Ambulatory Surgery Center (ASC) Operating Agreement

AMBULATORY SURGERY CENTER OPERATING AGREEMENT

RECITALS

WHEREAS, the undersigned Managers wish to form and operate an Ambulatory Surgery Center (ASC) as a limited liability company under the laws of [State]; and

WHEREAS, the Managers intend to establish an operating agreement governing their rights, duties, capital contributions, distributions, and management responsibilities;

NOW, THEREFORE, in consideration of the mutual covenants herein, the parties agree as follows:

ARTICLE I: FORMATION AND STRUCTURE

Section 1.1 Formation

The Ambulatory Surgery Center shall be formed as a limited liability company (the "Company") under the [State] Limited Liability Company Act. The Articles of Organization, as amended, are attached as Exhibit A.

Section 1.2 Name and Principal Place of Business

The name of the Company is: [ASC NAME], LLC

The principal place of business is located at:
[________________________________], [State] [______]

Section 1.3 ASC Designation and Medicare Provider Status

The Company shall be licensed as an Ambulatory Surgery Center under [State] law and shall obtain and maintain a Medicare provider agreement as required by [State] Board of Health and applicable federal law. All physician-investors must comply with physician-owner limitations and supervision requirements.

Section 1.4 Term

The Company shall commence on the date the Articles of Organization are filed and shall continue until dissolved in accordance with Article X.

ARTICLE II: MEMBERSHIP, UNITS, AND INVESTOR CLASSIFICATIONS

Section 2.1 Member Categories

Members fall into the following categories:

☐ Physician-Investors: Licensed physicians who meet Anti-Kickback Statute safe harbor requirements (42 CFR § 1001.952(r)):

• Hold valid medical license in [State]
• Perform substantial clinical work at the ASC
• Invest capital proportional to their ownership interest

☐ Non-Physician Investors: Healthcare professionals or healthcare entities permitted under [State] law and not prohibited by Stark Law (42 U.S.C. § 1395nn):

• [Specify: nurses, anesthesiologists, hospital systems, management companies]

☐ Managing Members: Designated managers responsible for operations and governance

☐ Passive Members: Capital contributors with distributions only

Section 2.2 Units of Membership Interest

Membership interests shall be divided into units of equal value. Each unit represents [1/____] of the total Company interest.

Exhibit B contains the Member Schedule showing:

• Member name and category
• Capital contribution amount
• Number of units owned
• Percentage ownership
• Physician license number (if applicable)
• Home state of medical practice

Section 2.3 Certificate of Membership

The Manager(s) shall issue a certificate of membership to each Member evidencing their units and ownership percentage. Certificates shall note transfer restrictions per Article VI.

ARTICLE III: CAPITAL CONTRIBUTIONS

Section 3.1 Required Contributions

Each Member shall contribute capital in accordance with Exhibit C (Capital Contribution Schedule). Contributions must be made in:

☐ Cash
☐ Medical equipment
☐ Real property leasehold interest
☐ Promissory notes (if permitted by Managers and compliant with anti-kickback standards)

Section 3.2 Timing of Contributions

Initial capital contributions shall be made on or before [date], or as otherwise agreed in writing. The Managers may require additional capital contributions:

• To meet ASC licensing and operational startup costs
• To maintain required working capital reserves
• To fund material capital improvements
• Upon vote of Members holding [__]% of units

Section 3.3 Non-Refundable Contributions

All capital contributions are non-refundable except upon redemption (Article VIII) or dissolution (Article X). Members receive no guarantee of return of capital.

Section 3.4 Liability for Contributions

No Member shall be liable for contributions beyond the capital amount committed in writing. However, this limitation does not apply to fraud, breach of fiduciary duty, or violation of law.

Section 3.5 Anti-Kickback Compliance

Contributions must be proportional to the Member's actual percentage ownership interest and expected clinical or administrative involvement. Contributions shall NOT be:

• Contingent on the Member's referrals to the ASC
• Proportionally higher than the investor's capital commitment percentage
• Used to circumvent Stark Law prohibitions

ARTICLE IV: MANAGEMENT AND GOVERNANCE

Section 4.1 Management Structure

Option A: Manager-Managed

The Company shall be manager-managed. The following persons are designated as Managers:

Option B: Member-Managed

The Company shall be member-managed. All Members participate equally in management decisions.

Section 4.2 Board of Managers / Board of Directors

The Managers shall form a Board comprising:

☐ Chair (designation: [__] term)
☐ Secretary
☐ Treasurer
☐ [__] Independent Member(s)

The Board shall meet [quarterly / semi-annually / as needed] to:

• Review clinical and financial performance
• Approve capital expenditures exceeding $[amount]
• Ensure safe harbor compliance
• Approve new physician members
• Review billing and coding practices

Minutes shall be maintained and retained for [__] years.

Section 4.3 Powers of Managers

Managers are authorized to:

1. Hire and terminate employees and independent contractors
2. Execute contracts for ASC operations, equipment, supplies
3. Manage bank accounts and investments
4. Obtain insurance and enter into banking arrangements
5. Execute loan agreements up to $[amount] without Member vote
6. Hire and supervise medical director and administrative staff

Section 4.4 Member Decisions Requiring Vote

The following actions require approval of Members holding [__]% of units:

☐ Amendments to this Operating Agreement
☐ Admission of new Members
☐ Sale or dissolution of the Company
☐ Merger or consolidation
☐ Changes to capital contribution requirements exceeding [__]% of total
☐ Changes to distribution methodology
☐ Loans to Members
☐ Related-party transactions exceeding $[amount]
☐ Changes to ASC specialty focus or clinical scope

Section 4.5 Fiduciary Duties

All Managers and Members holding [__]% or more of units owe fiduciary duties of loyalty and care to the Company. Duties include:

• Acting in good faith and in the Company's best interests
• Refraining from self-dealing without disclosure and Member approval
• Maintaining confidentiality of proprietary Company information
• Competing fairly and disclosing conflicts

Section 4.6 Indemnification

The Company shall indemnify Managers and Members for losses incurred in good-faith performance of duties, except for fraud, negligence, or breach of this Agreement. The Company shall maintain Directors & Officers (D&O) liability insurance.

ARTICLE V: DISTRIBUTIONS

Section 5.1 Distribution Methodology

Distributions shall be made proportionally based on each Member's ownership percentage (not referral volume, case count, or case complexity).

Distribution Formula:
Member Distribution = [Total Distributable Cash] × [Member % Ownership]

Section 5.2 Timing and Frequency

Distributions shall be made:

☐ Quarterly within [30 / 60] days of quarter-end close
☐ Semi-annually within [60 / 90] days of period-end
☐ At year-end after accounting close and tax provisions

The Managers may withhold distributions to:

• Maintain operating reserves of [____] months' expenses
• Fund approved capital expenditures
• Satisfy debt obligations
• Comply with licensing or regulatory requirements

Section 5.3 Distributions Proportional to Capital (Safe Harbor Compliance)

Returns to investor-members shall be:

1. Directly proportional to capital invested: Member receives [X]% of distributions if Member invested [X]% of total capital
2. NOT conditioned on referrals: No Member shall receive increased distributions based on cases referred to the ASC
3. NOT conditioned on volume: Distribution amounts shall not vary based on clinical activity, case load, or patient revenue generated
4. At risk: Members share in operating losses and negative cash flow

Section 5.4 Minimum Annual Distributions

The Company shall distribute [__]% of net income annually or maintain a distribution reserve subject to Board approval.

Section 5.5 Special Distributions

The Managers may make special distributions of sale proceeds, refinancing, or insurance recoveries. Special distributions shall be made pro-rata to ownership unless otherwise agreed in a written amendment.

Section 5.6 Tax Distributions

The Company may make tax distributions sufficient to cover each Member's estimated tax liability on pass-through income. Tax distributions shall be calculated based on each Member's pro-rata share of taxable income.

Section 5.7 No Right to Demand Distribution

Except as required by law, Members have no right to demand distribution or withdrawal of capital.

ARTICLE VI: TRANSFER RESTRICTIONS AND ADMISSION

Section 6.1 Prohibition on Transfer Without Consent

No Member may transfer, pledge, hypothecate, or otherwise encumber any membership units without written consent of Members holding [__]% of units. Prohibited transfers are void.

Section 6.2 Right of First Refusal

If a Member receives a bona fide offer to purchase units, the Company shall have the right to purchase the units on the same terms within [30] days of notice.

Section 6.3 Right of First Offer

If a Member wishes to sell units, the Member must first offer them to the Company and remaining Members pro-rata before offering to third parties.

Section 6.4 Admission of Transferees

Any approved transferee shall:

1. Execute a counterpart of this Operating Agreement
2. Provide proof of medical licensure (if physician-investor)
3. Complete a conflict-of-interest disclosure
4. Execute a physician non-compete and confidentiality agreement (if physician)
5. Provide references and background check clearance
6. Be approved by a majority vote of existing Members

Section 6.5 Estate and Incapacity Transfers

Upon a Member's death or incapacity:

• Units may be transferred to the Member's estate/beneficiary
• Transferee has [90] days to elect participation or sale
• If no election, the Company may redeem units at [50]% of fair market value
• Non-physician beneficiaries receive distributions only; no management rights

ARTICLE VII: SAFE HARBOR COMPLIANCE AND ANTI-REFERRAL PROVISIONS

Section 7.1 Anti-Kickback Statute Safe Harbor

The Company is structured to comply with the investor-owned ASC safe harbor under 42 CFR § 1001.952(r). This requires:

☐ Physician-Investor Eligibility:

• Hold unrestricted medical license in [State]
• Perform direct personal services at the ASC (not just ownership)
• Clinical services must constitute at least [33]% of physician's professional practice income
• Direct patient care provided only at facilities where physician-investor practices

☐ Capital Investment Proportionality:

• Investor contribution ≤ investor's percentage ownership
• Returns strictly proportional to capital contributed and investment risk
• No write-downs or capital credits (other than documented losses)
• No guaranteed returns or minimum distributions tied to activity

☐ No Referral-Based Compensation:

• Distributions based ONLY on capital investment and ownership percentage
• No additional payments for case referrals, patient volume, or case complexity
• No differential compensation based on specialty or seniority

☐ In-Facility Services Only:

• Physician-investor provides services only at the ASC facility
• No payments for services at other locations
• No telehealth or remote service arrangements changing safe harbor status

Section 7.2 Representations by Physician-Investors

Each physician-investor represents and warrants:

1. I hold a valid, unrestricted medical license in [State] and am board-certified in [specialty]
2. I practice actively at the ASC and provide direct patient care
3. My annual professional practice income from ASC-compatible surgery constitutes [__]% of my total professional income
4. I am not subject to federal exclusion from healthcare programs
5. I have disclosed all relationships with hospitals, hospices, or other healthcare entities
6. My capital contribution reflects genuine investment risk and expected return only
7. I have not conditioned this investment on referral opportunities or case guarantees

Section 7.3 Stark Law Compliance

All compensation arrangements with physician-investors shall comply with Stark Law (42 U.S.C. § 1395nn):

• Compensation is based on fair market value for services rendered
• No arrangements contingent on physician referrals to the ASC
• Distributions are proportional to capital investment
• Management fees (if any) are set in advance and documented

Section 7.4 Annual Safe Harbor Certification

On or before [date] each year, the Company shall:

1. Certify that no Member has violated safe harbor requirements
2. Update the Member Schedule (Exhibit B) with current practice percentages
3. Retain documentation of each physician-investor's clinical work hours and income allocations
4. Certify that distribution methodology has not changed
5. Review and approve any new Member investments for safe harbor compliance

Failure to maintain compliance may trigger capital redemption or forced divestiture.

Section 7.5 Compliance Officer and Legal Review

The Company shall:

• Designate a Compliance Officer responsible for safe harbor monitoring
• Engage healthcare counsel for annual compliance review
• Maintain written compliance policies addressing billing, coding, and referrals
• Conduct staff training on anti-kickback and Stark Law restrictions
• Implement audit procedures for billing accuracy and appropriateness

ARTICLE VIII: REDEMPTION

Section 8.1 Voluntary Redemption

A Member may request redemption of units at fair market value determined by:

☐ Mutual agreement of Member and Managers
☐ Independent valuation [annually / upon request]
☐ [__]-day advance written notice
☐ Payment within [90] days of valuation

Section 8.2 Forced Redemption Events

The Company may redeem Member units if:

1. Non-Compliance with Safe Harbor: Physician-investor no longer meets 42 CFR § 1001.952(r) requirements:
   - Loss of medical license
   - Failure to maintain [33]% practice income from ASC-compatible surgery
   - Relocation outside [State]
   - Federal exclusion or fraud allegations

2. Violation of Operating Agreement: Material breach not cured within [30] days

3. Conflict of Interest: Undisclosed self-dealing or competing ASC ownership

4. Incapacity or Death: Within [6 / 12] months if beneficiary declines admission

Section 8.3 Redemption Price

Redemption price shall be calculated as:

Redemption Price = [Fair Market Value] × [Ownership %]

Forced redemptions related to non-compliance shall be at [50]% of fair market value, discounted [25]% for illiquidity.

Section 8.4 Redemption Payment Terms

Redemption proceeds shall be paid from:

1. Company cash reserves (priority)
2. Proceeds from new equity or financing
3. Installment payments over [__] months at [__]% annual interest (if approved)

The Company may offset redemption payments against any Member liabilities or loans.

ARTICLE IX: REPRESENTATIONS, WARRANTIES, AND COVENANTS

Section 9.1 Representations of All Members

Each Member represents and warrants:

1. Legal Capacity: I am duly authorized to enter into this Agreement and perform my obligations
2. No Exclusion: I am not excluded or suspended from federal healthcare programs; no criminal convictions for healthcare fraud or anti-kickback violations
3. Capitalization: My capital contribution is legitimate investment capital, not disguised compensation for referrals
4. Suitability: I am qualified and suitable for membership based on clinical competence, business judgment, and ethical standards
5. Disclosure: I have disclosed all material relationships with hospitals, competing ASCs, or other healthcare entities
6. Compliance: I will comply with all anti-kickback, Stark Law, fraud/abuse, and state healthcare licensing requirements

Section 9.2 Covenants of Physician-Investors

Physician-investors covenant to:

1. Maintain current medical license, DEA registration, and clinical credentialing
2. Perform direct personal services at the ASC [__] hours per month
3. Maintain clinical skill standards and participate in peer review
4. Comply with ASC surgical policies, infection control, and quality standards
5. Disclose any investigations or complaints to the Board within [5] business days
6. Not engage in fraudulent billing or coding practices
7. Not compete with the ASC for [__] years post-exit (non-compete clause; see Article IX below)

Section 9.3 Company Covenants

The Company covenants to:

1. Maintain Licensure: Retain ASC licensure and Medicare provider status
2. Compliance: Implement and maintain compliance program addressing anti-kickback, Stark Law, and billing integrity
3. Financial Management: Maintain accurate books and records, provide annual accounting
4. Insurance: Maintain professional liability, general liability, and directors & officers insurance
5. Transparency: Provide quarterly financial statements to all Members within [45] days of period-end
6. Capital Management: Not make capital calls without prior notice and Member vote

ARTICLE X: NON-COMPETITION AND CONFIDENTIALITY

Section 10.1 Non-Competition (Physician-Investors)

During membership and for [2] years following termination, each physician-investor agrees NOT to:

1. Own, invest in, or manage any competing ambulatory surgery center within [__ miles / [State]]
2. Refer patients to competing surgical facilities in competition with the ASC
3. Solicit patients currently treated at the ASC for treatment at competing facilities
4. Hire ASC employees for competing practice

Exceptions:

• Physician may maintain existing hospital privileges and employment
• Physician may provide services at non-ASC facilities (office-based surgery, hospital)
• Covenant does not apply if Member's units are redeemed involuntarily

Section 10.2 Confidentiality

All Members agree to maintain confidentiality of:

• Financial information and tax returns
• Member list and investment amounts
• Proprietary clinical protocols and surgical techniques
• Pricing, payor contracts, and volume data
• Capital plans and strategic initiatives
• Member medical conditions or quality issues

Exceptions: Disclosures required by law, regulatory investigation, or legal proceeding with appropriate protective orders.

Section 10.3 Return of Proprietary Information

Upon termination or request, each Member shall return or destroy all confidential Company information, including documents, files, and electronic records.

ARTICLE XI: TERM AND DISSOLUTION

Section 11.1 Term

The Company shall commence upon filing of Articles of Organization and continue indefinitely unless dissolved in accordance with this Article.

Section 11.2 Dissolution Events

The Company shall dissolve upon:

1. Written consent of Members holding [80 / 90]% of units
2. Death or incapacity of the sole Managing Member (unless successor designated)
3. Revocation or non-renewal of ASC license (if not restored within [12] months)
4. Judgment of dissolution by court order
5. [__] consecutive years of operating losses exceeding [__]% of equity

Section 11.3 Dissolution Procedure

Upon dissolution:

1. The Managers (or Court-appointed Liquidator) shall wind up Company affairs
2. All assets shall be liquidated in an orderly manner
3. Liabilities, obligations, and creditor claims shall be satisfied
4. Remaining assets shall be distributed pro-rata to Members in accordance with ownership percentages

Section 11.4 Distribution Upon Dissolution

Dissolution distributions shall be made in the following order:

1. Creditor claims and liabilities
2. Tax reserves and estimated tax liabilities
3. Member capital accounts (pro-rata to ownership)
4. Remaining assets (pro-rata to ownership)

Members have no interest in Company property; distributions are limited to pro-rata share of liquidation proceeds.

ARTICLE XII: MISCELLANEOUS PROVISIONS

Section 12.1 Amendments

This Operating Agreement may be amended only by written consent of Members holding [__]% of units. No amendment may:

• Reduce a Member's capital without consent
• Eliminate transfer restrictions without unanimous consent (or by vote specified herein)
• Change the profit/loss allocation methodology
• Reduce safe harbor compliance protections

Section 12.2 Notices

All notices shall be in writing and delivered personally, by email with confirmation, or certified mail, return receipt requested, to the address listed in the Member Schedule. Notices are effective upon receipt.

Section 12.3 Entire Agreement

This Operating Agreement, together with Exhibits A, B, and C, constitutes the entire agreement among Members. Prior discussions, representations, and agreements are merged herein.

Section 12.4 Interpretation

• "Including" means "including but not limited to"
• Section headings are for convenience and do not affect interpretation
• No waiver of any provision is effective unless in writing
• Pronouns include both singular and plural

Section 12.5 Governing Law

This Agreement is governed by the laws of [State], without regard to conflicts of law. Disputes shall be resolved by:

☐ Mediation (non-binding, [30] days)
☐ Arbitration (binding, [Single Arbitrator / Three-Arbitrator Panel])
☐ Litigation in [State] courts

Section 12.6 Severability

If any provision is found invalid, it shall be severed, and remaining provisions shall remain in effect to the maximum extent permitted by law.

Section 12.7 Assignment

No Member may assign this Agreement or delegate duties without consent of Members holding [__]% of units.

Section 12.8 Regulatory Compliance

This Agreement shall be interpreted and applied in compliance with:

• 42 CFR § 1001.952(r) (Anti-Kickback Statute Safe Harbor)
• 42 U.S.C. § 1320a-7b (Anti-Kickback Statute)
• 42 U.S.C. § 1395nn (Stark Law - Physician Self-Referral)
• [State] healthcare and licensing laws
• [State] Limited Liability Company Act

In the event of conflict between this Agreement and regulatory requirements, regulatory requirements control.

EXHIBIT A: ARTICLES OF ORGANIZATION

[Insert state-specific LLC Articles of Organization]

EXHIBIT B: MEMBER SCHEDULE

*Practice Income %: For physician-investors, percentage of annual professional practice income derived from ASC-compatible surgical procedures performed at this ASC.

EXHIBIT C: CAPITAL CONTRIBUTION SCHEDULE

Total Capital Required: $[__________]

Contributions are non-refundable except upon redemption or dissolution as provided in this Agreement.

SIGNATURES

IN WITNESS WHEREOF, the undersigned Members execute this Operating Agreement as of the [date], 20[__].

MEMBER SIGNATURES

[________________________________]

Print Name: _________________________

Date: _______________________________

License Number (if physician): _________

[________________________________]

Print Name: _________________________

Date: _______________________________

License Number (if physician): _________

[________________________________]

Print Name: _________________________

Date: _______________________________

License Number (if physician): _________

LEGAL COUNSEL CERTIFICATION (Recommended)

I, [Attorney Name], hereby certify that I have reviewed this Operating Agreement and advise that it is intended to comply with 42 CFR § 1001.952(r) (Anti-Kickback Statute Safe Harbor for Investor-Owned ASCs) and 42 U.S.C. § 1395nn (Stark Law).

Date: _________________________

Attorney Signature: _________________________

Bar Number: _________________________

State: _________________________

SOURCES AND REFERENCES

• Anti-Kickback Statute Safe Harbor: 42 CFR § 1001.952(r) — Investor-Owned Ambulatory Surgery Center
• Anti-Kickback Statute: 42 U.S.C. § 1320a-7b
• Stark Law (Physician Self-Referral): 42 U.S.C. § 1395nn
• OIG Compliance Guidance: Medicare ASC Compliance Program Guidance
• State-Specific: [State] Limited Liability Company Act; [State] Department of Health ASC Licensure Requirements