Skip to content

OIG Frowns Again on Proposed Company Model Arrangements with Anesthesiologists

anesthIn December, 2012, the OIG reviewed and frowned upon two proposed scenarios, each of which had the effect of shifting to ASC-owner/surgeons a portion of the fees earned from anesthesia services.  The OIG has done it again!

In an era of tremendous stress in the healthcare marketplace, it’s not surprising that some surgeons were willing to push the envelope to capture anesthesia fees they otherwise would not receive.  Traditionally, physician-owned surgery and endoscopy centers contract with anesthesia providers on an exclusive basis and let the anesthesiologists separately bill for anesthesia services.  Anesthesiologists kept whatever was collected for anesthesia services; and surgeons kept whatever was paid for their services.  Plus, if the surgeon was also an owner of the center, the surgeon received a portion of the profits left over from the facility or technical fee.  In the past several years, however, center-owning surgeons are often looking for ways to share anesthesia fees.  The latest OIG Advisory Opinion (13-15) may cause some surgeons to back down or to reevaluate the long-term viability of the so-called “Company Model.” Scenarios Back in 2012

In 2012, the OIG reviewed two scenarios.  The first (Scenario A) involved a management contract between the anesthesia practice and the centers it serves.  The management contract would require the centers to provide certain services, like pre op nursing assessment, space for the anesthesiologists and their staff, and help transferring billing documentation to the billing office of the anesthesiologists.  Compensation to the centers for the management services would consist of a per-patient fee, set at fair market value, and there would be no such fee applicable to patients whose care is compensated by any state or federal healthcare program.

Scenario B involved the establishment of a separate company for each center serviced by the anesthesiologists, a more typical “Company Model” approach.  These separate companies (“Subsidiaries”) would be owned by the physician/surgeon investors in each center or by each center itself.  The Subsidiaries would exclusively provide and bill for anesthesia and related services.  In turn, the anesthesiologists would receive a contract from each Subsidiary for the anesthesia related services.  The profit to each Subsidiary would be the difference between what the Subsidiary received for “providing” anesthesia services versus what the Subsidiary paid to the anesthesiologists.

A New Advisory Opinion

The latest OIG Opinion, (No. 13-15) presented the following proposal:

  1. A substantial anesthesia practice (roughly 20 physicians) provided anesthesia and chronic pain management services to a hospital on an exclusive basis for many years;
  2. A psychiatry practice which focuses on providing ECT recently relocated its practice to the same hospital;
  3. One of the psychiatrists in the psychiatry practice who is board certified in anesthesia (and who traditionally provided anesthesia to the psychiatry practice’s patients), was forbidden from providing anesthesia to the group’s patients once the practice relocated to the hospital (because of the exclusive contract);
  4. The hospital and anesthesia practice renegotiated their contract so that one of the doctors in the psychiatry group would be able to provide anesthesia to its own patients (instead of using the anesthesia group);
  5. A couple years after the psychiatry practice relocated to the hospital, the psychiatry practice needed to hire a second, part-time physician to provide anesthesia services to the group’s ECT patients;
  6. In response to the psychiatrists’ growing need for anesthesia, the anesthesia group proposed the following arrangement/contract to the anesthesiologists—
  7. The anesthesia practice would take care of the expanded anesthesia needs of the psychiatry practice.  It would provide what the part-time physician to be hired by the psychiatry practice would have provided, but would not replace the existing full-time physician of the psychiatry practice who provides anesthesia to that practice’s patients;
  8. The psychiatry practice would bill for the services provided by the anesthesia practice;
  9. The psychiatry group would pay to the anesthesia group a fixed per diem fee which the anesthesiology group asserted was below fair market value and is also less than what the anesthesia practice would receive if it billed for the services it performed for the psychiatry practice.

The OIG frowned on the proposal, stating that it could violate the federal Anti Kickback Statute (AKS), and further (1) even the opportunity to generate a fee (giving the anesthesia group the ability to bill for their services) could violate the AKS; and (2) in essence, the psychiatry group would be profiting from the services of the anesthesiologists.  The OIG frowned on the fee arrangement specifically because the aggregate compensation was not “set in advance,” nor was consistent with “fair market value,” as specified in the Personal Services and Management Contracts Safe Harbor.  The OIG stated most succinctly that the psychiatry group may not “do indirectly what it cannot do directly”—receive compensation (a portion of the anesthesiologists’ fees) in exchange for the patients referred (the psychiatry practice’s ECT patients).

The Law

The OIG’s primary focus in analyzing all three Scenarios was the federal Anti Kickback Statute (42 USC 1128A(a)(7)) (the “AKS”) and the regulatory exceptions to the AKS, the so-called Safe Harbors (42 CFR 1001.952).  The AKS makes it a criminal offense to, in essence, pay or receive anything of value in exchange for referral of a patient whose care is compensated by any state or federal healthcare program (“Governmental Patients”).  The AKS has been interpreted so broadly that if even one purpose of the arrangement between two parties is to pay for patients, the AKS is violated.  See United States v. Greber, 760 F.2d 68 (3d Cir. 1985).  Given the enormous breadth of the AKS, the Safe Harbors describe permissible arrangements, though not all of them, that won’t violate the AKS.

Applied to Scenario A

Most healthcare business people (and many lawyers) would think that if an arrangement excludes any consideration of or payment in connection with patients whose care is compensated by state or federal healthcare programs, the AKS is not an issue.  “Since no Medicare, Medicaid, CHAMPUS or TriCare dollars are involved, I don’t have to worry about the AKS.”  In this Scenario, management fees are not based in any way on Governmental Patients.  And yet, the OIG
stated very clearly “The OIG has a long-standing concern about arrangements under which parties ‘carve out’ Federal health care program beneficiaries or business generated by Federal health care programs from otherwise questionable financial arrangements.” [Emphasis added].  The OIG focused in this Scenario on the fact that the party requesting the OIG’s view of the Scenario (the “Requestor”) would be the exclusive provider of all anesthesia services at the centers and concluded that simply carving our Governmental Patients does not reduce the risk that payment for management services might be made to induce referrals of Governmental Patients.  Even more telling, the OIG opined that the management fee charged by the Centers would include the very same things for which payers would be compensating in the first place.  By being “paid twice for the same services” (once by the payer and again by the anesthesia group in the form of the management fee), the centers would be inappropriately incentivized to select the anesthesia group to provide anesthesia services exclusively to the centers.  In short, it seems the OIG viewed the management fee as simply a way for the anesthesiologists to pay the center for patient referrals.

Applied to Scenario B

This Scenario involved the establishment of a new anesthesia business that would provide services to the centers.  These new Subsidiaries would be owned as described above and would replace the prior anesthesia practices that provided the services.  The only difference is that instead of paying out all the anesthesia fees to cover salaries, benefits costs and certain expenses of the anesthesia provider, some would be left over to pay the Subsidiary owners, none of which would be anesthesiologists.  The anesthesia provider made $1,000 on a Monday, but on a Tuesday, a Subsidiary, doing the same thing with the same staff, would only pay a portion of it to the anesthesiologists that have always worked there.  The rest would be kept by the Subsidiary owners, directly or indirectly all surgeon owners of each center.

The OIG questioned whether the Scenario could be warranted under the “ASC Safe Harbor”, but rejected that because the Safe Harbor does not apply to the remuneration to the Subsidiaries that would be distributed to the center physician owners.  The ASC Safe Harbor only applies to protect returns on ASC investments and the Subsidiaries do not provide surgical services.

The OIG also looked at the employment and personal services Safe Harbors to see if either could fit the Scenario.  The OIG agreed that the employment Safe Harbor could apply if there was a bona fide employment relationship involved in the Scenario and also that the personal services Safe Harbor might apply to independent contractors.  The trouble, however, was that there is no Safe Harbor protection that applies to the money distributed to the Subsidiary owners.  Moreover, the OIG turned to a more conceptual concern:  concern over arrangements between those in a position to refer business (e.g. center physician owners) and those furnishing the services to the Governmental Patients (the anesthesiologists).  This is of particular concern to the OIG where only one of the parties (the anesthesiologists) produces all or most of the business.

The above concern over so-called “Contractual Joint Ventures” was addressed in 2003 in an OIG Special Advisory Bulletin, which had trouble with business arrangements with the following features:

  1. Healthcare provider (“Owner”) expands into a new line of business;
  2. Does so by contracting with an existing provider of services (the “Supplier”);
  3. The Supplier provides the new services to the Owner’s existing patients, including Governmental Patients; and
  4.  The Supplier manages the new line of business and may also supply it with supplies, space, employees, billing, etc.

In short, the OIG’s concern when addressing impermissible Contractual Joint Ventures is that this sort of “plug and play” arrangements are really just payment for patient referrals.  They involve no meaningful business risk and are simply ways for the Supplier to indirectly pay the Owner for the favor of the Supplier providing services to the Owner’s patients.

Applied to Scenario B, the OIG’s concerns are especially clear.  Is the profit of a Subsidiary not simply a “thank you” to the surgeon owners for allowing the anesthesia provider to provide anesthesia services to the captive center patients?  More directly “[I]t appears that Proposed Arrangement B is designed to permit the Centers’ physician-owners to do indirectly what they cannot do directly….”  The OIG’s conclusion would likely have been different if the Subsidiary performed substantial services to earn a profit.

The OIG’s most recent treatment of the issues in 13-15 is clearly consistent with their previous determinations.

What’s Ok?

With the OIG’s recent Opinion, certain things are clear.  First, it will never be ok with the OIG for ASC owners to get a piece of the anesthesia fees in exchange for the fact that the owners bring all the cases and hence allow the anesthesiologists the ability to bill for their services.  It will never be ok with the OIG to ask anesthesiologists to “pay” for the right to provide anesthesia services in any context.  Second, any new business that surgery center owners would like to own which also provides services to the ASC they own will likely have to be in the business of providing those services to other centers.  Hence, here’s what the OIG decisions seem to be supporting:

  1. A traditional independent billing arrangement, where anesthesiologists bill payers for what they do;
  2. A surgery center, hospital or practice employing the anesthesiologist, albeit on a compliant basis that satisfies the “bona fide employee” exception to the AKS or the “personal services arrangement” exception to Stark (and pertinent Safe Harbor); or
  3. Owners of a surgery center (or a practice) forming a business like the one described in Scenario B, but which has very clear and solid arguments that the arrangement is not simply taking compensation from anesthesiologists in exchange for the right to treat patients referred to them.

Conclusion

The complex legal issues and the criminal exposure of the AKS (not to mention the False Claims Act) should not only be concerning to physicians, but also to surgery center and hospital managers and joint venture partners, who are also at risk for AKS and related violations.  All parties will have to be very careful in structuring successful business relationships with physicians who provide services at ASCs, hospitals and also on behalf of other practices.  Though the Advisory Opinions are limited to the facts presented and do not constitute law, they do serve as a clear window into the minds of the authorities who have the job of enforcing some very serious laws.

To date, the OIG has merely opined on the issue and has not reported any prosecution or settlement of a matter involving similar facts.  If it does decide to prosecute, the underlying argument that a healthcare business or professional may not make a profit from the services of another healthcare professional to which patients are provided will have serious impact on not only Company Model arrangements, but also on potentially a huge number of other common arrangements between healthcare providers and businesses of many types.  Perhaps that explains why there has been no enforcement on the issue to date.