Articles

Ambulatory Surgery Center Trends in Regulation, Compliance, and Enforcement

Date: February 19, 2025
Ambulatory Surgery Centers (ASCs) are experiencing significant shifts in regulation, reimbursement, and operational practices. These changes are driven by evolving healthcare policies, technological advancements, and the increasing preference for outpatient procedures. This article explores the current trends in ASCs, focusing on regulatory changes, reimbursement shifts, and revenue-sharing models. Additionally, it addresses compliance and legal concerns, specifically anti-kickback issues, and provides practical tips for maintaining compliance.
 
Regulatory Changes and Certificate of Need (CON) Reforms

In recent years, substantial changes in CON laws have been seen across several states, impacting the development and expansion of ASCs. As examples:
  1. North Carolina will eliminate the CON requirement for ASCs in counties with populations exceeding 125,000 by November 2025.
  2. South Carolina has repealed its CON laws for ASCs, although licensure requirements remain. 
  3. Tennessee will lift its CON requirement for ASCs by December 2027. Following the repeal of CON restrictions, ASCs that are not affiliated with hospitals will be required to participate in TennCare, the state's Medicaid program, and provide a comparable amount of care to TennCare enrollees and charity care as similarly situated hospital-based ASCs. Additionally, the Tennessee Health Facilities Commission is tasked with creating a plan to study the impact of CON reform and facilities licensure in the healthcare industry for at least six years, the results of which will likely influence future regulations in the state.  
  4. Georgia has introduced exemptions for single-specialty ASCs owned by individual physicians or practices, provided they meet specific criteria.
These significant changes aim to reduce barriers for new ASCs to enter more populous areas, potentially leading to increased investments and expansions in the ASC sector within the states. However, ASCs will continue to navigate a complex web of federal and state regulations, including licensure requirements, charity care obligations, and compliance with the Anti-Kickback Statute (AKS). While regulatory changes are reshaping the operational landscape for ASCs, shifts in reimbursement models are also playing a pivotal role in their financial viability.
 
Reimbursement Shifts and Recent Advisory Opinion from OIG on Revenue-Sharing Models and Its Impact on ASCs

Reimbursement models for ASCs are also evolving, with a growing emphasis on value-based care, which links reimbursement to patient outcomes. An advisory opinion dated October 13, 2023 (Advisory Opinion 23-07), from the U.S. Department of Health and Human Services Office of Inspector General (OIG), introduced potential changes to revenue-sharing models that were once seen as prohibited.
 
The federal Anti-Kickback Statute (AKS) prohibits the exchange (or offer to exchange) of anything of value, remuneration, inducement, or reward for the referral of federal healthcare program business. 42 USC § 1320a-7b(b); 42 C.F.R. § 1001.952. This includes Medicare, Medicaid, and other federally funded healthcare programs. Additionally, the False Claims Act (FCA) imposes liability on individuals and companies that defraud governmental programs by submitting false claims. 31 USC § 3729-3733. Kickback schemes include the submission of claims that are tainted by illegal remuneration, thus violating the FCA. Many settlements and cases involve AKS and FCA violations.
 
Employment relationships can potentially violate the Anti-Kickback Statute if they involve improper financial incentives for referrals of federal healthcare program business. However, there are safe harbors and exceptions that can protect certain arrangements as a “bona fide employee” (42 CFR § 1001.952(i)) from being considered violations, if the following requirements are met:
  1. “Bona fide employment relationship": There is a genuine employment contract with standard features like set hours, supervision, and benefits. The employer must have the right to control and supervise the employee's work activities in some way. 
  2. Written Agreement: A clear written employment contract outlining the terms of employment and responsibilities. 
  3. Fair Market Value: The compensation paid to the employee must be consistent with fair market value for similar positions in the area and not based on the volume or value of referrals.
  4. Legitimate Business Purpose: The relationship must serve a need other than to generate referrals and/or reward referrals.
Background and Proposal

Advisory Opinion 23-07 was requested by a multi-specialty physician practice that owns and operates ASCs as an operating division. The practice proposed to distribute a quarterly bonus to its employed physicians, calculated as 30% of the net profits from ASC facility fee collections attributable to the procedures performed by those physicians at the ASCs. The physicians in question did not have an ownership interest in the ASCs.
 
Employment Exception to the AKS

The OIG indicated the arrangement implicated AKS; however, the OIG approved the proposed arrangement under the AKS employment safe harbor. OIG's approval was contingent on the following conditions:
 
  • The requesting entity meets the bona fide employee safe harbor, meaning the physicians receiving the bonuses must meet the definition of an employee under 26 USC § 3121(d)(2) of the Internal Revenue Code, which states: "The term 'employee' means any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee."
  • The bonus compensation constituted an amount paid by an employer to an employee for employment in the furnishing of any item or service reimbursable under federal healthcare programs. Had the physicians been investors in the arrangement, the proposal would not have met the employee safe harbor.
 
Potential for New Revenue-Sharing Models

Advisory Opinion 23-07 provides an avenue for ASCs to explore new revenue-sharing models that include profit distributions to employed physicians who do not hold ownership interests. This could be particularly beneficial for practices looking to incentivize younger physicians, who may lack the financial resources to buy into an ASC initially but want to engage and buy in later on. This can help ASCs with succession planning.
 
By allowing profit distributions to employed physicians, ASCs can offer significant financial incentives to their staff, potentially increasing engagement and motivation. This model can help align the interests of physicians with the financial performance of the ASC, fostering a sense of ownership and commitment without requiring an actual investment.
 
Enforcement on Revenue-Sharing

Given the new reimbursement models and revenue-sharing opportunities, compliance with federal regulations, particularly AKS, becomes paramount. The recent Advisory Opinion, while specific to the requestor, provides valuable insights into the OIG's enforcement priorities and risk tolerance. OIG noted that when evaluating revenue-sharing arrangements, it specifically looks for the presence of the following risk areas:
 
  • Influencing Patient Choice: Ensuring that financial incentives do not unduly influence physicians' clinical decision-making or patient referrals.
  • Steering Patients: Avoiding arrangements that could lead to the steering of patients to specific facilities or services, based on financial considerations, rather than medical necessity.
  • Generating Unnecessary Claims: Preventing the creation of incentives that could result in unnecessary procedures or claims to Medicare and other federal healthcare programs.
 
When using the employee safe harbor, OIG will scrutinize the relationship between the employer and employee for control, supervision, and training of the supposed employee by looking at the following factors:
  1. The hiring party’s control over the manner and means of the work;
  2. Required skills;
  3. Who provides instrumentalities and tools;
  4. Work location;
  5. Length of the party’s relationship;
  6. Hired parties allowed discretion over their work for place and time;
  7. Payment methodology;
  8. Ability of the hired party’s choice of assistants;
  9. How integral the work of the hired party is to the business;
  10. Whether there are employee benefits; and
  11. Tax treatment of the hired party. 
This list is not all-inclusive and no one factor determines the relationship. Each situation is analyzed in the totality of the circumstances to determine if the substance of the relationship is that of an employer-employee under 26 U.S.C. § 3121(d)(2).
 
Shifts in Procedures Towards Ambulatory Surgery Centers

Another shift driving investments in ASCs is the push for more procedures to be performed in ambulatory surgery centers. ASCs are increasingly becoming the preferred setting for various surgical procedures by patients, including total joint replacements, spine surgeries, pain management interventions, and certain cardiac procedures. This shift is driven by advancements in minimally invasive techniques, improved anesthesia protocols, and the desire to reduce healthcare costs. ASCs offer several advantages, such as shorter recovery times, lower infection rates, and greater convenience and satisfaction for patients. The pandemic also accelerated the adoption of outpatient care models as hospitals were challenged with capacity management and infection control, making ASCs more of an integral part of the healthcare system. ASCs often specialize in specific procedures or diagnostic services, leading to high-quality, tailored care from skilled professionals. Continued changes in reimbursement policies, as CMS continues to examine and allow for more procedures to be performed in ASCs, will also be a determinative factor in the continued growth of ASCs.
 
ASC Safe Harbor and Investors

Despite the benefits and growth opportunities, ASCs face significant compliance and legal challenges, particularly with AKS. Violations of the AKS can result in severe penalties, including fines, exclusion from federal healthcare programs, and criminal charges.
 
The AKS has a safe harbor specific for ASCs which requires, among other things, that patients referred to the ASC by an investor are fully informed of the investor’s interest, and that the ASC meet the standards of one of the following four categories: surgeon-owned ASCs, single-specialty ASCs, multi-specialty ASCs, and hospital/physician ASCs. While each of these ASC categories has its own requirements, the requirements are very similar and there are several common elements among the four types, which include the following:
  1. The terms of the investment interest offered 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 ASC.
  2. The ASC 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.
  3. The amount of payment to an investor in return for the investment must be directly proportional to the amount of the investor’s capital interest.
  4. All ancillary services for federal health care program beneficiaries performed at the ASC must be directly and integrally related to the primary procedures performed at the ASC, and none may be separately billed to Medicare or other federal health care programs.
  5. The ASC and any hospital, surgeon, or physician investor must treat patients receiving medical benefits or assistance under any federal health care program in a non-discriminatory manner.
Additional Tests for ASC Safe Harbor

The ASC safe harbor requires physician-investors to derive at least one-third of their medical practice income from ASC-covered procedures. This is known as the "one-third income test”. Failure to meet this test can pose significant risks under the AKS. HHS-OIG’s primary concern and reason for this test is to prevent physician-investors from potentially using the ASC to profit from passive referrals and earning a portion of the facility fee by referring patients to other physicians who perform the procedures, specifically if the physician-investor does not personally perform procedures at the ASC.
 
For single-specialty ASCs, OIG takes the position that the one-third income test does not require physician-investors to use the ASC, as it feels the shared specialty among investors mitigates the risk of passive referrals. However, for multi-specialty ASCs, OIG believes that this setup is highly vulnerable to enticing cross-specialty referrals. Therefore, physician-investors must also satisfy a "one-third procedures test," which requires each investor to perform at least one-third of his or her ASC procedures at the ASC in which they own.
 
Assessing Risk When the One-Third Test Are Not Met

Although the one-third income test is well established, many ASC investor arrangements fail the test as safe harbors are not mandatory. However, failing to qualify for one does potentially increase AKS’s liability significantly. In 2023, the OIG provided additional guidance on the ASC safe harbor on its frequently asked questions page, which highlighted that the OIG assesses the risk based on the totality of the facts and circumstances, and specifically called out the following:
  1. Whether the physician will refer patients to the ASC for procedures performed by others.
  2. Whether the physician will perform their own procedures in the ASC.
  3. The reasons why the physician fails the one-third income test (e.g., performing a high volume of inpatient procedures).
AKS Issues with Anesthesia Contracting

Anesthesia contracting has been a tough issue for all healthcare facilities, as the shortage in the anesthesia workforce continues with no meaningful relief in sight. To secure reliable and quality anesthesia providers, ASCs are engaging in new arrangements and negotiations. However, the cases below should serve as a warning of the importance of analyzing arrangements for compliance with AKS and OIG guidance, as well as documenting and practicing the elements of any intended safe harbor.
 
Anesthesia Company Model

Note that the company model has largely been determined by OIG to violate AKS. This model involves surgeon-owners of an ambulatory surgery center (ASC) forming an anesthesia services company to provide all of the anesthesia services for the center with the anesthesiologists and CRNAs being employed or subcontracted by the company. A significant share of the anesthesia fee will be retained by the anesthesia company surgeon owners. Alternatively, the ASC itself directly employs the anesthesia providers or controls the company that employs the anesthesia provider and treats the anesthesia fee the same- retaining a portion for the surgeon investor.
 
OIG Joint Venture Guidance

With several advisory opinions and guidance documents, OIG analyzes company model arrangements to see if the surgeon or ASC is in a position to receive indirectly what they cannot legally receive directly, which is taking a portion of the anesthesia payment in exchange for referrals. Analyzing the standard company model set-ups under OIG’s Special Fraud Alert on Joint Venture Arrangements(1989, republished 1994), and the Special Advisory Bulletin in 2003 on Contractual Joint Ventures, several elements are flagged as problematic and possible AKS implications:
  1. The surgeon expands their services into the anesthesia space that is reliant on direct or indirect referrals from the owner’s existing business, like the surgeon’s practice or from an ASC.
  2. The surgeon neither operates the anesthesia business nor do they commit funds or resources to the newly created anesthesia company.
  3. Without the arrangement, the anesthesiologist would be competing with the surgeon’s anesthesia company, providing services, billing, and collecting independently.
  4. The amount the surgeon receives in the company model varies based on the surgeon’s referrals to the surgeon’s anesthesia company.
Note “joint venture,” is not limited to the creation of a new legal entity. OIG uses the term to cover any arrangement, both contractual in nature or creating a new legal entity, that occurs between parties in a position to refer business to each other for services reimbursable for federally funded healthcare programs. Based on the above analysis of joint ventures alone, the company model is problematic; however, OIG went further later on with Advisory Opinion 12-06, stating that no safe harbor was available with respect to the distributions that the surgeons would receive from their anesthesia company as the ASC investment safe harbor does not protect distributions of the new anesthesia company profits.
 
If the surgeon tried to claim protection under the bona fide employee or personal services safe harbor, OIG indicated only payments to the anesthesiologist would be protected. The safe harbor would not apply to the company model profits distributed to the surgeon. It is a common misunderstanding to think these safe harbors cover both payments. Remember, these safe harbors apply only to payments from the group or ASC to the individual anesthesia provider.
 
Another real example of a problematic ASC anesthesia solution occurred in an April 2022 settlement where an anesthesia management company, Care Plus Management, LLC (CPM), along with its two principal owners and 18 affiliated entities, entered into a $7.2 million settlement with the U.S. Attorney’s Office for the Northern District of Georgia and the states of Georgia, Texas, and Florida to resolve allegations of violations of the AKS and the FCA. The government and the whistleblower took particular issue with the ownership and management structure of CPM and its affiliated entities. They alleged that CPM created "sham joint ventures" with the referring physicians and their ASCs. These joint ventures were structured to provide referring physicians with partial ownership in the anesthesia service entities created by CPM. However, CPM retained complete control over the operations, management, staffing, and billing of these joint ventures. The arrangement was designed to remunerate the referring physicians through a share of the revenue generated from the anesthesia services provided to their own ASCs. This structure was seen as a means to disguise kickbacks and circumvent the AKS.
 
Expense Shifting-Arrangements

Another set of allegations involved CPM providing subsidies for drugs, supplies, and equipment to the ASCs. These subsidies were viewed as a vehicle for disguising kickbacks to the referring physicians. The whistleblower's complaint detailed that CPM paid sham "storage fees" to various ASCs for anesthesia drugs and supplies, even though these costs were the ASCs' obligations and were part of the facility fees paid by Medicare. Additionally, CPM was accused of paying for all drugs and supplies for each fee-for-service client, which was seen as a method to lock up referrals and pay a kickback for the same.
 
In another notable 2021 case settlement, Ambulatory Anesthesia of Atlanta, LLC (AAA), Northside Anesthesiologist Consultants, LLC, and several Georgia outpatient surgery centers paid over $28 million to resolve allegations of entering into kickback arrangements. The government alleged that AAA provided free staffing, drugs, supplies, and equipment to ASCs in exchange for exclusive anesthesia service contracts, violating the AKS and FCA. (United States ex rel. Capitol Anesthesiology, P.C., et al. v. Stanford Plavin, M.D., et al., No. 1:11-cv-2513-SCJ).
 
Tips and Mitigation Strategies for ASCs

By adhering to these strategies and ensuring compliance with the OIG's conditions, ASCs can navigate the complex regulatory environment while minimizing legal risks and fostering a culture of ethical practice.
  1. Maintain Transparency: Disclose any financial interests to patients and ensure that investment opportunities are not tied to the volume or value of referrals.
  2. Separate Billing Practices: Ensure that each party bills patients and payers separately for their services to avoid improper revenue exchanges.
  3. Scrutinize Billing Practices: Regularly review billing practices to ensure that claims submitted to federal healthcare programs are accurate and supported by medical necessity.
  4. Avoid Concurrent Ownership: Scrutinize any arrangements involving concurrent ownership between contracted providers and referral sources to prevent potential kickback schemes. Ensure that any ownership interests are structured in compliance with AKS safe harbors. If they do not readily appear to meet a safe harbor, seek advice from counsel to review the arrangement for AKS and FCA risk.
  5. Control and Risk Management: Be cautious of scenarios where a contracted provider outsources significant control or financial risk, as this could indicate inappropriate incentives. Ensure that the provider performing and billing for services assumes the appropriate level of risk and responsibility.
  6. Ensure Due Diligence: Perform comprehensive due diligence on contracted providers and their contractual arrangements to identify and mitigate compliance risks. This includes evaluating the structure of any joint ventures or partnerships to ensure they comply with federal regulations and OIG guidance for joint ventures and ownerships.
  7. Track Flow of Funds: Monitor the flow of money between ASCs and other contracted providers. Any exchange of revenue, such as subsidies or storage fees, should be carefully examined to ensure it does not constitute a kickback.
  8. Analyze Employed Relationship Characteristics: Review relationships where profits will be distributed to contracted practitioners to ensure the employee meets the bona fide employee criteria.
  9. Analyze Joint Ventures and Ownership For Required Tests: Analyze each ownership interest against the one-third income test for single specialty ASCs and additionally against the one-third procedure test for multiple specialty ASCs. If the ownership fails the required test, seek the advice of counsel for a review of the matter.
If an AKS safe harbor is not met, the arrangement or act is not an automatic violation of AKS as it is an intent-based statute as opposed to strict liability, like Stark. Setting up ASC arrangements to squarely fit in a safe harbor can be challenging as a lot of insight into the safe harbors is derived from OIG opinions, which can only be relied upon by the requestor of the opinion and rarely have fact patterns that are compatible with what another provider is trying to arrange.
 
Considering these complexities alongside the trending hype of ASC marketing, seeking counsel to discuss potential risks and various options for current and future ASC opportunities, is always advisable to avoid delays, potential financial penalties, and/or criminal charges. If you require assistance or guidance or have any questions, please reach out to Rachel Carey at rcarey@whitefordlaw.com.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.