On November 12, 2013, the Office of Inspector General (“OIG”) released Advisory Opinion 13-15 concluding that a proposed arrangement between an anesthesiology group and a hospital-based psychiatry group could potentially generate prohibited remuneration under the federal Anti-Kickback Statute (“Kickback Statute”). The OIG based its conclusion on the fact that the proposed arrangement would not qualify for safe harbor protection and that it presented more than minimal risk under the Kickback Statute because the psychiatry group would receive payment in exchange for referrals to the anesthesiology group.
The proposed arrangement originated from the anesthesiology group’s contract with a hospital as the exclusive provider of anesthesiology services that, in 2012, included a carve out to allow the psychiatry group to provide anesthesiology services to the hospital’s electroconvulsive therapy (“ECT”) patients as well as hire an additional anesthesiologist to provide such services at the psychiatry group’s discretion. Shortly after the carve out was negotiated, the psychiatry group determined that another part-time anesthesiologist was necessary. The psychiatry group proposed that it and the anesthesiology group should enter into a contract whereby the anesthesiology group would provide a part-time anesthesiologist for ECT patients. The psychiatry group would bill and collect for those services and, in turn, would pay the anesthesiology group a fixed, per diem rate for its services. The psychiatry group would retain the difference between the amount collected and the per diem rate.
As an initial matter, the OIG concluded that the per diem compensation would not qualify for protection under the personal services and management contracts safe harbor to the Kickback Statute because (i) the aggregate compensation to be paid over the term of the agreement would not be “set in advance,” and (ii) the safe harbor protects only those payments made by a principal (i.e., the psychiatry group) to an agent (i.e., the anesthesiology group) and, here, the principal would receive compensation from the agent in the form of retaining the difference between the amount billed and collected and the per diem rate.
Additionally, the OIG concluded that the proposed arrangement posed more than a minimal risk under the Kickback Statute for the following reasons:
The proposed arrangement was designed “to permit the psychiatry group to do indirectly what it cannot do directly; that is, to receive compensation, in the form of a portion of the anesthesiology group’s service revenues, in return for the psychiatry group’s referrals of ECT patients to the anesthesiology group.”
The additional anesthesiologist carve out to the 2012 contract between the hospital and the anesthesiology group gave the psychiatry group the ability to solicit remuneration for its ECT patient referrals by allowing the psychiatry group to contract with an anesthesiologist other than the anesthesiology group if the groups were not successful in negotiating the terms of an agreement. The OIG stated that this presents significant risk that the remuneration the anesthesiology group would provide to the psychiatry group, i.e., the opportunity to generate a fee equal to the difference between the amounts the psychiatry group would bill and collect and the per diem amounts, would be in return for the psychiatry group’s referrals to the anesthesiology group.
Importantly, although outside the scope of the opinion, the OIG noted the potential kickback nature underpinning a hospital’s carve out from an exclusive contract. In a footnote, the OIG stated that “[a]though we have not been asked to opine on, and express no opinion regarding, any aspect of [the anesthesiology group’s] relationship with the hospital . . . we cannot exclude the possibility that: (i) the hospital agreed to negotiate for the additional anesthesiologist provision in exchange for, or to reward, the psychiatry group’s continued referral of patients to the hospital for ECT procedures; (ii) the hospital leveraged its control over its large base of anesthesia referrals to induce the anesthesiology group to agree to the additional anesthesiologist provision; and (iii) the anesthesiology group agreed to the additional anesthesiologist provision in exchange for access to the hospital’s stream of anesthesia referrals.”
In light of this opinion, health care providers should carefully consider whether any of their arrangements that otherwise comply with the personal services and management contracts safe harbor involve direct or indirect payments from the agent to the principal as the OIG has stated that such payments are not protected by the safe harbor. Additionally, although only addressed in a footnote, the OIG expressed concern with carve outs to exclusive contracts between hospitals and providers. Providers and hospitals should carefully examine such arrangements for potential Kickback Statute implications.