A recent advisory opinion (No. 07-05) issued by the Office of Inspector General of the Department of Health and Human Services (OIG) questions the legality of the sale of a minority ownership interest in an ambulatory surgery center (ASC) to a hospital by a portion of the physician owners of the ASC, even at fair market value. Without making a determination of the intent of the parties involved, the OIG indicated that the transaction could violate the federal anti-kickback statute, which makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce or reward referrals of items or services reimbursable by a federal health care program.
The proposed transaction involved a non-profit hospital's purchase of a 40% interest in a physician-owned ASC from three orthopedic surgeons who founded the ASC and collectively held approximately 94% of the ASC's ownership interest. Two gastroenterologists and two anesthesiologists owned the remaining 6% interest.
In ruling that the transaction created "a heightened risk of fraud and abuse," the OIG declared that the transaction did not meet any of the safe harbors to the anti-kickback statute and highlighted the following three major concerns:
- First, the OIG found it problematic that the hospital planned to pay the selling physicians rather than invest the funds directly in the ASC entity. The OIG specifically called attention to the fact that this transaction would result in the realization of a gain on their investment by the selling physicians.
- Second, the fact that only the orthopedic surgeons and not any other physician investors were selling part of their ownership interests suggested to the OIG "the possibility that one purpose of the Hospital's investment is to reward or influence a subset" of physician investors who referred patients to the hospital or the ASC. Also, the OIG's recitation of the facts indicates that the failure to offer the interests to any prospective buyers other than the hospital was significant.
- Finally, the OIG concluded that "the return on investment would not be directly proportional to the amount of capital invested by each investor" even though the proposed arrangement included a return on investment in proportion to ownership percentage.
Surprisingly, the OIG reached this conclusion notwithstanding the fact that (1) the hospital proposed to purchase the interests at fair market value and (2) the hospital had agreed to comply with certain safeguards previously approved by the OIG as a means to limit a hospital's ability to make or influence prohibited referrals. See OIG Advisory Opinion No. 01-21.
Perhaps the hospital's payment of an appreciated, although fair market value, price directly to a subset of physician owners appeared to the OIG so suggestive of improper intent that the OIG felt compelled to conclude that the transaction involved payment for referrals.
Fortunately for the healthcare community, OIG opinions do not have the force of law. Unfortunately, this opinion creates more questions than it answers. For example, buyers and sellers in the healthcare sector are left without clear guidance on questions such as: When should original purchase price trump fair market value pricing -- only when the purchasers are hospitals and the sellers are physicians? When must profit distributions be based on capital invested instead of ownership share purchased for a fair market value price? Does the OIG expect physician investors never to realize a profit on their investment?
If nothing else, the opinion highlights the need for joint venture parties to be exceptionally diligent in their consideration of anti-kickback risks.
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