administrative services to the center. Because the management fee usually
approximates the value of services provided to the center by the physician
practice, on an ongoing basis, AmSurg has structured its agreements so that
AmSurg generally no longer provides for any of such fees in its partnerships or
limited liability companies and instead the respective parties are required to
provide the services pursuant to the terms of the partnership or operating
agreement. For start-up centers that are being developed, a fee is generally
paid by the partnership or limited liability company to AmSurg for management of
the planning, construction and opening of the center.
In addition, these agreements typically provide that the limited
partnership or limited liability company will lease certain non-physician
personnel from the physician practice, who will provide services at the center.
The cost of the salary and benefits of these personnel are reimbursed to the
practice by the limited partnership or limited liability company. Certain
significant aspects of the limited partnership's or limited liability company's
governance are overseen by an operating board, which is comprised of equal
representation by AmSurg and the physician partners. See Note 8 of the Notes to
the Consolidated Financial Statements of AmSurg for a discussion of AmSurg's
funding obligations under the partnership and operating agreements.
The partnership and operating agreements provide that under certain
circumstances AmSurg will be obligated to purchase some or all of the minority
interests of the physicians affiliated with AmSurg in the partnerships or
limited liability companies which own and operate AmSurg's surgery centers. The
regulatory changes that could trigger such an obligation include changes that:
(i) make the referral of Medicare and other patients to AmSurg's surgery centers
by physicians affiliated with AmSurg illegal; (ii) create the substantial
likelihood that cash distributions from the partnership or limited liability
company to the physicians associated therewith will be illegal; or (iii) cause
the ownership by the physicians of interests in the partnerships or limited
liability companies to be illegal. There can be no assurance that AmSurg's
existing capital resources would be sufficient for it to meet the obligation, if
it arises, to purchase minority interests held by physicians in the partnerships
or limited liability companies which own and operate AmSurg's surgery centers.
The determination of whether a triggering event has occurred is made by the
concurrence of counsel for AmSurg and the physician partners or, in the absence
of such concurrence, by independent counsel having an expertise in healthcare
law and who is chosen by both parties. Determination is therefore not within the
control of AmSurg. While AmSurg has structured the repurchase obligations to be
as favorable as possible to AmSurg, the triggering of these obligations could
have a material adverse effect on the financial condition and results of
operations of AmSurg. See "-- Government Regulation."