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For years, the general rule was that ambulatory surgery centers (ASCs) couldn’t share their revenue or profits with physicians, unless those individuals had a stake in the surgery center.

But that relatively black-and-white rule may be turning a shade of gray.

An under-the-radar opinion from the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG) issued in October 2023 challenged this long-standing practice regarding profit distribution. While the opinion applies to a very specific case, it could reshape legal guidance and lead to further questions from ASC operators moving forward.

Indeed, the OIG advisory opinion introduced a potential change that could have far-reaching implications for ASC operators, William Hoffman, a shareholder at the law firm Polsinelli, told ASC News.

“For many years, it was understood that  ASCs were only permitted to distribute profits to physicians who owned the facility, and only in proportion to each doctor’s capital interest. 

Inside OIG’s advisory opinion

OIG advisory opinion No. 23-07, issued on Oct. 13, 2023, addressed a proposal where a multi-specialty physician practice sought to distribute a portion of ASC facility-fee profits to its employed physicians, though those physicians did not hold an ownership interest in the ASC.

In this case, the OIG approved the arrangement because the payments were made to bona fide employees, falling under the employment exception to the federal Anti-Kickback Statute (AKS). 

The opinion only applied to the specific requestor, but it is significant because it provided insight into how similar profit-sharing models might be viewed by the OIG, particularly in cases where physicians are compensated based on the net profits of ASC procedures they perform, Hoffman told ASC News. 

“What that opinion said is that if a practice entity owns an ASC as an operating division, it can take profits from that ASC and distribute it to the practice’s employed doctors, even if they don’t have an ownership interest in the ASC,” he said. “That is a monumental shift from what most attorneys advised in the past, including myself.” 

This shift is particularly important for practices looking to incentivize younger doctors who may lack the financial resources to buy into an ASC. 

“A lot of young doctors don’t have the money to invest to purchase an ASC interest, but they can have their cake here and eat it too, because they can receive ASC profit distributions without pulling cash out of their pockets and actually purchasing an investment interest in the ASC,” Hoffman said.

While specific profit-distribution figures are unclear, Hoffman said that ASCs can be significant revenue generators for physician practices.

“ASCs distribute significant amounts of cash, and they’re usually huge money-makers for physician practices,” he said. “So, if you’re a physician practice that owns an ASC, and you want to incentivize your doctors and make them feel motivated, you can really give them a sizable amount of money and really make them feel like they have ownership without actually investing any cash.” 

Limited scope, but broader implications

The opinion focused on a multi-speciality physician practice with 11 physician employees and ASC assets. The requester was specifically seeking OIG guidance around a bonus structure.

“​​Under the Proposed Arrangement, Requestor would offer and pay each Physician Employee remuneration in the form of a quarterly bonus equal to 30 percent of Requestor’s net profits from Requestor’s ASC facility fee collections attributable to that physician’s procedures performed at either of Requestor’s ASCs for the preceding quarter (in addition to base employment compensation),” the opinion summarized.

When the relevant ASC procedures are referred by the physician employee and are reimbursable by a federal health care program, the federal anti-kickback statute would be implicated, OIG stated.

“However, we conclude that the bonus compensation under the Proposed Arrangement would be protected by the statutory exception and regulatory safe harbor for employees because: (i) Requestor certified that the Physician Employees would be bona fide employees of Requestor in accordance with the definition of that term set forth at 26 U.S.C. § 3121(d)(2);13 and (ii) the bonus compensation would constitute an amount paid by an employer to an employee for employment in the furnishing of any item or service for which payment may be made in whole or in part under Medicare, Medicaid, or other Federal health care programs,” OIG’s opinion continued.

Despite questions the October 2023 advisory opinion generated, Hoffman reminded ASC operators that OIG advisory opinions are binding only on the specific entity that requested the ruling. 

“From a strict interpretation perspective, you would need to make a specific request to the OIG to feel 100% comfortable that the opinion of the OIG applies to you,” Hoffman said. 

However, he added that health care attorneys frequently rely on these opinions to guide their advice. 

“Health care attorneys and the physician community generally rely on those opinions to offer advice about what the OIG enforcement priorities and risk tolerance are,” Hoffman said. “If the OIG opines in an advisory opinion that they would not take an enforcement action because the structure is low risk, then attorneys will turn around and say, ‘Because the OIG has expressed here that this structure is low risk, we therefore believe your structure is also likely low risk.'”

Analyzing the risks

The OIG assesses various risks when analyzing ASC arrangements, including the potential for influencing patient choice, steering patients, or generating unnecessary claims to Medicare. 

“Every time the OIG analyzes an arrangement, it determines whether a structure presents high risk, medium risk or low risk, to the Medicare program,” Hoffman said. “Does this risk corrupting patient choice? Does this risk steering of patients? Does this risk unnecessary claims billed to the Medicare program? That’s the risk that the OIG is assessing.”

While the OIG opinion opened new possibilities for ASC profit-sharing models, it’s important for ASC operators to carefully evaluate whether the ruling applies to their specific ownership structures, Hoffman said. 

He pointed out that the opinion addressed a practice owning an ASC as an operating division, not a subsidiary, which may not apply in private equity-backed structures.

“In the private equity world, the practice is usually managed by the PE fund, and the ASC is wholly owned by the PE fund’s management company,” he said. 

There’s also a question of whether the advisory opinion can be extended to share profits from the ASC to the practice entity when the ASC is not fully owned by the practice, Hoffman said. 

“That’s an open question, and a lot of people in the health care community are debating whether that is appropriate,” he said.