ASC Regulations Owners Currently Face

governmentHealthcare is an extremely regulated industry and is also one that is ever-growing and changing with the times.  The Ambulatory M&A Advisor discusses some of the top legal issues that Ambulatory Surgery Centers currently face, both operational and transaction-related.

Harry Nelson, Managing Partner with the law firm Nelson Hardiman says that the most common legal challenges his business sees in ASCs are related to billing and coding appropriately.  According to Nelson, more payors are aggressively scrutinizing waivers and discounts of patient financial responsibility (deductibles and co-insurance) or offering lower “cash” prices to patients while billing higher charges to health plans.

Other legal issues that seem to come up frequently are violations of DEA regulations, including a rise in the problem of employees developing opioid dependency and taking advantage of lower levels of oversight of controlled substance ordering and maintenance in ASCs, Nelson says.

“Kickbacks to referring physicians are a perennial problem.  We see other fraud and abuse issues occasionally (such as billing more on “medically necessary” procedures, while discounting cosmetic procedures), clinical safety issues (insufficient pre-surg physicals, anesthesiology),” He says.

Charles Dailey, Vice President of ASD Management says that ASC operators/managers must focus on the legal challenges such as buy in pricing for new physicians, per click relationships, physician owned equipment and supplies.

“As far as new physician buy in pricing, price for shares must remain fair market value.  For per click relationships and physician owned equipment/supplies, there have traditionally been several different types arrangements between ASCs and third party providers (including physician owners) for equipment and/or supplies. The government has expressed negative opinions about such arrangements and parties should be quite cautious regarding these arrangements,” Dailey says.

Mark F. Weiss, attorney, The Mark F. Weiss Law Firm says that from his perspective, the biggest legal hurdles are all creatures of regulation.

“I’m talking about Certificate of Need requirements, moratoriums on new facilities, and simple prohibitions against facilities that are physician owned but not hospital-partnered. I certainly understand the hospital perspective on this, that those restrictions are necessary to protect hospitals — to keep them from closing,” Weiss says.

“But the fact of the matter is that ASCs are more efficient, generally safer for patients, and less expensive. They’re progress. And, competition is a good thing.  In essence, the hurdles are politicized manifestations of what in the real estate development world is referred to as NIMBY, not in my back yard, in which people object to a proposed, close-by project. The reality is a little harsher in ASC restrictive states. It’s more like screw you, I’ve got mine.

In some cases, the CON states, it’s a matter of approach, pressure and politics. It others, it’s a matter for lobbying and statewide industry group political pressure.”

Safe Harbor Risks

“One of the biggest risk issues we see is violations of the federal Anti-Kickback Statute (AKS) and also state anti-kickback laws with incentives like excessive “medical director” fees or other incentives that basically amount to sharing facility fee revenues with non-ASC owners.  Much of the AKS focus has been on hospitals and post-acute providers, rather than surgery centers, but we are seeing that better data analytics are enabling more government scrutiny and more enforcement when referral patterns point to illegal relationships. ASCs offer a great legal opportunity when physicians meet the safe harbor requirements and become legitimate owners, but many ASCs take “shortcuts” that get into dangerous legal territory,” Nelson says.

To address safe harbor legal issues such as non compliant physicians and indirect referrals, Dailey says both models support qualitative elements.

“Regarding non compliance physicians, policy should support that the physician derives at least 1/3 of his or her annual medical practice income (from all sources) from performing surgical procedures on the list of Medicare ASC-eligible procedures. In the case of a multi-specialty center, the physician performs at least a third of the ASC-eligible procedures at the applicable center,” Dailey says.

“Reviewing indirect referrals, the government continues to express concern with indirect referral sources. With that said, the government is very cautiously but intelligently handling cross-referral relationships.”

In the ASC context, Weiss almost always considers the term “safe harbors” as referring to the protected zones of compliance under the federal Anti-Kickback Statute. But, as an important side note, although ASC services are outside of scope of the other press-popular, major healthcare referral regulation scheme, Stark, which also has safe harbors, mandatory safe harbors, Weiss says some ASC operators make the mistake of wandering into Stark territory by expanding the scope of the business to include items outside of outpatient surgery, for example, diagnostic radiology. That then becomes a very significant issue.

“But in terms of what I see as tremendously problematic, the most prevalent AKS safe harbor issues relate to the situation of how a facility reacts when a physician investor no longer meets the so-called “one-third” tests that appear in the Single Specialty ASC safe harbor, the multi-specialty ASC safe harbor, and the Surgeon-Owned ASC safe harbor,” Weiss says.

“The AKS is an intent-based criminal statute. In very general terms, it prohibits remuneration in return for referrals. But compliance with the safe harbors is not mandatory – it’s generally a good idea, but the real bottom line is that it’s not required by any stretch of the imagination.

Many ASCs start out in compliance with one of the one-third test dependent safe harbors. Others never start out in compliance with a safe harbor; for example, they have primary care or anesthesiologist investors. But, and here’s the important fact, they are in compliance with the AKS itself, there’s no remuneration of any sort in respect of referrals.”

Weiss says the problem is that a few years out, one of the surgeon investors slows down referrals to the ASC.

“The ASC wants him out. Let’s be frank here, the ASC manager and the board aren’t usually thinking compliance, they’re thinking competition: those cases are going somewhere else. So, they tell the surgeon that if he doesn’t refer more cases fast, he’ll no longer meet the one-third test and they’ll force him out. Sometimes they’ll even apply a provision in their ownership agreement forcing a buyout at a discounted price,” he says.

“The problem is that forcing the surgeon out because he wasn’t bringing enough cases to the ASC can itself constitute an actual violation of the AKS itself, forget about a safe harbor. That’s because what they are doing is tying the surgeon’s continued right to ownership to his continued, increased referrals.

There are ways of dealing with this situation that require careful planning and consistent action tied to actual compliance concerns, not the value of referrals. There’s both “art” and “science,” so to speak, involved. That fact is often lost in practice, and that’s a huge mistake, a criminal mistake.”

Reimbursement Regulations

Earlier in the discussion, Nelson talked about the huge issue around inappropriate waivers or discounts of patient financial responsibility (copayment, coinsurance, deductibles).  According to Nelson, payors have become very aggressive in going after ASCs for inconsistent practices or excessive discounting, which they allege to be fraudulent on multiple grounds.

“There have been some big cases, like the Bay Area Surgical decision last year. Another big reimbursement challenge is the new strategies payors are using to limit the use of out-of-netwrok billing, including shifting to “exclusive provider organizations” (EPOs) and trying to bar the use of out-of-network facilities.  California’s adoption of AB 72 in 2016 created a challenge where doctors are prevented from out-of-network billing in a much wider array of cases,” Nelson says.

“ Other emerging issues are a growing use of utilization management and other more aggressive cost-management strategies by payors and a more competitive environment as Medicare reform drives towards site-neutral pricing (between HOPDs and ASCs) that push hospitals to increase volume.  We see greater pricing pressure ahead for ASCs as a result.”

Dailey says that when discussing the main legal reimbursement issue that ASCs face, anti-kickback issues are at the top of the list.

“ASCs that bill and collect from Medicare, Medicaid or other government programs are subject to the federal Anti-Kickback Statue, which prohibits the knowing and willful offer, payment, solicitation or receipt of any sort of remuneration in exchange for the referral of any service potentially reimbursable under such healthcare programs. Over the last few years, the federal government has allocated huge increases in funds for health care fraud enforcement. This enforcement focuses on billing and collections. Further, there has been a huge increase in false claims cases,” Dailey says.

Weiss says that it is a fact that many carriers seem to have “problems,” whether actual or feigned, inputting the terms of the actual provider agreement into their claims processing and payment systems.

The results are practical, not legal, although there are, for course, issues of breach of contract.

“What we see are payments not at all in line with the contractual requirements, co-pay and other patient responsibility being misstated during the pre-authorization process and so on,” Weiss says.

“The cure here is constant monitoring by the ASC and an immediate, forceful administrative follow up with the payor, not just in respect of the subject claim, but in respect of the payor’s coding of the contract terms into their claims and payment system. Of course, the issue can escalate to require legal assistance, one hopes simply at the stage of pushing the payor into compliance with the terms of their own agreement with the ASC.”

If you would like to learn more about the concepts covered in this article, want to sell your business or discuss how Ambulatory Alliances, LLC might be able to help you out, contact Blayne Rush, (469)-385-7792, or

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