to acquire SurgCenter Development’s remaining centers and established a long-term development deal. The transaction included acquiring ownership interest in an additional 92 ambulatory surgery centers, other support services in 21 states, and providing continuity for future de novo development projects. In 2022, USPI made substantial strides in consolidating the 92 ASCs it acquired from SurgCenter Development. This process is expected to continue into 2023 as the centers are further consolidated. The acquisition has enabled Tenet and USPI to expand their footprint and solidify their position as a leader in the ambulatory surgery center market.
“There’s anticipated additional synergies related to the SCD transactions that will continue to grow as we move through next year as well. And the other thing is the M&A activity that USPI will execute on. The pipeline is robust.”
-Dan Cancelmi, Chief Financial Officer
On June 21, 2022, USPI and United Urology Group formed a joint venture partnership in 22 ASCs. USPI acquired a portion of United Urology Group’s ownership interests in ASCs located in Maryland, Colorado, and Arizona. The ASCs will be owned and operated by the joint venture, and USPI will provide management and support services to the ASCs. The transaction closed in the third quarter. In February 2022 The Rise Fund, an impact investing strategy managed by TPG, announced the acquisition of Blue Cloud Pediatric Surgery Centers which is the largest operator of pediatric dental ASCs in the United States. TPG Rise is a large impact investing platform with more than $13 billion in assets across its various funds, including The Rise Funds, TPG Rise Climate, and the Evercare Health Fund.
On December 9, 2022, Michigan-based Sparrow Health System and Michigan Medicine, formerly the University of Michigan Health System, announced an $800 million partnership. Michigan Medicine will invest $800 million into the expansion of Sparrow’s ASC and neonatal care unit.
In April 2022, UnitedHealth Group’s Optum announced the purchase of Kelsey-Seybold, a Houston-based physician group for $2 billion. The acquisition expanded Optum’s presence in the primary care market. As part of this acquisition, Optum gained two ASCs that were owned by Kelsey-Seybold.
Finally, on May 3, 2022, Surgery Partners and ValueHealth announced a partnership that aims to construct new ASCs and implement ValueHealth’s value-based surgical programs at Surgery Partners’ existing and upcoming locations. Additionally, Surgery Partners will manage and take over ValueHealth’s stake in three current ASCs and four centers that are in the development phase.
As of December 31, 2022, the largest operators (in terms of the number of ASCs) are United Surgical Partners International (USPI), Envision Healthcare/Amsurg Corporation, and Surgical Care Affiliates (SCA), with ownership of approximately 440+, 260+, and 260+ ASCs, respectively.
As noted in the chart below, the number of total centers under partnership by a national operator, as a percentage of total Medicare-certified centers, saw an increase from 2021 to 2022 growing from approximately 1,752 centers to 1,804 centers. Additionally, the top five management companies have increased the number of centers under management by approximately 511 centers since 2011 which represents a compound annual growth rate of 5.37%. As management companies have increased in size they are able to increasingly provide a greater level of strategic value by bringing greater leverage with commercial payors, enhanced management and reporting capabilities, and improved efficiency related to staffing, supplies procurement, and other general and administrative expenses.
On November 2, 2021, the Medicare reimbursement fee schedule for ASCs in 2022 was finalized by the Centers for Medicare & Medicaid Services (CMS). Consistent with previous years for CYs 2019 through 2023, CMS will update the ASC payment system using the hospital market basket update instead of the Consumer Price Index for All Urban Consumers (CPI-U). CMS published the 2021 ASC payment final rule which resulted in overall expected growth in payments equal to 2.0% in CY 2022. This increase is determined based on a hospital market basket percentage increase of 2.7% less the multifactor productivity (MFP) reduction of 0.7% mandated by the ACA.
Moreover, the ASC payment final rule for CY 2023 was released by CMS on November 1, 2022, and resulted in overall expected growth in payments equal to 3.8% in CY 2023. This increase is determined based on a projected inflation rate of 4.1% less the MFP reduction of 0.3% mandated by the ACA. The 3.8% growth in payments represents the largest increase in projected payments year over year and is a direct result of the increase in labor, supplies, and other cost pressures seen over the last year. Although the industry recognizes the increase in payments as a win, many major players believe the increase was insufficient given the extraordinary cost pressures hospitals and ASCs are facing. The way ASCs navigate the dynamic macroeconomic environment currently in place will be a major point of interest over the coming years.
The table below reflects a summary of the estimated Medicare ASC payments for 2022 and 2023 for the top 10 CPT codes performed in ASCs in 2022. As noted below, the observed 2022 payments by Medicare for the top 10 CPT codes are projected to increase by 3.9% through the estimated 2023 payments.
CMS has implemented a new policy that will provide complexity adjustments for certain ASC procedures in CY 2023. These adjustments will be applied to combinations of primary procedures and add-on codes deemed eligible under the hospital outpatient prospective payment system (OPPS). In the past, add-on codes did not receive additional reimbursement when bundled with primary codes. However, with this new policy Medicare will provide adjustments to the payment rate for certain primary procedures to account for the additional cost of performing specific add-on services.
CMS considered 64 recommendations for new procedures to be added to the ASC CPL for CY 2023. After reviewing the clinical characteristics of these procedures, four were chosen to be added to the CPL for the upcoming year. These procedures are typically performed in outpatient settings and have little to no inpatient admissions. The four procedures are outlined in the table below. However, the addition of only four codes resulted in pushback and a continued desire for additional procedures to be added to the CPL that is being performed safely and successfully by ASCs.
“CMS’s decision to add only four new procedures to the ASC-CPL for 2023 after ASCA proposed 47 procedures that ASCs are performing safely and successfully for privately insured patients is a serious mistake and denies beneficiary access to high-value care. Forcing otherwise healthy Medicare beneficiaries to receive care in higher-cost settings for these procedures needlessly increases costs to the Medicare program and undercuts Medicare’s mission of serving as a responsible steward of public funds.”
– Bill Prentice, Chief Executive Officer, ASCA
Presented in the chart to the right is a summary of the historical net inflation adjustments for CY 2015 through CY 2023. The annual inflation adjustments are a presented net of additional adjustments, such as the MFP reduction, outlined in the final rule for the respective CY. The CY 2023 inflation adjustment is nearly double the increase we have observed in each of the last eight years and is largely driven by labor and supply cost pressures.
Overall, the final ruling to increase ASC payments by CMS and the increased recovery from COVID-19 both indicate an expected increase in total ASC payments. Ultimately, CMS has projected total ASC payments in 2023 to increase by approximately $230 million from 2022 payments to approximately $5.3 billion.
In conclusion, 2022 was a year of growth throughout the ASC industry and a year of continued recovery from the effects of the pandemic. Key trends to look for going forward are the effects of increased cost pressures impacting the healthcare industry as a whole, and specifically how ASCs respond. Expectations for 2023 are continued growth and consolidation in this sub-industry. The ASC setting provides a convenient, cost-effective way for patients to receive high-quality care. The continued shift of higher-acuity procedures to the outpatient setting should give optimism to the success of the subindustry as a whole as long as cost pressures are mitigated properly. Overall, ASCs at the center level are expected to continue the positive momentum that persisted in 2022 and the subindustry is expected to see the level of transactions increase through 2023.
By: Madi Whyde, Savanna Ganyard, CFA, Jordan Tussy, and Madison Higgins
VMG Health reviewed the earnings calls of publicly traded healthcare operators that reported earnings for the third quarter that ended on September 30, 2022. By focusing on the major players in select subsectors defined below, we analyzed the frequency of certain keywords including inflation, COVID-19, interest rates, premium labor, and others. We used these keywords to identify which topics commanded the room this earnings season. Highlights from the calls are summarized in this article.
Volume: Although volume trends are unique to each industry sector nearly all operators remained focused on the impacts of COVID.
Poll: Did the earnings call mention COVID-19?
On a same-facility basis, admission volumes declined as much as 5.0% from the comparable prior year quarter (Q3 2021) for acute care hospital operators. Despite the weakening of COVID-19, the decline in volumes was attributed to higher-than-average cancellation rates (THC), the migration of certain procedures to outpatient status (CYH and HCA), and capacity constraints (HCA). Inpatient volumes generally remained at or below pre-pandemic levels.
Ambulatory surgery center (ASC) operators reaped the benefits of the migration to the outpatient setting and reported positive volume trends when compared to Q3 2021. Surgical volumes were reported as consistent with 2019 pre-pandemic levels (THC), and one operator claimed the business did not experience any material direct impact related to COVID-19 during Q3 2022 (SGRY).
The post-acute sector reported mixed results in volume trends. One operator reported a year-over-year decline of 14.0% in hospice admissions, citing capacity constraints and reduced referrals from acute care hospitals (EHAB). However, another operator indicated that increases in admissions in the second half of the third quarter showed growth that they “haven’t experienced since the start of the pandemic” (CHE).
Volume trends among other industry players including dialysis providers, risk-bearing organizations, and physician services were also affected by COVID-19 in Q3 2022. Headwinds in dialysis volumes are expected to persist for the foreseeable future (DVA), and inpatient volumes for risk-bearing organizations remain below pre-pandemic levels (AGL). Notably, AGL also reported a rebound in physician office visits and outpatient volumes were in line with pre-pandemic levels.
Reimbursement: Declining COVID-19 volumes mean less incremental government revenue for certain industry players who also now contend with an uncertain inflationary environment.
Poll: Did the earnings call mention inflation?
Declining COVID-19 volumes resulted in lower acuity patients and reduced incremental government reimbursement. This softened the reimbursement per admission for the acute care hospital segment. Further exacerbated by inflation, these dynamics were evident in reported EBITDA margins which declined as much as 17.0% (CYH) over Q3 2021. In response, some acute care hospital operators are turning to commercial payor negotiations. Rate increases for the next year are anticipated to range from a minimum of 3.0% (THC) to upwards of 6.0% (CYH).
The post-acute sector did not release specific figures regarding contract rate hikes. However, the sector is optimistically looking for high single-digit rate increases (SEM) to provide relief in the current inflationary environment.
Labor: Unsurprisingly, management teams across the sector were faced with questions about labor trends and management techniques during their earnings calls. Contract labor remained pivotal for the operations of some, but premium labor appears to have softened during the quarter.
Poll: Did the earnings call mention premium or contract labor?
The reliance on contract labor continued its downward trend in Q3 helping moderate expenses. HCA even indicated overall labor costs were stable due to targeted market adjustments. However, contract labor and premium pay remain at uncomfortably high levels for most acute care hospital operators. UHS revealed during their call it will be unlikely to reach pre-pandemic levels in the near future.
Staffing challenges persisted among the post-acute operators and directly impacted volume by as much as 60.0% (AMED). Increased indirect labor costs including orientation, training, and sign-on bonuses were the leading drivers of decreased EBITDA (AMED). Wage inflation, particularly for nursing positions, is expected to rise as much as 5.0% next year (SEM). However, several management teams are optimistic wages will stabilize to historical levels (SEM, EHC) in the near future.
Other industry players, including dialysis and physical therapy providers, also faced challenges with contract labor during the quarter. USPH reported labor costs were approximately 200 basis points higher than Q3 2021 levels, and DVA indicated such costs showed no improvement.
Go Forward Expectations and Guidance: Considering the quarter’s performance, the companies we reviewed were divided relatively evenly in terms of revised FY 2022 revenue guidance, (i.e., raised, lowered, unchanged). In general, the quarter brought about a more pessimistic view of FY 2022 EBITDA, and the majority of public companies lowered their guidance for the year. Further, most stakeholders were left with no guidance for FY 2023.
Poll: Did the earnings call mention a recession?
FY 2022 revenue and EBITDA guidance among the acute care hospital operators was generally left unchanged except for THC which lowered EBITDA guidance. However, all companies that were reviewed declined to provide FY 2023 guidance during the call, and primarily cited economic uncertainty (HCA).
The post-acute sector appeared nearly unanimous in the outlook for the rest of 2022, and most operators lowered their revenue and EBITDA guidance. Unsurprisingly, no one offered FY 2023 guidance during the earnings calls.
Interestingly, risk-bearing organizations mostly raised their revenue guidance for FY 2022 (AGL, CMAX, PRVA). However, EBITDA guidance was less predictable and was lowered (AGL, TOI), raised (PRVA), and unchanged (CMAX).
Most other healthcare operators followed similar patterns in terms of providing guidance for FY 2023. Of the companies we reviewed, only DVA revealed an outlook for the next year. The company anticipates revenue to be flat (driven by unfavorable volume trends) and margins to continue to feel the impact of labor market pressures.
Written by Jack Hawkins and Ryan Mendez
The following article was published by Becker’s Hospital Review.
On November 1, 2022, the Centers for Medicare & Medicaid Services (CMS) released the CY 2023 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgery Center (ASC) payment system policy changes and payment rates final rule.
Based on the final ruling, CMS will continue to update the ASC payment system using the hospital market basket update rather than the Consumer Price Index for All Urban Consumers (CPI-U) for CYs 2019 through 2023.
As 2023 is slated to be the last year of the trial, CMS indicates in this final rule that the agency intends to “update the public on [its] assessment of service migration and other factors in the CY 2024 OPPS/ASC proposed rule.” The final rule resulted in overall expected growth in payments equal to 3.8% in CY 2023. This increase is determined based on a projected inflation rate of 4.1% less the multifactor productivity (MFP) reduction of 0.3% mandated by the ACA.
“While the AHA is pleased that CMS will provide hospitals and health systems with an improved update to outpatient payments next year compared to the agency’s proposal in July, the increase is still insufficient given the extraordinary cost pressures hospitals face from labor, supplies, equipment, drugs, and other expenses. As we urged, CMS will use more recent data in its calculations on the payment update, resulting in more accurate data that better reflects the historic inflation and tremendous financial pressures hospitals and health systems have confronted recently. However, hospitals are still dealing with a wide range of challenges in providing care which is why the AHA is urging Congress for additional support by the end of the year.”
Stacey Hughes, Executive Vice President, AHA
Presented in the chart below is a summary of the historical net inflation adjustments for CY 2015 through CY 2023. The annual inflation adjustments are presented net of additional adjustments, such as the MFP reduction, outlined in the final rule for the respective CY. The CY 2023 inflation adjustment is nearly double the increase we have observed in each of the last eight years and is largely driven by labor and supply cost pressures.
CMS is shaking things up for ASCs with the finalization of a new policy related to complexity adjustments for CY 2023. The policy will provide complexity adjustments for combinations of specific procedures and add-on procedure codes deemed eligible for the complexity adjustment under the hospital outpatient prospective payment system (OPPS). By themselves, add-on codes do not receive supplementary reimbursement when they are bundled with primary codes. However, the addition of add-on codes to a primary procedure code will often change the assigned complexity of a procedure and make it more costly in the process. As a result of the policy finalized by CMS, Medicare will provide complexity adjustments that affect the payment rate for certain primary procedures to make up for the additional cost of performing specific add-on services.
CMS received 64 recommendations for potential procedures to be added to the ASC CPL for CY 2023. Based on the review of clinical characteristics conducted by CMS, four out of the 64 procedures were added to the CPL for CY 2023. The four procedures are outlined in the table below. These codes correspond to procedures that have few to no inpatient admissions and are widely performed in outpatient settings.
“CMS’s decision to add only four new procedures to the ASC-CPL for 2023 after ASCA proposed 47 procedures that ASCs are performing safely and successfully for privately insured patients is a serious mistake and denies beneficiary access to high-value care. Forcing otherwise healthy Medicare beneficiaries to receive care in higher-cost settings for these procedures needlessly increases costs to the Medicare program and undercuts Medicare’s mission of serving as a responsible steward of public funds.”
-Bill Prentice, Chief Executive Officer, ASCA
CMS has projected total ASC payments in 2023 to increase from approximately $230 million in 2022, to approximately $5.3 billion. The source of the increase in payments is a combination of enrollment, case-mix, and utilization changes. In conclusion, we have continued to see the trend of rising labor and supply costs play out throughout 2022 and continue into the finalization of the CY 2023 payment system. CMS continues to show stability on the annual inflation adjustment utilizing the hospital market basket to update rates. With that said, ASCA Chief Executive Officer Bill Prentice and AHA Executive Vice President Stacey Hughes have pointed out how the costs of providing care continue to rise rapidly. CMS finalized the addition of four procedures to the ASC CPL for CY 2023. However, the addition of only four codes from the 47 proposed procedures resulted in further pushback and a continued desire for additional procedures to be added to the CPL that are being performed safely and successfully by ASCs.
Written by Taryn Nasr, ASA and Madeline Noble
The following article was published by Becker’s Hospital Review.
The demand for lithotripsy procedures is expected to increase in the coming years. This expected increase is supported by a review of the Global Lithotripsy Devices Market. It is forecasted to grow at a 5.5% CAGR and is expected to be valued at $2.03 billion by 2027. [1] While several factors have contributed to this rising demand, the primary drivers are the increasing incidence of kidney stones among the geriatric population and the advancements in lithotripsy technology. Healthcare systems and facilities must meet increasing patient demands for lithotripsy services.
The most common lithotripsy procedure is referred to as extracorporeal shock wave lithotripsy (ESWL). ESWL is a noninvasive procedure that uses high-intensity acoustic pulses, or shockwaves, generated by a lithotripter machine to break up kidney stones that are too large to pass through the urinary system. Another common lithotripsy procedure is ureteroscopy with laser lithotripsy which utilizes a ureteroscope and laser fibers to break up the kidney stones. ESWL is typically used for stones inside the kidneys while ureteroscopy is typically used for stones inside the ureter.
Lithotripsy procedures can be performed on an outpatient basis in a variety of formats such as fixed-site, transportable, and mobile. While there are many providers of lithotripsy services throughout North America, the two most recognized names in the mobile lithotripsy space are NextMed and United Medical Systems (UMS). In addition to these nationwide providers, there are smaller, physician-owned providers that service healthcare facilities on a geographic/regional basis.
One approach for facilities to meet the increasing demand for lithotripsy services is to enter into arrangements with lithotripsy providers through professional service agreements. Oftentimes, healthcare facilities find it to be financially prudent to purchase lithotripsy services on an as-needed basis rather than purchase equipment, employ dedicated staff, and fund other expenses associated with the service. In those instances, the hospital or ambulatory surgery center (ASC) will contract with a lithotripsy provider to assume responsibility for all costs related to the operation of the lithotripsy service. In return, the hospital or ASC will pay a predetermined fee to the provider for the services rendered.
The contracted fees are structured to compensate the lithotripsy providers for equipment, personnel, and other costs related to the lithotripsy service. The agreements are usually structured on a mutual, nonexclusive basis with key responsibilities delegated between the facility and the provider. Typically, the provider is responsible for transporting and maintaining the lithotripsy equipment, training and licensing the technician to assist with the procedure, and providing the supplies required to support the procedures.
The most common fee structure consists of a price per lithotripsy procedure. In addition, many agreements consider a maximum annual payment for lithotripsy services to determine the commercial reasonableness of the services agreement. In other words, it must be financially prudent for the facility to purchase lithotripsy services on an as-needed basis rather than purchasing the equipment,
employing the staff, and funding the other operating costs associated with the provision of the services. Other fees that may be included in a lithotripsy services agreement include cancellation fees, minimum on-site charge fees, and after-hours/holiday fees. Regardless of the fee structure of the agreement, the arrangement between the facility and the provider must be understood and followed by both parties for regulatory compliance.
For lithotripsy and similar equipment-based arrangements to maintain compliance, the compensation stated in a service agreement between a facility and a provider must be set at fair market value (FMV). To determine the FMV of service agreements, the environment surrounding healthcare must be considered. The bodies of law often considered include the federal Anti-Kickback Statute and the Physician Self-Referral Law (Stark Law). These statutes provide guidance in determining whether service agreements between facilities and providers, such as lithotripsy service agreements, are compliant and based on FMV.
The Stark Law prohibits physicians from ordering designated health services (DHS) for Medicare patients from entities with which the physician has a financial relationship. However, lithotripsy services are not considered DHS for purpose of the Stark Law. Therefore, lithotripsy services agreements are not governed by regulations regarding per-click leasing arrangements. It is important to note the lithotripsy services agreement must be structured to provide full-service lithotripsy services, and not just a lease of the lithotripsy equipment.
When completing an FMV analysis of lithotripsy services agreements, one must consider the rising cost of equipment and technology advances, staffing pressure causing rising labor costs, requests for quality assurance programs, and market-specific trends such as volume trends and service areas. As the demand for lithotripsy services continues to rise, it will become increasingly important for healthcare facilities to execute proper due diligence and ensure regulatory compliance. To avoid violations of the federal Anti-Kickback Statute and the Stark law, parties must document why an agreement for lithotripsy services is at fair market value.
Noteworthy for investors of ambulatory surgery centers (“ASCs”), the Office of Inspector General (“OIG”) released a favorable (low risk) Advisory Opinion (No. 21-02)1 on April 29th, 2021. The Advisory Opinion reviewed a proposed arrangement (“Arrangement”) in which a health system (“Health System”), manager (“Manager”) and five orthopedic surgeons and three neurosurgeons employed by the Health System (“Physician Investors”) would like to invest in a new ASC (“New ASC”). The offer or payment of investment returns from an ASC to an investor constitutes remuneration under the Federal anti-kickback statute. As a result, the Advisory Opinion analyzed if the Arrangement, if assumed, would constitute justification for the imposition of sanctions under the Federal anti-kickback statute.
According to the Advisory Opinion, “the Proposed Arrangement, if undertaken, would generate prohibited remuneration under the Federal anti-kickback statute if the requisite intent were present, the OIG would not impose administrative sanctions on Requestors in connection with the proposed Arrangement under sections 1128A(a)(7) or 1128(b)(7) of the Act, as those sections relate to the commission of acts described in the Federal anti-kickback statute.”
Under the Proposed Arrangement, both the Health System and its affiliated physicians, including Physician Investors, would be in a position to generate or influence referrals to various beneficiaries of Federal health care programs to the New ASC. In order to limit the ability of the aforementioned physicians to make or influence referrals, the Health System would disallow any action that required and/or encouraged any physician or medical staff members refer patients to the New ASC or to the Physician Investors. In addition, the Health System would refrain from tracking any referrals made to the new ASC by its affiliated physicians. Further, the compensation received by the affiliated physicians from the Health System would be consistent with Fair Market Value and would not be related in any way, to the volume or value of referrals that the Health System’s affiliated physicians make to the New ASC or its Physician Investors. Lastly, the Manager also attested that it would not make or influence referrals in any way to the Physician Investors or to the New ASC.
According to the Advisory Opinion, the Health System certified the following:
The Advisory Opinion acknowledged several ways that the Arrangement mitigated risk and keys questions that should be asked in similar situations which are listed below:
Although the Advisory Opinion is favorable, the OIG took the unique stance of relying heavily on the Health Systems’ certifications as previously discussed. In addition to the certifications, the OIG offered a multitude of factors that should be carefully considered for similar arrangements. The safeguards outlined in the opinion demonstrate regulatory guidance remains an important part of investing in health care. All interested parties should consider their referral relationships, as well as guidance provided by this opinion and applicable laws before finalizing a similar arrangement.
Endnotes
1 OIG Advisory Opinion 21-02 available at:
https://oig.hhs.gov/fraud/docs/advisoryopinions/2021/AdvOpn21-02.pdf
