New Favorable OIG Advisory Opinion – ASC Joint Ventures

Alerts / May 10, 2021

On April 26, 2021, the Office of the Inspector General (OIG) of the Department of Health & Human Services (HHS) released Advisory Opinion No. 21-02 (Opinion 21-02), a favorable opinion regarding an ambulatory surgery center (ASC) physician/health system/management company joint venture arrangement (Proposed Arrangement), and outlined safeguards to mitigate risk under the arrangement.

In its opinion, the OIG said it would not impose sanctions on the Proposed Arrangement, which contemplated a health system (System), certain orthopedic surgeons and neurosurgeons employed by the System (Physician Investors), and a management services company (Manager) owning a joint venture ASC. The OIG concluded that although the Proposed Arrangement could generate remuneration prohibited by the Federal Anti-Kickback Statute (AKS), the OIG would not impose administrative sanctions because the Proposed Arrangement would present a low degree of risk and would include other safeguards that reduce the likelihood of fraud and abuse.

The Proposed Arrangement

Under the Proposed Arrangement, the ownership structure of the new ASC would be as follows: (i) System would own 46 percent, (ii) Physician Investors would collectively own 46 percent and (iii) Manager would own 8 percent. The new ASC would operate out of a new medical facility, which would be owned by a real estate joint venture also among the System, the Physician Investors and the Manager (Real Estate Company) (ownership percentages in the Real Estate Company were not disclosed). The new ASC would enter into space and equipment leases as well as services arrangements with the System and the Real Estate Company.


With respect to the Manager being in a position to influence referrals to the new ASC, the OIG reasoned that the following safeguards mitigate the risk of fraud and abuse: (i) the Manager would not make or influence referrals to Physician Investors or the new ASC and (ii) no Physician Investor would have an ownership interest in the Manager.

With respect to the Physician Investors and the System, the OIG concluded that while these investors would similarly be in a position to influence referrals, the risk of fraud and abuse would be sufficiently mitigated by the following:

  • Physician Investors’ Use of the ASC Means Strict Compliance with One-Third Test Not Required. It was represented that although certain Physician Investors would not be able to meet the one-third income test, they would still be utilizing the ASC on a regular basis.
  • FMV Personal Services Arrangements Mitigate Risk of Improper Referrals. It was represented that although the System may be in a position to make or induce referrals, any compensation paid by the System to Physician Investors would be pursuant to an employee or personal services arrangement that is consistent with fair market value (FMV) and not related to volume or value of referrals. Further, the System represented that it would not encourage or track referrals to the new ASC or the Physician Investors.
  • Investment Safeguards Protect Against Ownership Based on Referrals. It was represented that although certain investors may be in a position to refer patients to the new ASC, offers of ownership would not be based on referrals and any profit distributions would be proportionate to ownership interests. All investors would additionally invest directly (rather than via a pass-through entity) and no investor would loan funds to or guarantee a loan for any other investor.
  • AKS Safe Harbors Mitigate Risk of Improper Profit Distributions. Any space and equipment leases as well as services arrangements with the System and the Real Estate Company would comply with safe harbors for space and equipment rental and personal services and management contracts, as applicable. Further, patients referred to the new ASC by an investor would be given written notice of the referral source’s interest in the new ASC.
  • Other Safeguards Mitigate Risk of Improper Billing and Discrimination. All investors certified that patients receiving assistance under any federal health care program would be treated in a nondiscriminatory manner. The investors further certified that all procedures performed at the new ASC would be properly billed, and the System would not include any costs associated with the new ASC on its cost report or claims for payment from federal health care programs, unless inclusion is required.

Based on the information provided, the OIG ultimately concluded that the Proposed Arrangement presented a sufficiently low risk, particularly considering the safeguards in place to prevent fraud and abuse. If you have any further questions related to Opinion 21-02 and its application to you and your business, please reach out to BakerHostetler for more information.

Authorship Credit: Laurice Lambert and Morgan Pollard

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