In a rarely seen “unfavorable” advisory opinion, the United States Department of Health and Human Services Office of Inspector General (“OIG”) recently warned that an entity’s (“Requestor”) proposal to assist surgeons in forming and operating a turnkey intraoperative neuromonitoring (“IONM”) service that the surgeons would own “would generate prohibited remuneration under the Federal anti-kickback statute [the “AKS”], if the requisite intent were present ….” OIG Advisory Opinion No. 23-05 (posted Aug.18, 2023) (“AO No. 23-05”).

Generally speaking, under the AKS, it is a crime to knowingly and willfully offer, pay, solicit or receive any remuneration to induce, or in return for, the referral of business reimbursable under a federal health care program (“FHCP”). Violations of the AKS are a felony, punishable by a fine of up to $100,000 and up to 10 years in jail. Convictions under the AKS will also lead to FHCP exclusions and, potentially, to civil monetary penalties.

IONM is a process by which a patient’s neurological functions are observed during certain surgical procedures. IONM has both a technical component and a professional component.  The technical component involves a neurophysiologist located in the operating room of a hospital or ambulatory surgery center who sets up and ensures the proper operation of the IONM equipment during the surgery. The professional component usually involves an off-site neurologist who monitors, in real-time, the test results and waveforms from the IONM equipment.

Requestor in AO No. 23-05 has its own IONM business in which it contracts with various hospitals and ambulatory surgical centers. However, for what it called “competitive reasons,” Requestor sought OIG’s approval to assist Requestor’s referring surgeons in forming and operating their own turnkey IONM entity (“Newco”). 

The Proposed Arrangement:  A Turnkey IONM Business Owned by Referring Surgeons

Specifically, Requestor proposed that Newco would be owned by referring surgeons and stated it expected the surgeons would receive distributions from Newco’s profits in return for their investments. Beyond that – and referring their patients to Newco – the surgeons “would have limited participation in Newco’s day-to-day business operations ….”

Instead, under the proposed arrangement, Newco would contract with Requestor and with a physician practice with which Requestor has a management services agreement (the “Practice”). Pursuant to those agreements, Requestor would perform Newco’s billing, collection and certain other administrative services, in exchange for a fee from Newco, while the Practice would provide Newco with the professional services of neurologists and neurophysiologists (leased from the Requestor), also for a fee from Newco. Given these arrangements, Newco would not need to hire any dedicated employees because Requestor and the Practice would provide all necessary services.

Once set up, Newco would then contract with various hospitals and ambulatory surgical centers to provide both the technical and professional components of IONM services, and would bill the contracting hospital or the ambulatory surgical center for the technical component, and insurance or the patient for the professional component.

Through this structure, Requestor confirmed, Newco would achieve “substantial profits.” Rather than referring their IONM business to Requestor and the Practice, Newco (and its surgeon-owners) would instead reap profits by keeping the difference between what it billed the hospitals, the ambulatory surgical centers, the insurers and/or patients, and what it paid to Requestor and the Practice for running Newco’s business.

While Requestor advised OIG it would “attempt” to ensure the surgeon-owners of Newco did not refer FHCP patients to Newco, Requestor acknowledged that FHCP IONM services could be “unintentionally” performed and billed by Newco. And, even if the surgeons did not refer FHCP patients to Newco, they nevertheless would refer those patients directly to Requestor and the Practice for IONM services (i.e., to Requestor’s existing business).

OIG’s Analysis Finds Potential Anti-kickback Statute Issues

Analyzing the proposed arrangement under the AKS, the OIG identified at least three remuneration streams that it stated “could induce” the referral of IONM services that could be paid by FHCPs, thus potentially violating the AKS: (1) discounts provided by the Practice under its proposed agreement with Newco; (2) the opportunity for Newco to generate a profit based on the difference between its reimbursement from third parties and what it paid to Requestor and the Practice; and (3) the return on investment to Newco’s surgeon-owners.

OIG first assessed whether “safe harbor” protection was available under the AKS for all of the potential remuneration streams. It concluded that it would not be – pointing specifically to Newco’s opportunity to generate a profit from the newly formed business. 

In light of the absence of “safe harbor” protection, OIG next analyzed the “totality of the facts and circumstances” to assess the risk of fraud and abuse to FHCPs under the proposed arrangement. Citing a “host of risks” under the AKS – including patient steering, unfair competition, inappropriate utilization and increased FHCP costs, OIG concluded it could not exclude the possibility the proposed arrangement could enable Requestor and the Practice to do indirectly what they are not permitted to do directly, namely, pay Newco’s surgeon-owners a share of the profits for their referrals for FHCP-reimbursable IONM services.

OIG likened the proposed arrangement to a problematic contractual joint venture. OIG has long viewed contractual joint ventures as problematic when, for example, a provider in one line of business (the “Owner”) expands into a related health care line of business by contracting with an existing provider of the related item or service (the “Manager/Supplier”) in order to provide the new item or service to the Owner’s existing patients, including FHCP patients. In other words, OIG has long frowned upon arrangements in which the Owner “contracts out substantially the entire operation of the related line of business to the Manager/Supplier – otherwise a potential competitor – receiving in return the profits of the business as remuneration for its [F]ederal program referrals.”

And this is precisely how OIG viewed Requestor’s proposed turnkey IONM arrangement. First, the surgeon-owners would have limited, if any, participation in Newco’s operations. Instead, nearly all of Newco’s operations would be contracted out to Requestor and the Practice – competitors of Newco’s. Second, the surgeon-owners would have virtually no financial or business risk since they would be in a position to control the amount of business referred to Newco. Third, IONM would be a new service line for Newco’s surgeon-owners. Fourth, OIG underscored that, under the proposed arrangement, Requestor and the Practice would be in essence foregoing a portion of the profits they would have received if they directly performed the services. Fifth, OIG cited the risk that the proposed arrangement was merely a vehicle to induce referrals of FHCP business from Newco’s surgeon-owners to Requestor and the Practice, since if patients did not get referred to Newco, they likely would be referred to Requestor and the Practice. In other words, in OIG’s view, the fees paid by Newco to Requestor and the Practice for non-FHCP business could be viewed as disguised remuneration in return for FHCP business.

Conclusion

OIG rarely publicly issues “unfavorable” advisory opinions. Yet, based on the facts outlined above, in this case, it expressly concluded that the proposed arrangement – if undertaken – would generate prohibited remuneration under the AKS (assuming the requisite intent was present), and would be grounds to impose sanctions on those involved.