The Office of Inspector General (OIG) has issued advisory opinion number 07-05 concluding that a proposal by a group of physicians owning an ambulatory surgery center to sell 40% of the ambulatory surgery center to a hospital has the potential to generate unlawful remuneration and is therefore not eligible for a safe harbor advisory opinion. The ASC is owned by a group of physicians consisting of the following:
· 3 Orthopedic Surgeons own 94%
· 2 Gastroenologists and 2 Anesthologistscollectively own an additional 6%
The Orthopedic Surgeons propose to personally sell sufficient units in the LLC to give the hospital a 40% interest at a price higher than the Orthopedic Surgeons’ initial investment, thereby guaranteeing an additional personal return on their investment.
The OIG concluded that the potential for unlawful remuneration exists for the following reasons:
1. Since the investment return to all of the owners, including the hospital, following the transaction would be based upon ownership, the selling physicians would effectively receive a higher return on their investment than the other investors because of the profit built into this transaction;
2. units in the LLC were not offered to any other third party investor, raising the spectre that the purchases, remuneration and exchange for referrals to the hospital;
3. only the Orthopedic Surgeons shares were proposed to be sold and not the other physician investors.
The text of the advisory opinion is available at the following link: