From: Becker Scott <>
Subject: (1) Can an ASC create different classes of ownership among physicians and value units to reflect the different voting and economic rights; (2) Sample code of conduct for ASCs


October 4, 2007
In This Issue
Q&A: Differentiating Classes of Stock for Physicians
Sample Code of Conduct for ASCs
News and Notes
Fewer Than 15 Spots Remain at Fall Conference
Companies to Watch
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Q&A: Differentiating Classes of Stock for Physicians

This E-Weekly focuses on two items. First, we discuss a question from a reader regarding whether or not a surgery center can have two different classes of stock for physicians. Second, we provide a sample code of conduct for surgery centers.

Q: Can a surgery center have two different classes of stock for physicians?

A: Generally, there are two core differences in types of classes of stock. These differences can relate to (1) voting rights or (2) financial rights. This article strictly discusses different classes of stock amongst physician-owners. It does not discuss different classes of stock between non-physicians and physicians.

Over the past few years, we have examined different types of concepts related to different classes of stock for physicians. First, can you sell shares to physicians at a lower price because the physician owned shares will not have any voting rights. Second, can you sell shares at a different price due to the concept that one class of shares has a preferred financial return to the other class of shares.

We generally do not encourage either one of these strategies as a means to help price shares for physician at a more affordable rate. For example, we have seen situations where a company will price a new class of shares lower because the initial holders of shares will have the ability to receive all distributions up to a certain point. As an example, assume that the surgery center currently makes $800,000 a year in net income. With this type of preferred stock concept, the initial shareholders, those that hold shares before selling to the new shareholders, might receive all of the distribution up to $800,000, before the new shareholders have the right to share in distributions. Then, the new shareholders would share in distributions based on some percentage between the new shareholders and the old shareholders such as based on their percentage of ownership.

We generally do not view this as a recommended course of action. First, the hurdle to reach to receive distributions can be viewed as encouraging the new physicians to bring a great deal of cases to the surgery center such that they will meet the initial hurdle and be able to share in distributions. This is different than being able to share in distributions from the first dollar or profit in the surgery center. Second, this runs contrary to a good deal of the guidance set forth by the Office of Inspector General related to sharing in returns pro rata based on ownership. Hence, even though there may be justifiable reasons for such a type of preference or preferred stock, we generally recommend against such a strategy.

We also generally recommend against differentiating the prices amongst classes of shares amongst the physician owners based on voting rights. It is generally acceptable where a party is buying in without control rights and without liquidity, to use a valuation firm and have such an independent third party account for these factors. However, we would be very cautious about using a strategy whereby physician shares are discounted compared to other physician shares because some of the shares are purposely developed without voting rights. While there may be justifiable reasons for this, we have concern that an investigator would view this as simply a means to try and reduce the share price for physicians to entice more physicians to invest and to help capture their business at the surgery center.

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Sample Code of Conduct for ASCs

This E-Weekly also includes a code of conduct. A code of conduct is simply one piece of an overall compliance plan. It puts forth a number of core concepts that should be incorporated into the compliance plan. Often, a surgery center will have a difficult time administering and starting to put together a comprehensive compliance plan. This is not an excuse for not having a compliance plan. However, even in these surgery centers, it can be very easy for a surgery center to develop a code of compliance that serves as standard rules by which the surgery center operates. This can become the mantra and the cornerstone of a culture of compliance that every surgery center should have. These items set forth below are the introduction to the pieces of a compliance plan that a surgery center should have. We hope that you find this helpful.

The Center strives to provide quality health care services to the community. The Center's values and goals include the achievement of excellence in the treatment of the patients and the compliance with all laws applicable to the Center's operations. The operation of the Center in compliance with all laws shall take precedence at all times over any interest in generating profits. All references herein to "owners" of the Center shall include both direct and indirect owners. The Center, in its business and clinical operations, will strive to abide by the following principals:

1. The Center, each owner, and each employee shall use best efforts to protect the confidential information of patients and families of patients.

2. The Center, each owner, and each employee will abide by all policies applicable to such person's positions with the Center, as well as all state and federal laws and conditions of participation in health care reimbursement programs.

3. The Center, the owners, and the employees will not encourage or participate, directly or indirectly, in activities such as theft, bribery, kick backs, misappropriation, false statements, submission of false claims, discrimination, boycotts, price fixing, or violations of environmental or work place safety laws.

4. The Center, the owners, and the employees will not make any payment, or offer to make any payment, whether in cash or in kind, to any physician, patient, hospital, facility, or other party in order to induce the referral of patients or other items or services to the Center.

5. The Center shall not enter into relationships with any person or entity that may refer business to the Center unless such arrangements involve compensation for fair market value and the arrangements are fully compliant with all laws. No such arrangement shall take into account the volume or value of referrals by such person.

6. The Center will only bill for services in a manner that is legally appropriate. Owners and employees who are involved with billing functions will not submit any claims for amounts other than in accordance with the Center's policies. In the event that any owner or employee discovers any intentional or unintentional improper billing practices (including the submission of any false claim), such person shall immediately report it to the appropriate Center personnel.

7. Owners and employees who refer patients for services to the Center will only refer patients for services or procedures that are medically necessary or cosmetic in nature. Services that are neither medically necessary nor cosmetic in nature shall not be performed at the Center.

8. The Center, each owner, and each employee shall treat all patients (including Medicare, Medicaid, and indigent patients) in a non-discriminatory manner in accordance with Center policies regarding acceptance of patients.

9. The Center shall not offer shares in exchange for referrals. Shares in the Center may only be sold at fair market value, and the sale of more or less shares depending on the referrals generated by such person is strictly prohibited.

10. All distributions of Center earnings shall be based on the number of shares held by the owners and shall in no way be based on the volume or value of referrals to the Center

11. Each owner shall notify patients of his or her financial interest in the Center if he or she refers such patients to the Center.

12. Each owner and employee shall treat all patients, Center personnel, and other members of the community with dignity, respect and compassion.

13. The Center, each owner, and each employee will maintain a safe working environment, will fulfill all duties in a safe manner, and will notify the proper Center personnel immediately of any hazard, injury, equipment problem, or other potential safety issue.

14. If an owner or employee becomes aware that any Center staff or owner or other person providing services to the Center has engaged in any of the behavior prohibited above, such person must notify the appropriate Center personnel.

15. The Center and each owner will strive to maintain compliance with the ambulatory surgery center Safe Harbor to the Federal Anti-Kickback Statute, and, except to the extent of efforts to comply with the one third tests of the ambulatory surgery center Safe Harbor, the Center, the owners, and the employees will not pressure any person or entity to refer patients or cases to the Center. In furtherance of such, the following principals shall be followed:

A. Any services provided to the Center by owners or other persons or entities will be provided pursuant to a written contractual arrangement directly with the Center or an affiliate. Any such contract, whether it is directly between the Center and physician owner or other person or entity, a subcontract with an affiliate, or otherwise, will be negotiated and entered into by all parties at arm's-length.

B. Any services by owners to the Center shall be legitimately needed services and shall be clearly enumerated in the contract. All such services shall also be necessary to the maintaining or improving the quality and/or efficiency of the Center's operations.

C. No physician owner or other person or entity will receive any compensation or remuneration, either directly or indirectly, from the Center, or any affiliate of the Center, that is related to the volume or value, or potential volume or value, of such physician's or other person's or entity's referrals of patients to the Center (i.e. based on such physician or other person or entity's referrals).

D. Neither the Center nor any affiliate of the Center will provide any incentive to owners to refer patients to the Center and the Center will not withhold any compensation from any owners who do not refer patients to the Center.

E. No owner, except as specifically required under the ASC Safe Harbors, shall be required to perform services to the Center and all contracts pursuant to which owners provide services to the Center should clearly state the same.

F. No physician owner shall condition referrals to another physician or otherwise require another physician to perform cases referred by such first physician at the Center.

G. No physician shall be admitted as an owner or allowed to become or remain an owner based on his or her ability to generate referrals for other physicians.
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News and Notes

AmSurg names new president and CEO. AmSurg announced Monday that it has named Christopher A. Holden, JD, MHA, as its president and CEO, completing "an extensive and thorough search for a successor to Ken P. McDonald," according to a press release. Mr. McDonald will continue to serve on AmSurg's board of directors and will "assist Mr. Holden in accomplishing a smooth and rapid transition." Mr. Holden has more than 21 years' experience in healthcare, working most of that time directly in multi-facility and multi-market healthcare management; he was a founding member and officer of Triad Hospitals, Inc., and most recently was a division president with operating responsibility for hospitals and related entities (including ASCs) nationwide, according to AmSurg. Before the founding of Triad, Mr. Holden served in positions of increasing responsibility with Columbia/HCA Healthcare and, before that, was involved in hospital administration with National Medical Enterprises.

Trends in construction: true multi-use. If you're thinking of building an ASC, maybe you should consider putting a shoe store and restaurant on either side, while you're at it.

"What we find interesting in the projects we're doing now is that they're not an island," says John C. Daly, AIA, the vice president of healthcare services for McShane Construction. "Instead, they're integrated into retail projects that are really mixed-use. For example, we're doing a project right now that includes a 50,000 square foot medical office building, a hotel, a restaurant and retail space."

To read the whole interview on multi-use medical buildings, visit and download the "Interview of Interest" with Mr. Daly under "Hot Topics."

Strong vendor relationships key to cost containment. With rising costs and decreasing reimbursements, cost containment continues to be a critical objective for ASCs. One way an ASC can manage supply costs is by establishing dependable vendor relationships. "A strong relationship with a reputable supply distributor will not only help ensure than an ASC receives the highest-quality products, but will also help an ASC increase product utilization, streamline costs and ensure that its inventory is current," says Jim Ricchini, marketing manager for ambulatory surgery at B. Braun Medical Inc. To find a reliable vendor, Ricchini suggests contacting product manufacturers for a list of authorized distributors. "Leading product manufacturers will generally only authorize those vendors who are trained and knowledgeable about the manufacturer's products. We are confident in our selected distributors," he says.

B.Braun is a global organization that manufactures healthcare products and medical devices and provides educational programs and training workshops for its customers. It services the ASC industry specifically with a complete line of regional anesthesia products, including peripheral nerve blocks, infusion therapy and high-quality absorbable and non-absorbable sutures. "ASCs can contact their local B.Braun representative to obtain a list of authorized distributors," Ricchini adds.

Share your success story. We are seeking highly successful ASCs that have no management company involvement whatsoever to feature and discuss their prescriptions for success in case studies. If your ASC fits the bill, please e-mail Scott Becker or Stephanie Wasek. Also, if you have an ASC-related legal or business question, e-mail Scott, and we'll publish the answer in a future E-Weekly.

Save the dates for next year's conferences! Please save the following two dates for next year's conferences:

  • Orthopedic-Driven ASC Conference -- June 19 to 21, 2008

  • FASA and ASC Communications: Improving Profitability and Business and Legal Issues for ASCs -- Oct. 23 to 25, 2008.

Project coordinator positions open. Surgery Consultants of America, a well-known and rapidly growing ASC development and management company, is seeking full-time project coordinators. RN, MSN, MHA, or BSN with previous experience in ASC development and management required. Additional requirements include financial expertise and knowledge of Medicare and regulatory standards. Ability to travel a must. Come join our team. Competitive salary and benefits. Please e-mail resume to Attention: Project Coordinator at or fax to (239) 482-0888.

VP of acquisitions and development position opening. Symbion is seeking a candidate for vice president, acquisitions and development with a healthcare background who possesses financial skills and has experience in a development, marketing or sales role. Interpersonal skills will be a key component also in this position and travel will be a regular requirement. Interested parties should directly e-mail Susie Hardin, Vice President, Human Resources for formal consideration.

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Fewer Than 15 Spots Remain at Fall Conference

We are expecting a very full house for the 14th Annual Ambulatory Surgical Center Conference on Improving Profits and Business and Legal Issues for ASCs. The No. 1 networking and business development opportunity for ASCs and ASC companies in the country will be held Oct. 18 to 20 at the Westin Michigan Avenue in Chicago. Because it attracts the highest level audience and the very best speakers possible, registration spots are filling up. Fewer than 15 remain! There are three ways to register:

  1. Download the registration form and fax it to FASA at (703) 836-2090;

  2. Download the registration form and mail it to FASA, 1012 Cameron St., Alexandria, VA 22314; or

  3. simply call FASA at (703) 836-5904.

The Westin Michigan Avenue is SOLD OUT. For your convenience, we have compiled a list of nearby hotels. You can download it here. We can also provide you additional hotel choices. Don't miss out -- register today!

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Companies to Watch

We are delighted to highlight the following companies in this week's E-Weekly.

JCB Laboratories. JCB Laboratories is a compounding pharmacy that serves the ASC market place. Unlike most compounding pharmacies, JCB Labs focuses exclusively on preparing sterile products. By limiting the focus to sterile products, the company is able to provide exceptional safety, consistency and pricing. JCB Labs compounds preservative-free products for epidural use, pain management products, and sterile ophthalmics. In addition, JCB Labs provides products that are unavailable due to short supply issues and discontinuation. Contact CEO Brian Williamson, PharmD, at (877) 405-8066 or visit the company's Web site for more information.

Instantia. This is a company founded by Jack Amormino and Lisa Freeman to provide development services to surgical centers. Jack Amormino has long been involved in the ASC industry as CEO of American Medical Buildings, a turnkey facilities developer. Lisa Freeman was a long time leader with Aspen Healthcare. Instantia Health focuses on turnkey facility and operations development through Medicare certification and accreditation. Instantia develops centers with the goal of handing over a well conceived, efficiently designed surgery center that is managed by a center's own in-house administrative and clinical professionals. Instantia does not require an equity stake in its projects or a long term management agreement. For more information visit Instantia online.

ZChart. It's incredible that surgical records are still kept the same way they were almost 100 years ago when you consider paper charts are messy, wasteful, expensive and leave room for error or misinterpretation. Further, creating and filing paper charts is time-consuming and paper storage is inefficient. This robs resources from patient care. ZChart's EMR was developed by dozens of healthcare professionals - administrators, office staff, nurses and physicians - at multi-specialthy outpatient surgery centers. Years of development and everyday use in the real-world surgery center environment has created a first-rate, intelligent, 21st century surgical chart that will surprise and delight users. They have a system designed exclusively for ASCs. Contact Tom Felstad at 866-924-2787. For more information visit

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If you have any questions on any of the items listed in this letter, please contact me at (312) 750-6016 or by email at

Very truly yours,
Scott Becker

Scott Becker, JD, CPA
(312) 750-6016

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