On June 1, 2012, the Department of Health and Human Services Office of Inspector General (the “OIG”) posted an advisory opinion in which it concluded that two proposed arrangements between an anesthesia services provider (the “Anesthesia Group”) and physician-owned ambulatory surgery centers (“ASCs”) could result in prohibited remuneration under the federal anti-kickback statute and lead to administrative sanctions.1
Under the first proposed arrangement, the OIG rejected a proposal that would shift costs from the ASCs to the Anesthesia Group, concluding that “the Centers would be paid twice for the same services” under this proposal and that the fee charged by the ASCs could unduly influence them to choose the Anesthesia Group as its exclusive provider of anesthesia services. In declining to approve the second proposed arrangement, the OIG found that it bore several hallmarks of contractual joint ventures, of which the OIG has expressed long-standing disapproval.
In the wake of this advisory opinion, ASCs and other health care providers should carefully evaluate their anesthesia services arrangements to avoid the troublesome aspects of the proposals evaluated here by the OIG, particularly in markets where multiple anesthesia providers compete for exclusive services agreements with ASCs. This opinion is further indication that the OIG remains concerned with contractual joint ventures and that providers should proceed with caution in arrangements that the OIG might construe as contractual joint ventures.
The Proposed Arrangements
The Anesthesia Group provides anesthesia services on an exclusive basis at several ASCs that are owned and operated by physician-owned professional corporations or limited liability companies.2 The Anesthesia Group is responsible for employing personnel to meet the ASCs’ anesthesia needs, and it independently bills patients and third party payors, including Medicare, for the professional fees associated with its services.The physician owners of the ASCs bill for the professional services that they provide at the ASCs, and the ASCs bill for the facility fee associated with such services.
Under the first proposed arrangement (“Proposed Arrangement A”), the Anesthesia Group would continue to act as the exclusive provider of anesthesia services to the ASCs and to bill and retain all collections from patients and third party payors. However, the Anesthesia Group would also pay a fee to the ASCs for certain “management services.” These services would include: pre-operative nursing assessments; adequate space for all of the Anesthesia Group’s staff and their materials (including medical records); and assistance with transferring billing information to the Anesthesia Group’s office. The management services fee would be charged on a per-patient basis, though no such charge would be made for federal health care program patients.
Under the second proposed arrangement (“Proposed Arrangement B”), the physician owners of the ASCs would establish wholly-owned subsidiary companies in order to provide anesthesia-related services to patients at the ASCs. These subsidiary companies would then engage the Anesthesia Group as an independent contractor to provide certain anesthesia-related services, such as: recruiting, credentialing, and scheduling anesthesia personnel; ordering and maintaining supplies and equipment; assisting the subsidiary companies in selecting a third-party billing company; implementing quality assurance programs; and various other administrative services. Under Proposed Arrangement B, the subsidiary companies would directly employ or contract with the anesthesia personnel managed by the Anesthesia Group. The subsidiary companies would bill for all anesthesia-related services provided at the ASCs, and would pay the anesthesia services provider a negotiated rate for these services. Any profits would be retained by the subsidiary companies.
The OIG began its analysis of Proposed Arrangement A by addressing the question of whether the fact that the arrangement “carves out” federal health care program patients saves it from implicating the anti-kickback statute. The OIG noted its “long-standing concern” with such arrangements and observed that such arrangements may violate the anti-kickback statute by disguising remuneration for federal health care program business through payments purportedly related only to non-federal health care program business. In Proposed Arrangement A, because the Anesthesia Group would act as the exclusive provider for all of the ASCs’ patients (including federal health care program patients), the exclusion of federal health care program patients from the per-patient management services fee paid to the ASCs would not reduce the risk that the Anesthesia Group’s payments to the ASCs would be made to induce referrals of federal health care program patients to the anesthesia services provider.
In addition, the OIG observed that, under Proposed Arrangement A, the ASCs would continue to bill for the facility fee associated with the surgical procedures performed at the ASCs, and also receive the per-patient management services fee from the Anesthesia Group. Because the fee to be paid by the Anesthesia Group would be made for some of the same services that the facility fee is intended to cover, the ASCs would essentially be paid twice for the same services. The OIG concluded that this additional remuneration could unduly influence the ASCs to choose the Anesthesia Group as their exclusive provider of anesthesia services, serving federal health care program patients and other patients alike.
With respect to Proposed Arrangement B, the OIG first considered the potential application of several regulatory safe harbors to the anti-kickback statute. While the physician owners’ investment in the ASCs may qualify for protection under the ASC safe harbor and the subsidiary companies’ arrangements with the anesthesia services provider and the anesthesia personnel could meet the requirements of the employment or personal services and management contracts safe harbors, the OIG determined that no safe harbor would protect the profits retained by the subsidiary companies (and ultimately distributed to the physician owners). ASC safe harbor protection would be unavailable to the subsidiary companies because, as professional anesthesia services providers, they could not meet the regulatory definition of an ASC, which requires operating “exclusively for the purpose of providing surgical services to patients not requiring hospitalization….” The OIG noted that “[a]nesthesia services are not surgical services.”
Having concluded that Proposed Arrangement B would not qualify for safe harbor protection, the OIG then considered whether the arrangement would pose more than a minimal risk of fraud and abuse. After reviewing its previously issued guidance on suspect contractual joint ventures, the OIG determined that the arrangement would pose more than a minimal risk of fraud and abuse.
The OIG found that Proposed Arrangement B exhibited several of the elements that the OIG found common in suspect joint venture arrangements in a Special Advisory Bulletin issued in 2003.3 Included among these elements are: (1) the ASCs’ physician owners’ expansion into a related line of business (by creating the subsidiary companies) that would be wholly-dependent on referrals from the ASCs; (2) the physician owners’ contracting out substantially all of the operations to the Anesthesia Group; and (3) the minimal business risk borne by the physician owners in operating the subsidiary companies (because the physician owners would control the amount of business they refer to the subsidiary companies). The OIG also highlighted the fact that the Anesthesia Group is an established provider of the services that the subsidiary companies would provide (and would otherwise be a competitor of the subsidiary companies) and that the anesthesia services provider and the ASCs’ physician owners would share in the economic benefit of the ASCs’ new business.
On the basis of this analysis, the OIG concluded that Proposed Arrangement B appears to be designed to permit the ASCs’ physician owners to do indirectly what they cannot do directly—namely, receive compensation (in the form of a portion of the anesthesia services provider’s revenues) in return for their referrals to the Anesthesia Group. The OIG found additional support for its conclusion in the Anesthesia Group’s assertion that it is under pressure to enter into the proposed arrangements in order to compete with other anesthesia groups in its area that are engaging in similar practices.
The OIG’s advisory opinion casts doubt on anesthesia services arrangements that share features of the proposed arrangements identified as suspect by the OIG. Any such arrangement needs to be evaluated on an individual basis, and any conclusion regarding compliance with the anti-kickback statute requires a determination of the parties’ intent. However, the OIG’s advisory opinion is consistent with its long-held suspicion that arrangements through which health care providers expand into a related line of business and receive remuneration from a third party which provides the bulk of the services associated with the new business line may result in anti-kickback compliance concerns. The opinion also confirms that attempting to charge a referral source fees for items or services for which the recipient of referrals already receives third-party payor reimbursement is problematic. ASCs, anesthesia services providers, and other health care entities evaluating similar arrangements should carefully consider this advisory opinion.
If you have any questions about the OIG’s advisory opinion, please contact Dan Murphy, Travis Lloyd, or one of the other attorneys in the Health Care practice group at Bradley Arant Boult Cummings LLP.
The advisory opinion (OIG Advisory Opinion No. 12-06) is available at http://oig.hhs.gov/fraud/docs/advisoryopinions/2012/AdvOpn12-06.pdf
2 The advisory opinion indicates that the ASCs are certified as ambulatory surgery centers for Medicare reimbursement purposes.
3 The Special Advisory Bulletin, entitled “Contractual Joint Ventures,” is available at http://oig.hhs.gov/fraud/docs/alertsandbulletins/042303SABJointVentures.pdf. See also 68 Fed. Reg. 23148 (Apr. 30, 2003).