Navigating ownership and succession planning for ambulatory surgery centers: Legal compliance, safe harbors, and best practices

As ambulatory surgery centers (ASCs) continue to attract physician investors and healthcare entrepreneurs, the promise of financial returns and clinical autonomy is often matched by a complex web of legal, regulatory, operational, and succession planning challenges. Whether you are a seasoned ASC owner, a physician considering your first investment, or a practice administrator tasked with ensuring compliance, understanding the nuances of ASC ownership and the intricacies of succession planning is essential to safeguarding both your investment and the long-term stability of the center.

Poorly structured buy-in or redemption arrangements can expose all parties to significant legal and financial risks, including violations of the federal Anti-Kickback Statute (AKS), disputes among partners, and threats to the ASC’s operational continuity. Enforcement actions and evolving guidance from the Office of Inspector General (OIG) for the Department of Health and Human Services (HHS) underscore the importance of structuring ownership and exit strategies that reflect fair market value, real business risk, and clear, well-documented processes.

By addressing these topics, we aim to provide ASC stakeholders with a roadmap for building resilient, compliant, and profitable centers—where investment and succession planning are not afterthoughts, but foundational elements of long-term success.

The federal Anti-Kickback Statute: Statute and regulatory citations

A main area to analyze ownership against is the federal Anti-Kickback Statute (AKS). AKS is both a criminal and civil law that prohibits the knowing and willful exchange, offer, or receipt of any remuneration to induce or reward referrals of items or services reimbursable by a federal healthcare program, such as Medicare or Medicaid.  The statute is codified at 42 U.S.C. § 1320a-7b(b), and the regulatory safe harbors are found at 42 C.F.R.  § 1001.952.

Violations of the AKS can result in severe penalties, including fines, exclusion from federal healthcare programs, and even criminal prosecution.  The AKS is an intent-based statute, meaning that arrangements are evaluated based on the intent behind them, not just their structure. While not automatic, violations of the federal AKS can also be considered and tried under the False Claims Acts which includes similar penalties. As the risks of violations of AKS are high, taking considerable time and effort to ensure compliance may significantly reduce burdensome scrutiny and penalties from regulators in the future.

Note, individual states often have their own version of an anti-kickback statute that can be as stringent or even more in some cases. While this article will not address those state level statutes, it is just as important to run an analysis of the considerations listed in this article against those laws as well.

ASC safe harbors: Statutory and regulatory framework

To provide clarity and protection for certain business arrangements from prosecution, HHS has established regulatory "safe harbors" under the AKS. For ASCs, the relevant safe harbor regarding ownership is found at 42 C.F.R.  § 1001.952(r). There are four main categories of ASC safe harbors:

1. Surgeon-owned ASCs
2. Single-specialty ASCs
3. Multi-specialty ASCs
4. Physician/hospital-owned ASCs

Each category has specific requirements, but several core elements are consistent across all ASC safe harbors that must be met to qualify for any of these safe harbors:

• Investment terms must not be related to the volume or value of referrals.
• No loans or loan guarantees by other investors are allowed.
• Distributions must be directly proportional to the amount of the investor’s capital investment.
• All ancillary services must be directly and integrally related to the primary procedures performed at the ASC and not separately billed to Medicare.
• Medicare patients must be treated in a non-discriminatory manner.
• Patients must be fully informed of the physician’s ownership interest.

Quantitative "One-Third" tests for physician ownership

There are also specific quantitative tests for this safe harbor for physician ownership:

• Single-Specialty ASCs: Each physician investor must derive at least one-third of their medical practice income from all sources for the previous fiscal year or 12-month period from the performance of ASC-eligible procedures (42 C.F.R. 1001.952(r)(3)).
• Multi-Specialty ASCs: Each physician investor must meet the one-third income test above, plus at least one-third of the ASC procedures performed by the physician in the previous year must be performed at the ASC in which they have an ownership interest (42 C.F.R. 1001.952(r)(4)).

Operating outside the safe harbor: OIG guidance and risk assessment

Failing to meet a safe harbor does not automatically mean an arrangement is illegal under the AKS. As previously stated, AKS is an intent-based statute that that requires evidence that an inducement occurred as a result of prohibited conduct, but, to maintain operations and financial liability, ASCs and providers should strive to demonstrate compliance upfront as to not invite additional scrutiny from regulators that is costly to fight. Therefore, if an arrangement cannot fit into a safe harbor, documenting intent for an arrangement serves to be an extension of a physician’s practice rather than a  passive investment is imperative. To analyze intent, the OIG evaluates arrangements based on the totality of the facts and circumstances, focusing on whether the arrangement is designed to reward referrals or induce business.

Operating outside a safe harbor cannot guarantee protection for AKS repercussions, but OIG Advisory Opinions provide valuable, though non-binding, guidance on how the agency views specific arrangements and whether or not they are likely to pursue action with certain arrangements. Regarding ASC ownership, OIG Advisory Opinion 23-07 was a recent and significant development guiding ASCs as it approved a revenue-sharing model for employed physicians (not owners) under the employment safe harbor, provided the physicians met the IRS definition of a bona fide employee and compensation was not based on the volume or value of referrals.  This is a departure from previous practice as historically distributions could only be made in accordance with one’s investment.

OIG opinions often indicate whether an arrangement is "low risk" for prosecution, offering a roadmap for structuring permissible arrangements even outside the safe harbor. In other opinions: the OIG has usually stressed the consideration for when they would consider prosecution by analyzing the below factors:

• Whether physician-investors refer patients for procedures they do not personally perform.
• Whether physician-investors use the ASC for their own procedures.
• The reasons for failing the one-third test (e.g., high inpatient volume).

OIG wants to see physician investors using the ASC as an extension of their practice and not merely acting as passive investors collecting a check for what looks like referrals to the ASC.  Entities can operate outside the safe harbor and lower risk of violating AKS by doing the following:

• Ensuring that the investors document good faith efforts to comply with AKS safe harbors.
• Avoiding selective waivers of eligibility requirements, which can increase risk of arrangement being seen as providing a break on expectations for an investor in return for referrals.
• Maintaining transparency and documentation of the business purpose for all arrangements that demonstrate the intent is geared toward being an extension of the physician’s practice.
• Seeking legal counsel to review any arrangement that does not clearly fit within a safe harbor and if physicians aren’t clearly passing the 1/3 tests.

Fair market valuation and selling shares

Fair market value (FMV) is a critical compliance requirement when selling shares in an ASC. The price at which shares are sold must reflect the true economic value of the ownership interest, independent of any potential or actual referrals a physician may generate.  If shares are sold at a price above or below FMV, it could be interpreted as an inducement or reward for referrals, which is prohibited under the federal AKS. 

The ASC safe harbor under 42 C.F.R.  § 1001.952(r) requires that distributions and investment terms not be related to the volume or value of referrals, and that payments to investors be directly proportional to their capital investment. FMV ensures these requirements are met.  Using FMV, ideally determined by a third-party valuation, provides a defensible position if the transaction is ever scrutinized by regulators.  It demonstrates that the transaction was conducted at arm’s length, or that the parties acted independently with equal bargaining power and not influenced by referral potential. Every time a new physician buys in, care must be taken to determine the FMV at that time. Units should not be sold at a discount from the current FMV, and the price should not be set in advance or based on a formula that could be manipulated by referral volume or value.

Third-party valuations are usually the gold standard for determining FMV, but there has been a degree of frequency and acceptance by those in the ASC industry to set buy-out and buy-in price at a multiple of three (3) times EBITDA minus long term debts to be used as a reflection of FMV. However, even if the ASC sells shares regularly in using this calculation, always ask if valuation actually reflects EBITDA going forward. If the three (3) multiplier is too far off from what you would expect, then you should reassess the mechanism for determining FMV.

Group investments are generally more defensible when all group members are expected to meet eligibility requirements. For group investors, individuals of the group still have tests applied to each individual person for 1/3 tests. If the group includes non-surgeons or physicians unlikely to meet the one-third tests, regulatory risk increases. Special regulatory analysis and accommodations in eligibility language may be necessary, and the intent behind the arrangement is key. A general rule to consider though is under AKS it is usually more defensible when referring within a group and less defensible when referring outside the group.

Special physician investor types: Anesthesiologists, Plastic Surgeons, and Primary Care Physicians

When considering types of physician investors, it is a good place to start looking at which investors can meet the “1/3” tests discussed previously. The below types of investors commonly will not pass the “1/3” tests but are considered lower risk investors when operating outside of the safe harbor.

• Anesthesiologists: These physicians are generally seen as a lower risk investor. While they likely in a number of arrangements do not meet the “1/3” test requirements, their role is usually limited to providing anesthesia for procedures performed by others, so the opportunity for them to generate business for the ASC through referrals is minimal, except in certain pain management scenarios. However, if anesthesiologists are involved in arrangements that allow them to profit from referrals or from services they do not personally perform, the risk increases and should be more carefully analyzed.
• Plastic Surgeons: The physician may own shares even if they do not meet the one-third test. Plastic surgeons generally fail to meet the requirement that “one-third of their medical practice income from all sources for the previous fiscal year or 12-month period from the performance of ASC-eligible procedures” as they take a majority of procedures that are not covered by Medicare. However, provided they are not passive investors, and the arrangement is not designed to reward referrals, plastic surgeons are usually a lower risk investor type.
• Primary Care Physicians: These physicians pose significant risk as investors due to their potential as passive investors and referral sources. These arrangements require careful analysis and are often discouraged.

Redemption in ambulatory surgery centers : Definition and key issues

Redemption in the context of ASCs refers to the process by which the ASC or its owners repurchase a physician’s ownership interest (shares or units) in the center. This typically occurs when a physician leaves the ASC due to retirement, death, disability, voluntary withdrawal, or for-cause termination. The terms of redemption—including the price, timing, and triggering events— are usually set forth in the ASC’s operating, shareholder, or buy-sell agreement.

AKS issues with common redemption structures

Redemption provisions should be clearly defined in the ASC’s governing documents and comply with AKS, meaning there should not be a baked-in discount to entice an investor to invest in hopes of volume or value or referrals and with a reward on the back end The ASC safe harbor requires that investment terms, including redemption, be at FMV and not related to the volume or value of referrals.  Redemption terms that contain the below numbered items will more likely be treated as a violation of the federal AKS.

1. Flat buy-In and flat redemption price

In this scenario the ASC sets a fixed price for physicians to buy in and promises that the same fixed price will be paid upon redemption, regardless of the ASC’s performance or valuation at the time of exit. This structure removes the element of business risk, as the physician is assured of getting back exactly what was paid in, regardless of the ASC’s financial performance. OIG has consistently viewed this as problematic because it can be interpreted as a sham investment, potentially disguising a payment for referrals rather than a bona fide business investment. Also, a static price does not reflect changes in the ASC’s value over time and is unlikely to represent FMV at both entry and exit.

1. Guaranteed redemption amount in governing documents

The ASC’s governing documents guarantee a specific amount to be paid to a physician upon redemption, regardless of the ASC’s actual value at the time. Like the flat price model, this structure insulates the physician from the ASC’s business risks, making the investment appear more like a risk-free reward for referrals. The OIG has specifically warned that such arrangements may be viewed as disguised as kickbacks, as they do not reflect a true risk-based investment. Additionally, the guaranteed amount may not align with FMV at the time of redemption, further increasing AKS compliance risk.

1. ASC financing the physician’s investment

The ASC or its owners finance the physician’s buy-in, such as by allowing payment in installments or through a promissory note, rather than requiring an upfront payment.  This can be seen as the ASC subsidizing the physician’s investment, which may be interpreted as remuneration for referrals.  OIG discourages ASC- or owner-financed buy-ins, as they undermine the requirement that the physician’s capital be at real risk. Even if the physician is ultimately at risk for the full amount, the structure can still raise red flags unless the physician is fully at risk from day one (e.g., through a security interest or personal guarantee). Additionally, OIG is always concerned that there could be off the books loan forgiveness. Third-party (bank) financing is generally permissible, as it does not involve the ASC or its owners and the arrangement is more likely to have risk bearing terms enforced.

Clearly defining redemption triggers

Below is a list of common scenarios to contemplate for redemption clauses and notes on compliant handling of such terms.

• Automatic Redemption Events
  • Death of a Partner. The estate is typically paid the decedent’s share of current year net income and the book or adjusted value of the shares. Some centers use life insurance to fund the buyout. There is often debate about whether to include any value for future income streams, as surgical volume may not remain after the physician’s death.
  • Permanent Disability (as defined in the agreement). After a defined period of disability, the partner’s interest is redeemed, often with a payout like the death provision but reduced by any distributions received during disability. Extended payout terms are common to protect the ASC’s cash flow.
  • Retirement (often with advance notice required). Payouts may be discounted if multiple partners retire simultaneously to protect the ASC’s finances.
  • Loss of medical license or hospital privileges
  • Bankruptcy or Insolvency
• Involuntary Redemption Events
  • For-Cause Termination (e.g., breach of agreement, criminal conviction, loss of insurance). Payouts are often limited to book value and may be further discounted as a penalty
  • Failure to Meet Eligibility Requirements. While these consider the ASC safe harbor requirements, I suggest not making the language so stringently in line with the safe harbor with in the operating agreement as to allow for physician investors that could comply outside the safe harbor.
  • Material Breach of the Operating or Shareholder Agreement.
• Voluntary Redemption
  • Physician decisions to withdraw or sell shares are often subject to notice and approval provisions. Agreements may allow voluntary withdrawal but often impose penalties (e.g., reduced payout) for early exit to discourage short-term investment and protect the ASC from financing competition.

Best practices and recommendations for ASC ownership, redemption, and AKS compliance

Ensuring compliance with federal regulations and maintaining the financial integrity of Ambulatory Surgery Centers requires a thoughtful and methodical approach to structuring ownership, investment, and redemption arrangements. By following these best practices, ASC stakeholders can help safeguard their organizations against regulatory risk while supporting long-term operational success.

Determining FMV

• Do not offer more or fewer shares, or adjust the price, based on referral potential.
• Do not reallocate shares based on referral volume.
• Avoid providing revenue estimates tied to referrals.
• Do not pressure low-referring physicians to withdraw or shift referral patterns.
• Use subscription agreements and ensure all transactions are at FMV, supported by third-party valuations when possible.

Ownership and Investment

• Require all physician investors to pay FMV for their shares, ideally determined by a third-party valuation.
• Ensure that all investors take real business risks meaning there are no guaranteed returns, static pricing, or ASC-financed buy-ins.
• Avoid any investment terms tied to the volume or value of referrals.
• Do not pressure low-referring physicians to sell shares and do not appear to suggest this in language or practice.
• While potential physician investors can generate their own estimates on how much to expect from their investments, ASCs should not produce tailor estimates for physicians.

Redemption Provisions

• Clearly define all triggering events for redemption (death, disability, retirement, voluntary/involuntary termination).
• Specify the valuation method for redemption (preferably FMV at the time of redemption, not a fixed or guaranteed amount).
• Avoid partial redemption and ensure that redemption pricing mechanisms are consistent with FMV.
• Include provisions for penalties or discounts for early or for-cause termination but ensure these are commercially reasonable and documented.
• Avoid partial redemptions unless necessary to resolve disputes.
• Do not vary the price or payment mechanism from the operating agreement except to facilitate dispute resolution.
• Use a consistent, objective method for valuation if not getting a third-party valuation, such as a multiplier of three (3) of EBITDA minus long-term debt but always confirm that the valuation reflects future earnings potential.

Compliance with AKS Safe Harbor

• • Structure all ownership and redemption arrangements to fit within the ASC safe harbor whenever possible.
  • If operating outside the safe harbor, conduct a thorough risk analysis and document the business purpose and FMV of all transactions.
  • Avoid any appearance of rewarding referrals through investment or redemption terms.
  • If working outside the safe harbor, try to document how ownership is a true extension of the physician’s practice and not acting as a passive investor.

Documentation Practices

• • Maintain detailed, contemporaneous documentation of all buy-in and redemption transactions, including third-party valuations and board approvals.
  • Require annual attestations from physician investors that they meet eligibility requirements (e.g., one-third tests).
  • Periodically review and update operating agreements to reflect current law, best practices, and the ASC’s operational realities.
  • Obtain releases and indemnifications from departing physicians upon redemption to minimize future disputes.

ASC ownership must be carefully structured to ensure compliance with the Anti-Kickback Statute and to protect the integrity and financial stability of the ASC. Ongoing collaboration with legal counsel is critical to compliant and sustainable ASC succession planning to maintain and grow ASC operations. If you have any questions or want to review succession plans with legal counsel, please feel free to reach out to me at rcarey@mcdonaldhopkins.com.