mbulatory surgical centers (ASCs) can be a mixed blessing for anesthesiology practices: At the same time that they often present better payer mixes than inpatient facilities and, in some instances, investment opportunities not available in the nonprofit hospital context, they do not always offer the efficiencies or volume that commonly are associated with ASC operations. This article will explore differences between working in the inpatient and the ASC settings, some of the difficulties and practical issues inherent in ASC practice and legal considerations related to ASC investments.

Differences from the inpatient setting. A variety of factors distinguish the ambulatory arena from the inpatient setting, and anesthesiology practices considering covering an ASC should consider these differences.

a. Emphasis on efficiency. Physician investors in ASCs often want cases to be moved quickly so that they can minimize downtime between cases. While efficiency is a concern in the hospital setting as well, efficiency issues can play out differently in the ASC context. Physician investors typically want to restrict coverage to anesthesiologists who work quickly. They also want anesthesiologists who have the ability to motivate ASC staff to assist in turning rooms over quickly.

At the same time, however, physician investors sometimes try to skimp on ASC staff and to have anesthesiologists perform tasks more commonly performed by anesthesiology technicians, such as cleaning up work areas and inspecting anesthesia equipment. Anesthesiologists should understand how the ASC intends to operate and make sure that contractual agreements for anesthesiology services address the parties’ expectations on ASC staffing.

b. Request for a core group of anesthesiologists. ASCs typically request that an anesthesiology practice assign a core group of anesthesiologists and nurse anesthetists (in the case of a care team practice) to an ASC to provide for continuity and efficiency. The perception is that when new anesthesiologists and nurse anesthetists rotate through an ASC, their unfamiliarity with the ASC day-to-day operations (e.g., where supplies and equipment are stored) may slow down their ability to provide services efficiently. On a practical level, physicians practicing at an ASC do not want a constant change in the anesthesiology personnel practicing at an ASC. From an anesthesiology group’s perspective, it is important to understand the ASC’s expectations and to assess how they fit into the group’s practice. Do anesthesiology group members want to rotate through the ASC, both for the change in pace from inpatient practice and also to maintain the roster of individuals available to take call? These issues need to be addressed in the ASC services agreement to avoid later disagreement.

c. Profit motivation. Physician investors in ASCs sometimes want a “share of the profit” associated with providing anesthesiology services at the ASC. This desire raises concerns regarding illegal kickbacks in order to secure the agreement to provide anesthesiology services at the ASC. It is permissible for ASCs to employ anesthesiologists, if the relationship is a true employment relationship. It is not permissible for an ASC to charge a fee, directly or indirectly, in order for an anesthesiology practice to provide services at an ASC. Proposals or demands for unusual payments or services, such as providing personnel typically hired by the facility or paying a franchise fee, should be carefully scrutinized for legality. See discussion below regarding the antikickback law.

d. Surgeon expectations. In the ASC setting, there is no buffer between anesthesiologists and surgeons and other physicians performing procedures. Typically physicians who have an ownership interest in the ASC will determine who will provide anesthesiology services there. In the hospital setting, administration can serve a valuable role by functioning as an independent third party in resolving surgeon requests for coverage. Administrators may be receptive to surgeon requests and complaints, but hospital action on a particular request will depend upon the financial impact to the hospital of granting the request. In a physician-owned ASC, the ASC’s reaction may depend upon the level of the surgeon’s investment in and control over the ASC.

e. Patient expectations. Patients sometimes expect more in the ASC setting than in the hospital context. They expect to be able to go home relatively quickly and not to experience postoperative nausea and vomiting, and they often anticipate that they will be free of pain. Patients also expect to be able to return to work quickly. These expectations need to be addressed directly to avoid misunderstanding and complaints and thereby to improve patient satisfaction.

f. Need to screen cases. Surgeons and other physicians increasingly try to perform more invasive procedures on sicker patients in the ASC setting. The possible reasons for this trend may include the perception that anesthesia is safer and there is less risk in performing a wide range of cases in ASCs, the inability to secure block time in an inpatient setting or the potential for financial return if the physician has an ownership interest in an ASC. Whatever the reason, anesthesiologists need to review scheduled ASC procedures and the patients’ medical conditions carefully in advance in order to confirm whether or not the procedures and the patients belong in an ASC rather than an inpatient facility.

Evaluating an ASC opportunity. ASCs often are attractive to anesthesiology practices, typically offering better payer mixes than inpatient facilities; but does an ASC opportunity offer a boon or a bust? The following discussion will offer some areas for exploration.

a. Surgeon investment. A common assumption is that surgeons and other physician investors will bring a high volume of cases to ASCs in which they have an investment. But in how many ASCs do they have ownership interests? Some anesthesiologists have discovered that physicians in their market have ownership interests in multiple ASCs and shift their business from one ASC to another for a variety of reasons. This unanticipated movement of cases can leave empty operating rooms behind, leading to operating room inefficiencies more commonly associated with the hospital inpatient setting.

b. Agreements with payers. In some markets with heavy concentrations of ASCs and office-based surgery, payers have determined that there are too many ASCs, and they contract with only some of the available ASCs. Those ASCs that do not have contracts with key payers may not be able to fill their operating rooms, despite physician investment in the ASCs. The impact can be particularly pronounced when a payer changes its contracting patterns and decides to cut an existing ASC from its network of approved facilities. While not every market will have this problem now, this problem can develop as more ASCs are developed.

c. Assess the ASC business model and administration. Does the ASC have a business plan? How many investors does it have? Where is it located in relation to the population growth and competing facilities in the community? Does the ASC have professional administrative staff who have ASC experience? Is a national ASC development company involved in managing the ASC? The experience of the ASC administrative team may well determine the ASC’s ability to survive over the long term. These questions may be wise ones to ask, particularly if the ASC seems to cater to its investors without regard to the cost to the facility.

Staffing the ASC. Deciding which anesthesiologists (and nurse anesthetists, if your group employs them) in your practice should be assigned to an ASC involves consideration of a variety of factors. For many groups, the days of simply assigning senior anesthesiologists in a practice, or those anesthesiologists who no longer take call, to staff an ASC have passed.

a. Need for interpersonal skills. An ASC is not the place to assign your problematic physician who has anger management issues or who does not like one of the physician investors. An ASC is typically a smaller facility where all who practice there are likely to interact. It is not uncommon for ASC owners to request that only specific anesthesiologists or nurse anesthetists in a practice work at an ASC. An anesthesiology group needs to assess its physician and nonphysician staff objectively to determine who is best suited to work at the ASC.

b. Lack of inpatient resources. Another consideration in deciding which anesthesiologists and nurse anesthetists will work best in the ambulatory setting is the solo nature of the practice in an ASC. Unlike an inpatient facility, anesthesiologists working in an ASC frequently will have few colleagues or resources present to assist in the event that a patient has unanticipated problems. For those groups that assign one anesthesiologist and two to three nurse anesthetists to an ASC on a daily basis, this concern is particularly acute. In contrast, in a hospital, a fellow anesthesiologist often will be available to assist on difficult cases or to take over medical direction of other concurrent cases if one case requires exclusive attention.

c. Subspecialty expertise. The ASC may request subspecialty expertise as a condition to awarding a contract to an anesthesiology practice. For example ASCs anticipating a high volume of pediatric cases may request pediatric anesthesiology expertise. The ASC’s staffing requirements may change the anesthesiology group’s plans for staffing the ASC.

Contract issues. Contracts with ASCs to provide anesthesiology services are similar to anesthesiology services agreements with hospitals, but there are significant differences in several provisions.

a. ASC-specific contract issues. ASC agreements often include a provision to provide a medical director for the ASC. Depending upon the amount of time the medical director devotes to administrative services on behalf of the ASC, the ASC may need to compensate the anesthesiology practice for the nonclinical time the medical director devotes to these responsibilities. Another issue unique to the ASC setting is the obligation, often placed on the anesthesiology group, to remain in the ASC until the last patient is discharged. This obligation can be particularly burdensome if the anesthesiology group did not provide services to the patient or in the case of a 23-hour-stay patient. The parties should have clear agreement on these points to avoid later disagreements.

b. Dealing with low volume or scheduling inefficiencies. Stipends for coverage of low-volume or inefficiently scheduled operating rooms are not limited to the hospital setting. Contract negotiations for ASC coverage also can include a compensation component to counterbalance costly coverage requirements. These situations may occur in the case of new ASCs or existing ASCs that want to offer operating room time to physicians but do not have the volume to fill those operating rooms. Compensation also may be appropriate if the ASC allows inefficiencies in scheduling, as may occur in the case of a surgeon who wants maximum efficiency in the form of back-to-back scheduling with the ability to move directly from one operating room to the next. This coverage can result in additional anesthesiology staffing. Some ASCs take the position that they will not pay for “downtime,” which can leave an anesthesiology practice in a difficult position: assume the risk of financial loss due to anticipated inefficiencies or lose the contract to provide anesthesiology services at the ASC. Loss of the contract can result in loss of a valuable opportunity to maintain a practice’s financial soundness, as the better-paying cases migrate to the ASC from the inpatient or day surgery unit of a hospital. If an anesthesiology practice has concerns about inefficiencies in an ASC and it is unable to negotiate compensation to offset its losses, it should make sure that it has the ability to terminate the agreement if providing the mandated coverage becomes too costly.

c. Requests for proposal (RFPs). It is not uncommon for ASCs to issue RFPs to select an anesthesiology practice, particularly in the case of new ASCs. An RFP also may be a response to a difficult negotiation. In markets where multiple proposals are anticipated, an anesthesiology group submitting a proposal may conclude that it needs to compromise on some of the contractual issues addressed above or face the risk of losing the contract.

Legal aspects of ASC investments. Anesthesiologists, like other physicians, frequently wish to invest in ASCs. Since physicians can drive the demand for their own services, at least in the view of health economists and legislators, several well-known statutes limit the ability of doctors to be paid for referring patients.

a. Stark II. First is the federal physician self-referral law known as the Stark law for its Congressman progenitor Fortney H. “Pete” Stark (D-Calif.). The Stark law and regulations prohibit physicians from referring patients for any of 11 “Designated Health Services” (DHS) to a hospital, ASC or any other “entity” with which they have a financial relationship. Those DHSs do not include physicians’ professional services or services included in the ASC facility fee. Rather they include such items as durable medical equipment, radiology, physical therapy and occupational therapy services, outpatient prescription drugs and hospital inpatient and outpatient services.

Stark rules, therefore, are not generally an impediment to anesthesiologists’ investments in ASCs. Anesthesiologists do not refer patients to the ASC, but pain medicine specialists may order outpatient prescription drugs or physical therapy, and thus, any payments that they receive from the ASC will necessitate an exploration of applicable exceptions to the prohibition (e.g., the personal services exception may cover compensation for medical director services). Note that many states have their own physician self-referral laws that serious potential investors must consult.

b. Antikickback law. Anesthesiologists’ ownership interests in ASCs clearly implicate the federal antikickback statute. The antikickback law is so broad on its face that virtually any form of compensation or return on investment received from an ASC would be illegal, so long as the parties intended to reward the referral of Medicare, Medicaid or other patients with federal health insurance. For example sending a physician investor periodic dividends could be construed as deliberately influencing the physician to bring patients to the particular ASC.

An essential element of a violation is that the parties intend to encourage referrals. If there is no intent to influence patient referrals, or if the government cannot make a case that the financial advantage conferred was intended to result in referrals, there is no violation of the antikickback law.

“Safe harbors” for a number of business arrangements, codified in federal regulations, immunize these arrangements from prosecution under the federal antikickback law. Unlike fitting within a Stark “exception,” meeting the requirements for an antikickback safe harbor is a way to cut short the investigation but is not a condition for exoneration. Like the Stark exceptions, the antikickback safe harbors define the terms under which personal services contracts will be in the clear. Most of these terms make sense intuitively; anesthesiologists intending to invoke them should be careful to establish that the compensation from the ASC is based on fair market value.

There is a specific safe harbor for investments in ASCs that may be of benefit to anesthesiologists and pain medicine subspecialists who perform at least one-third of their cases or procedures at the ASC in which they have a financial investment. (See the “Practice Management” column in the February 2000 issue of the NEWSLETTER for more information on the terms of the ASC safe harbor.) Many anesthesiologists, however, do not satisfy that standard, since a single ASC may represent a smaller proportion of their caseload than one-third. It is worth repeating that, absent the ability to refer patients, however, payments from an ASC are not illegal under the antikickback law.

Judith Jurin Semo, Esq., is with the law firm of Squire, Sanders & Dempsey L.L.P., Washington, D.C., which serves as ASA’s outside legal counsel.

Karin Bierstein, J.D., works with members and committees on regulatory matters that affect practice management, quality management and departmental administration, and Medicare/Medicaid issues.