Is the proposed location of the ASTC a rural area under the rural provider exception in section 1877(d)(2) of the Act (referencing the rural definition in section 1886(d)(2)(D) of the Act)?

Physicians R Us (the “Company”) is proposing to build an ambulatory surgical treatment center (“ASTC”) that will provide outpatient ambulatory surgery and ancillary services. To help with financing the ASTC, Company intends to sell shares of the company to physician investors who will utilize the facility and refer patients to the ASTC (the “Proposed Arrangement”). As members of the Physicians R Us Advisory Board (the “Board”), you have been asked to give an advisory opinion regarding the Proposed Arrangement.
Specifically, the Board is being asked to opine whether a physician’s referrals for certain services are prohibited under section 1877 of the Social Security Act (the “Act”). In your response, address the following questions:
1. Would the investment in and ownership of the ASTC by physicians, who will refer patients to the ASTC and who will perform surgeries at that ASTC, violate the prohibition in section 1877 of the Act against certain physician referrals?
2. Is the proposed location of the ASTC a rural area under the rural provider exception in section 1877(d)(2) of the Act (referencing the rural definition in section 1886(d)(2)(D) of the Act)?
3. Would the rural exception in section 1877(d)(2) of the Act apply to the proposed ASTC arrangement?
4. Under section 1877 of the Act, can non-surgeon physician investors in the ASTC refer patients there without violating the Federal prohibition against referring patients to an entity with which a physician has a financial relationship?
In issuing your written opinion, you may rely solely on the facts and information presented to you. There is no need to undertake an independent investigation of such information or to address specific issues of state law. Please limit your opinion to the facts presented.
In building the ASTC, the Company formed an ASTC Investment Team comprised of the CEO and other Company executives to work of the details of the Proposed Arrangement. The CEO has requested that the Board meet with the ASTC Investment Team to discuss the Proposed Arrangement and the Board’s findings. The Chair, on behalf of the Board, should be prepared to lead the discussion regarding the Board’s findings, including the applicable law and how the Board arrived at its opinion.
FACTUAL BACKGROUND
Physicians R Us, a newly formed limited liability company in the state of Dixon, is proposing to build and operate an ambulatory surgical treatment center (“ASTC”). CEO indicates that the ASTC will provide outpatient ambulatory surgery as well as ancillary services such as clinical laboratory services, radiology services, ultrasound, parenteral nutrients, and outpatient prescription drugs. It is expected that physician investors will refer some patients for services furnished by the ambulatory surgical center located
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within the ASTC. These ambulatory surgical services will be furnished by the part of the facility that meets the ambulatory surgical center conditions and requirements in section 42 C.F.R. Part 416. In addition, physician investors will also refer patients for other services to parts of the facility that are not included within the ambulatory surgical center.
The ASTC will be located in Mason, Dixon, which is in Dansbury County. The Company expects that substantially all of the designated health services provided by the ASTC will be furnished to individuals residing in a rural area. The Company indicates that, upon completion, the ASTC will be the first such center located in Dansbury, County.
In order to finance the construction and operation of the ASTC, the Company will sell shares of the company to investors. The investors will be physicians who will refer patients to the ASTC. Further, some of these physicians will perform medical and surgical procedures at the ASTC. The Company expects that physician investors will refer Medicare beneficiaries to the ASTC.

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