Summary

The OIG recently delivered an unfavorable Advisory Opinion in response to two types of arrangements proposed by an anesthesia services provider.

The HHS Office of Inspector General (OIG) recently issued Advisory Opinion No. 12-06 (the "Opinion"), which provides guidance relating to provision of services by an anesthesia services provider (the "Requester") to physician-owned ambulatory surgery centers ("ASCs"). The Opinion (available here) is an unfavorable response by the OIG to two types of arrangements proposed by the Requester.

The Requester maintains staff at outpatient surgery/endoscopy centers which are owned and operated by the ASCs. The Requester is responsible for employing personnel to staff the ASC's anesthesia needs and independently bills patients and third party payors (including Medicare) for the associated professional fees. The physician-owners of the ASCs (the "Owners") bill patients and third party payors (including Medicare) for their own professional services and charge the patients and payors a facility fee for the ASC's materials and ancillary staff.

The Requester proposed the following two arrangements in its Opinion request:

Proposed Arrangement A

Background
Under Proposed Arrangement A, the Requester would continue to provide exclusive anesthesia services to the ASC and bill patients and third party payors for its services. The Requester would also pay the ASCs an additional per-patient fee (the "Management Fee") for the provision of management services, including pre-operative nursing assessments and billing assistance, and for the use of office space to accommodate the anesthesia provider's physicians and materials. All patients participating in Federal health care programs would be excluded from the Management Fee payment arrangement.

The Requester acknowledged that the expenses associated with the proposed management services are included in the facility fees paid directly to the ASCs. Nevertheless, the Management Fee would be in addition to, and not in lieu of, the facility fees.

Legal Analysis
The OIG soundly rejected Proposed Arrangement A, finding that the Management Fee would result in the ASCs being paid twice for the same services. The additional remuneration could be used to unduly influence the ASCs to select the Requester as the exclusive provider of services. The parties' attempt to exclude Medicare patients from the Management Fee arrangement did not, from the OIG's perspective, sufficiently reduce the risk that one purpose of the Management Fee was to induce referrals by the ASC to the Requester.

Proposed Arrangement B

Background
Under Proposed Arrangement B, the ASCs would become the sole owner of newly-formed subsidiaries created to provide anesthesia-related services to the ASCs, also on an exclusive basis. The subsidiaries would, in turn, contract with the Requester to provide the services. The subsidiaries would bill patients and third party payors and pay the Requester a negotiated rate for the services, and the Owners would receive distributions of the remaining profit.

Legal Analysis
The OIG determined that none of the applicable Anti-Kickback safe harbors were satisfied by Proposed Arrangement B. The safe harbor for investments in ASCs only apply to returns on investment where the investment entity itself is an ASC that operates exclusively for the purpose of providing surgical services. In the Proposed Arrangement, the subsidiaries were formed to provide anesthesia services, not surgical services. Additionally, neither the employment nor personal services Anti-Kickback safe harbors were applicable to Proposed Arrangement B, as the safe harbors would only protect the subsidiaries' payments to the Requester (or its personnel) and not the Owners' profits.

After determining that the relevant Anti-Kickback safe harbors were inapplicable, the OIG concluded that Proposed Arrangement B would pose more than a minimal risk of fraud and abuse. The OIG referenced its Special Advisory Bulletin "Contractual Joint Ventures" in discussing the arrangement's inherent risks. 68 Fed. Reg. 23148 (Apr. 30, 2003). The Owners would not be actively participating in the operation of the subsidiaries, but rather contracting the operations to the anesthesia provider. The subsidiaries business would be wholly dependent on the ASC's referrals to the anesthesia provider, and the Owners would have no actual business risk because they control the amount of business referred to the Requester. The OIG ultimately determined that Proposed Arrangement B was an improper attempt by the Requester to pay remuneration in the form of a portion of their revenues to the Owners in exchange for selecting Requester as the ASC's exclusive provider of anesthesia services.

Conclusion

While the conclusions of the Opinion are fact-specific, this opinion is instructive to providers who are considering implementing similar arrangements. Saul Ewing's Health Practice Group has significant experience in advising health care providers and ambulatory surgery centers.