From: Becker Scott <>
Subject: Pointed Comments from Dr. Mark McLellan and Professor David Dranove; OIG Says No to Optometrist Ownership in ASC; New Concerns for Orthopedic Device Companies


October 25, 2007
In This Issue
OIG Says No to Proposed Optometrist Ownership in ASC
Pointed Comments from Dr. Mark McClellan and Professor David Dranove
News and Notes
Get Insight on the Orthopedics Industry: Register for Webinar, Dec. 5
Companies to Watch
Ortho Webinar
OIG Says No to Proposed Optometrist Ownership in ASC

A group of ophthalmologists who wanted to add their group practice's optometrists to ownership of the ophthalmologists' ASC has been told in an OIG Opinion Letter that the proposal would violate the Anti-Kickback Statute.

The group practice -- composed of 18 members (eight ophthalmologists, nine optometrists and one wholly-owned subsidiary of a nonprofit hospital system) -- and the surgical center are both limited liability companies. The group practice employs the ophthalmologists and the optometrists; the surgical center entity operates three single-specialty ASCS that are Medicare-certified. The ophthalmologists and the hospital have ownership interests in the surgical center entity, but the optometrists do not. As a result:

The Ophthalmologists and Optometrists are in distinctly different positions here. The Ophthalmologists personally perform surgical procedures at the Surgical Center ASCs, and such surgical business is effectively an extension of their office practices. For the Optometrists, however, the Surgical Center ASCs are not a comparable extension of their office practices.

Even though the shares were being offered at fair market value, that is not enough. The optometrists' ability to generate referrals combined with financial interest would create a situation open to abuse, says the OIG. The agency's reasoning:

Optometrists perform no ASC procedures as defined at 42 C.F.R. 1001.952(r)(5), but they do generate referrals to other investors (e.g., the Ophthalmologists) and, indirectly, to the Surgical Center ASCs," writes the OIG. "Because no safe harbor would protect the addition of the Optometrists as owners of the Surgical Center, we must determine whether, given all of the relevant facts, the Proposed Arrangement poses a minimal risk under the antikickback statute. In this case, there are no discernible safeguards to minimize the significant risk that the Proposed Arrangement would be a vehicle to provide the Optometrists with a share of the profits from their referrals to the Ophthalmologists utilizing the [ASC].
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Pointed Comments from Dr. Mark McClellan and Professor David Dranove

Mark McClellan, MD, PhD, the former executive director of CMS, and David Dranove, MBA, the Waltner McNerney Distinguished Professor of Health Industry Management and professor of management and strategy at Kellogg School of Management, had some pointed comments on current hot topics in healthcare. Both and touched on key issues such as government and private payment rates and the idea of a national, single-payer system. Here's a short sample of the insights they provided.

Mr. Dranove. "Patients equate restrictions on access to lower quality. Most patients don't know what healthcare quality is. They just say, 'If I don't get to see my doctor, that's bad.' That's how they define it. But how do we define it? Mortality matters, but quality shouldn't be measured by whether the hip replacement patient lived or died, but whether he's climbing the stairs. The market has failed to give us unified, linked standards."

"Nobody believes that we can fix the healthcare system. If the government isn't going to solve our problems, and physicians aren't going to solve our problems, we're going to have to provide incentives for patients. ... Direct tax subsidies are the most effective way."

"Yes, a single-payer system would cover all the uninsured, and would have the potential to bring down costs. But I fear it would have the potential to stifle the thing that has made our healthcare system so great, which is the technology. Research has shown the benefits of new technology overwhelm the cost. Any plan should be judged on whether it will encourage or discourage growth and investment in healthcare technology; individual states' plans can be looked at as 'labs' to figure out what works and what doesn't on a large scale."

Mark McClellan, MD, PhD, former executive director of CMS. "Can Medicare help lead [quality efforts]? Every time Medicare tries to lead, there are a lot of negative reactions [from the private sector]. There's a lot of 'Oh, that's not the way we do it, why are you trying to change it?' [But] the private sector can't really change what it's doing. On QI especially, though, we're trying to do collaborative initiatives so that we can move forward with quality measures that make sense for physicians, employers and provider groups. Better measures of quality and costs for ambulatory surgery have to be developed. Similar efforts are paying off in other areas, such as physician payment reforms - you might think about getting involved with groups like the AQA. ... Keep up the good work. You're doing high-quality efficient work. Don't get discouraged."

Dr. McClellan and Mr. Dranove spoke last week at the Improving Profits and Legal and Business Issues for ASCs Conference, which 600 people attended.

Don't miss out on the Orthopedics- Spine- and Pain Management-Driven Conference; save the dates: June 19 to 21. Our orthopedics-, spine,- and pain management-driven ASC conference, which more than 460 people attended last year, will have more speakers and pre-conference opportunities. We expect a great and focused meeting in the area in which ASCs are growing most. We will have the exhibitor prospectus done in early January. In addition, the fall conference will be held Oct. 23 to 25, 2008.

News and Notes

SEC targeting orthopedics device sales. On the heels of five orthopedics manufacturers' settling for more than $300 million with the government comes a report that orthopedics device companies are now being looked at by the SEC regarding their overseas sales. Biomet, Zimmer, Smith & Nephew, Stryker and Medtronic have all received letters from the agency "indicating an informal investigation into possible violations of an act meant to stop improper payments to foreign officials," reported the Wall Street Journal on Oct. 15.

Sign FASAPAC's solicitation authorization form. Please download FASAPAC's solicitation authorization form, fill it out and return to FASAPAC.

City of Joliet challenges hospital relocation. For a copy of a white paper regarding the opposition by the city of Joliet, Ill., to the proposed relocation of Silver Cross Hospital to outside Joliet, please go to and look under "Hot Topics," or e-mail Scott Becker.

New: Orthopedic and Spine Medical Device Market Letter. We have an outstanding piece on ASCs' buying orthopedic devices and implants that features talks from Drs. Larry Teuber and John Cherf scheduled for the introduction of the orthopedics and spine medical device market letter, to be provided along with the Jan./Feb. issue.

Update on the Jan./Feb. issue. Our Jan./Feb. issue will as always highlight 40 companies to watch in the ASC industry. This is limited to companies that develop, manage or own ASCs. It will also include extensive coverage of bariatrics and adding weight-loss surgery to ASCs.

Welcome new advertisers. We greatly appreciate some of the newer advertisers to the ASC Review: HBE, a design build firm; Sanders Trust, a buyer of healthcare real estate; JCB, a leading lab company in ASC space; KayeBassman, a leading search and deal firm in ASC space; SourceMed, a leading software firm in the space; zChart, a terrific EMR company; KBKG, which focuses on cost segregation studies; Surgical Management Professionals, a terrific management and development firm; and BBraun, one of the finest medical equipment and device firms.

Thank you advertisers. We are also thankful to recent '08 full-year renewal advertisers, such as McShane, a leading build and design firm; Eveia, the best managed care contract negotiation firm in the business; ASCOA, one of the very best management firms and led by brilliant management; Somerset CPAs, an outstanding ASC-focused accounting and business firm; and CIT, a leading ASC finance firm with tremendous breadth.

Ask Scott Becker. If you have an ASC-related legal or business question, e-mail Scott, and we'll publish the answer in a future E-Weekly. Please indicate when asking whether you prefer to remain anonymous.

Call for proposals. We are seeking speaking proposals for the Orthopedic, Spine, and Pain Management Driven ASC Conference, to be held in Chicago June 19 to 21. Should you have suggestions, please e-mail Scott Becker by early November.

Subscribe to ASC Review
Guide the Future of Orthopedics: Join the Next Webinar
At a Glance: "Key Thoughts on The Orthopedics Industry"

What you will learn: There are two key issues that will be the focus of the Webinar:

  1. A forecast for the next 10 years in orthopedics; and

  2. how ASCs, hospitals and medical device companies should work with orthopedic surgeons.

Who should attend: C-level hospital leadership, vice presidents and other leaders who who work in a orthopedic-physician-relations capacity, orthopedic physician leaders, ASC administrators, ASC owners, and ASC and medical device companies.

When: Wednesday, Dec. 5 at 2 p.m. CST (running time: 60 to 90 minutes)

About the speakers: John Cherf, MD, MBA, MPH, is an orthopedic surgeon at the Chicago Institute of Orthopedics, a clinical advisor for Sg2 and a thought-leader in orthopedics. Dr. Cherf founded the Midwest Orthopedic Institute, an orthopedic physicians group with full integration of diagnostic imaging, rehabilitation, ambulatory surgery and occupational medicine under one roof. He presently practices in Chicago and is once of the founding members of the Chicago Institute of Orthopedics. With more than 15 years' experience and fellowship training in sports medicine, he has served as team physician for several collegiate and professional sports teams in addition to U.S. Soccer. Dr. Cherf has published in numerous peer review journals, speaks internationally, and serves on several advisory boards for healthcare-related businesses.

Scott Becker, JD, CPA, is a partner in and co-chair of the health depatment at the national law firm of McGuireWoods in Chicago. For more information, visit his McGuireWoods profile or

Cost: $199 if registering before Nov. 19 (save $50!).

How to register: There are five easy ways.

  1. Fill out and submit the online registration form.

  2. E-mail Jessica Cole.

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Companies to Watch

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

Pinnacle III. Pinnacle III specializes in the operational development, management, select management, and billing for ASCs. Whether you are a physician group, hospital or hospital joint-venture, Pinnacle III delivers proven success in both single and multi- specialty ASCs throughout the country. Pinnacle III is one of the most flexible development and management companies in the industry offering both equity and non-equity models. The Pinnacle Centralized Billing Office provides ASCs with experience, service and savings. Its billing experts assist your facility by lowering A/R days, reducing overhead and improving cash flow. For more information, visit Pinnacle III online.

Medical Facilities Corporation. Medical Facilities Corporation is a publicly traded company and a leading acquirer of majority interests in high quality specialty hospitals and ASCs. Founded and managed by physicians and with a market capitalization over $300 Million, MFC is the ideal partner for physician owners. MFC permits physician owners to retain local operational control while benefiting from being part of a larger prestigious healthcare organization. MFC currently owns an interest in four specialty hospitals with a total of 28 operating rooms, 51 recovery beds and more than 500 physicians and surgeons. Visit MFC's Web site or contact Steven Hartley at (866) 766-3590 x105.

KBKG Cost Segregation Specialists. Might you own or are you building a healthcare facility? Are you a "for-profit" tax entity? If the answers are "yes," you should apply cost segregation. Cost segregation is an IRS-approved strategic tax-saving tool that allows healthcare facility owners to increase cash flow by accelerating depreciation. KBKG has conducted thousands of engineered-based cost segregation studies since 1999, resulting in the deferral of hundreds of millions of dollars in taxes. KBKG advantages: Its unmatched team of engineering and tax professionals, competitive pricing, quick turnaround time, "bulletproof" reports, IRS audit support and leading industry educators. For further information, e-mail Ray Irving, call him at (866) 412-6911 x. 702 or visit KBKG online.

Serbin Surgery Center Billing. With the upcoming Medicare ASC payment changes and the ever-changing complexity of ASC billing, many ASCs are looking for solutions to their billing and collection needs. Serbin Surgery Center Billing was founded in 2001 to provide the answer to this much-needed service. SCB concentrates on the unique needs of surgery centers and provides expert and accurate coding, billing, collections, and managed care negotiations solely to the ASC industry. The company's certified and experienced coding, billing, and collection personnel bill and collect over $25 million per month due to their extraordinary attention-to-detail in all aspects of the reimbursement process. SCB's extensive knowledge of payor responsibilities and managed care contracting ensures you'll receive the highest reimbursements possible. By outsourcing to SCB, ASCs can eliminate the headache and necessary evil of billing and collections while simultaneously realizing additional benefits. Claims are processed more rapidly, collections are improved, and office staff is not burdened with patient billing questions. For more information, contact SCB at (866) 889-7722.

*           *           *

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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