In recent years, it has become increasingly popular for physicians to obtain investment and ownership interests in ambulatory surgery centers (ASC’s). The business motivations behind physician involvement in ASC’s are clear: those facilities are often very profitable and physician-investors have a fair amount of industry knowledge to support informed investment decisions. A recent lawsuit in Tennessee, however, could call into question the appropriateness of some ASC investments.
Under the False Claims Act, a private citizen can bring a “qui tam” lawsuit on behalf of the U.S. government against a violator of the Act and receive a portion of any settlements or judgments against the violator. When a citizen brings a qui tam action, they are referred to as a “relator,” and the United States government has the ability to intervene in the suit against the violator, or simply allow the relator to proceed against the violator and collect the balance of any judgment or settlement, less the relator’s share.
In September, Meridian Surgical Partners, a Tennessee-based operator of ambulatory surgery centers, agreed to pay $3.3 million to settle a qui tam lawsuit brought by a former manager of one of Meridian’s ASC facilities, the Treasure Coast Center (TCC). The former TCC manager, Mr. Thomas Simmons, alleged in his lawsuit that Meridian had engaged in a kick-back scheme by paying investor physicians inflated returns based upon their respective referral volumes, and by rewarding high-referral physicians with minority ownership interests in the ASC at reduced costs. In support of his allegations, Mr. Simmons alleged that Meridian’s initial purchase of the ASC was based upon a valuation of the facility’s earnings, rather than assets, and was therefore above market value, which in turn led to excessive distributions and benefit to the investor-physicians.
Though the government ultimately declined to intervene in the Meridian case, and though Meridian maintains that the allegations in Mr. Simmons’ lawsuit were baseless, the $3.3 million settlement has caused many people to take a second look at the compensation and investment-distribution structures of physician-owned ambulatory surgery centers. It is important, then, for physicians and facility-owners alike to take extensive efforts to analyze and verify the formalized valuation methodology for pricing ASC acquisition and physician investment, typically through the use of an independent, third-party valuation. Not only will appropriate valuation ensure that an ASC investment is sound, it can also help to protect the facility and physician-investors from the risk of government action and qui tam litigation.
Dallas-Fort Worth Health Law Resource 