The Use of an “Inventory” With ASC Rental Arrangements in Bodily Injury Cases

By: David W. Hirshfeld

As reimbursement from third-party payors shrunk, the uninsured accident victim emerged as a financially attractive patient.  Surgeons, surgery centers, and therapists became armchair personal injury attorneys.  They learned to identify and sign-up uninsured patients who had been injured as the result of negligence, and who were likely to be successful in the lawsuits arising from their accidents.

A popular model evolved in which a surgery practice leases an ambulatory surgery center for a very competitive rate, performs the surgery, charges the patient a reasonable and customary fee for the technical and professional component of the surgery, and agrees not to seek payment from the patient if his attorney and he agree, through a “Letter of Protection,” that the surgery practice will be paid from the proceeds of the negligence lawsuit.  These days, ASCs are leasing themselves out for very competitive rates because the surgery practice guarantees payment immediately upon completing the surgery, or even in advance of the surgery, and because many ASCs currently have excess capacity.  The surgery practice often has to wait twelve to thirty-six months to be paid for its services; but when the lawsuit is resolved and they are paid, there is a healthy margin between the surgery practice’s cost for the ASC and the amount the practice is paid as technical component.  Remember, other than reasonable and customary, there is no fee schedule applicable in this context.  The model is currently so lucrative, that it has attracted lenders who help finance the surgery practices while they await payment on the Letters of Protection.  Not incidentally, this model may become less lucrative as more and more people are covered by health insurance as a result of the Patient Protection and Affordable Care Act.

The proceeds of negligence lawsuits are paid by property and casualty insurance companies, who employ professional claim adjusters, some of whom are very savvy.  Surgery practices in this model may face the argument that the insurer will only pay the surgery practice what the surgery practice paid the ASC, without mark-up.  In order to help avoid this sort of inquiry, we suggest that the surgery practice, as part of its arrangement with the ASC, receive a detailed inventory of every aspect of space, equipment, supplies and services provided by the ASC with respect to each procedure performed on each patient of the surgery practice.  Beside each item on the inventory, the ASC should list its reasonable and customary charges for that item.  This inventory can be used to support the payment secured through the Letter of Protection, and can be used by the plaintiff’s attorney when (s)he is proving damages in the negligence lawsuit.

It is very important that nobody refer to the inventory as a “bill” that was or will actually be paid to the ASC; those sorts of references may lead to an accusation of fraud since the ASC has already accepted a lesser amount as payment in full.  If and when asked, the surgery practice could justify its markup over what it actually paid the ASC as reimbursement for having to finance the surgery for many months, and as reimbursement for the risk of nonpayment.

This model can be lucrative, but it is fraught with potential problems.  The ASC inventory described above is just one noteworthy aspect of how to work the model.  Any surgery practice seeking to focus on treating negligence victims and taking Letters of Protection, should get advice from a trusted personal injury attorney and from a bona fide health care attorney.


State Appellate Court Allows Burdensome Discovery Request

On August 10, 2011, the Fourth District Court of Appeals supported one litigant’s huge discovery request on the treating physician. The case (Katzman v. Rediron, No. 4D11-1290, August 10, 2011) arose with the following facts:

1. The doctor agreed to treat the patient under a letter of protection (LOP), which means the doctor would be paid out of the recovery of a lawsuit, not from health insurance proceeds;

2. The doctor allegedly performed a “controversial” surgical procedure, so Rediron’s lawyers wanted to know all sorts of information about how often he has ordered discectomies over the past four years and what he charged in litigation and non-litigation cases;

3. The doctor’s lawyer tried to block Rediron’s discovery request on the grounds that it would be a huge undertaking;

4. The trial court supported the discovery request, which was upheld on appeal.

The court’s analysis is interesting and instructive. The court found the treating physician to be BOTH a fact witness (because he treated the patient) and an expert witness (because he gives opinion testimony re the patient’s condition and injury). The court used their characterization of the doctor as a “hybrid” witness in order to support the trial court’s decision, which granted broad discovery on the issue of the reasonableness of the procedure’s cost and its necessity.

Discovery is something that can be used to harass and press someone into settlement. Hence, there are guidelines directed to ensuring that discovery requests are reasonable. That said, physicians who treat patients in lawsuits have a unique role that may expose them to greater than normal discovery requests.

Moreover, with this opinion, the old argument in bodily injury cases “What does reasonableness and necessity matter. It’s a BI lawsuit” will likely hold less water as all payers (including those who pay in BI lawsuits) are looking to reduce costs.

Innovative Surgery Center Arrangements

While surgery centers generally follow the guidelines set forth in the federal Safe Harbor to the Anti Kickback Statute (AKS), not all do. In fact, there are some creative arrangements worth considering.

Some centers do not perform services which are compensated in any way by a state or federal healthcare program. As such, they don’t have to comply with the usual federal laws (e.g. AKS and Stark). That leaves the center to comply only with state regulation, which is usually far less restrictive than the federal laws. This works if the center intends, for instance, only to do work pursuant to Letters of Protection (LOP) or bodily injury suits. Though the pool of patients is very different in this type of center, the lid is nearly off when it comes to how creative the arrangements among the owners and referring physicians can be.

One of the more vexing challenges among all surgery centers is ensuring patient referrals by owner surgeons. While most centers will simply follow the federal Safe Harbor “one third test,” other centers go further and do things like: (1) making loans to owner surgeons, (2) creating “put” or “pull” periods during which time an investing physician can buy back out or be bought back out, and (3) even making exceptions to the restrictive covenants commonly contained in ASC documents.

Complying with the federal Safe Harbor applicable to surgery centers is clearly the most conservative way to go, in terms of regulatory compliance, since compliance means immunity from AKS violations. That said, Safe Harbor compliance is a little like horseshoes: coming close counts. The simple reason is that Safe Harbors are examples of conduct that complies with the AKS, but they are not all encompassing. There may be arrangements that do not violate the AKS which are simply not described in the Safe Harbors. Simply put, there are many other creative arrangements commonly employed in surgery centers. Since surgery center ownership and referral arrangements are hotly regulated, owners must be careful when considering veering off the straight course provided by federal law.