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Important Regulatory Developments Impacting Ambulatory Surgery in Healthcare Systems

August 26, 2021

The inpatient setting has always been the most recognized component in healthcare due to its prominence and resource-intensive nature. In terms of activity, however, the ambulatory setting is the most prolific. And within the ambulatory realm, ambulatory surgery centers (ASCs) are one of the most necessary and strategically crucial elements of a health system, specialty physician group, or community.

ASCs perform a variety of functions in healthcare delivery, including the following:

  • Segregation of cases by complexity
  • Ease of access and patient convenience
  • Physician efficiency
  • Physician integration and partnership
  • Capacity
  • Managed care contracting
  • Physical presence and branding
  • Lower cost for the consumer versus inpatient surgery

Two recent developments are impacting ASCs, and it’s important for healthcare providers to understand the implications.

Inpatient-Only List (IPO)

The IPO list has been revived. On Dec. 2, 2020, Medicare announced the elimination of the IPO through a phased four-year process. Then, on July 19, 2021, they reversed course. The IPO is not going away, and many or all of the procedures removed from the IPO in 2021 will be back on the list in 2022. The IPO will be finalized later in the year as per the Centers for Medicare & Medicaid Services’ (CMS) normal regulatory process, likely in November.

Concurrent to the IPO changes, CMS clarified that procedures removed from the IPO list would be exempt from medical review for the two-midnight policy. The implication was that even though these procedures are permissible as an outpatient procedure, doing them as an inpatient procedure would not warrant scrutiny – at least for a period of time. Consistent with the reversal of the IPO list, the two-midnight policy application to these cases has been reverted to its pre-2021 status.

Hospital ASC Ownership Opinion

On April 29, 2021, the Department of Justice’s Office of Inspector General (OIG) released Advisory Opinion (AO) 21-02 on ASC ownership by hospitals and physicians. In general, hospital-physician ASC joint ventures have the hospital as the majority owner. The general thinking being that higher physician equity increases the regulatory risk to the hospital. And hospitals can frequently utilize their existing managed care contracts and realize higher reimbursements than the physicians could as a new provider. Physicians do frequently own ASCs outright without a hospital partner despite the lower reimbursement, commonly partnering with an ASC management company to provide expertise and capital. The new AO has clarified that, with proper safeguards, the hospital partner can own less than 50%. A large portion of the AO detailed the safeguard provisions the hospital will enact to ensure compliance, which the OIG found acceptable.

Of further interest, the surgeons involved in the ASC joint venture were also employed physicians. And while it was not directly posed by the requesting hospital, it is noteworthy that the OIG did not belabor this point in its analysis. The earnings generated from a physician’s ownership interest in an ASC are paid as distributions. They are not compensation for clinical services but are investment proceeds. This AO appears to tacitly indicate that the OIG does consider those as separate, rather than combined, activities.


ASCs have always been an important component of the care continuum. Recent regulatory changes have strengthened the role they play. And while the elimination of the IPO list will not happen immediately, CMS is recognizing that more procedures can be safely performed in ASCs as medical devices and technology continue to improve.

The OIG AO provides insight for hospitals and physicians that a properly structured ASC joint venture between a hospital and an employed physician does not introduce an added compliance risk, if safeguards are present.

If you need help navigating the potential impacts discussed above please reach out to your KSM advisor or complete this form.

David Blish Director, Healthcare Consulting

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