Summary of OIG Advisory Opinion 12-06

by Nexsen Pruet, PLLC
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{author: Joe Kahn; reviewed by Claire Turcotte*]

 American Health Lawyers Association  on  June 6, 2012

Nexsen Pruet attorney Joe Kahn drafted and Bricker & Eckler attorney Claire Turcotte reviewed this summary of Advisory Opinion 12-06 from the Department of Health and Human Services' Office of Inspector General.

It was originally published by the American Health Lawyers Association and is reposted here with permission. 

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Summary of OIG Advisory Opinion 12-06
Issued May 25, 2012, and posted June 1, 2012

On May 25, 2012, the OIG issued a “negative” advisory opinion,12-06, relating to two proposals addressing the provision of anesthesia services at physician-owned ambulatory surgery centers (collectively the “Proposed Arrangements”).  The OIG identified concerns with both Proposed Arrangements, and concluded that, if requisite intent existed, each of the Proposed Arrangements could constitute grounds for the imposition of civil monetary penalties (“CMP”) and/or administrative sanctions in connection with the enforcement of the anti-kickback statute (“Statute”).

Requestor is a physician-owned anesthesia services provider.  Requestor provides anesthesia services on an exclusive basis to several outpatient surgery/endoscopy centers owned and operated by physician-owned entities (“Centers”).  The Centers are certified as ambulatory surgery centers (“ASC”), and Requestor believes the ASCs are operated in accordance with the Statute’s ASC safe harbor. The Centers bill and collect from Medicare and private payers for the ASC facility services.  Requestor currently bills and collects, independently, for the professional anesthesia services provided at the Centers.

Requestor indicated that, as a result of pressure from the Centers and the conduct of competitors in the area, it was considering two potential modifications to its current arrangements with the Centers.  Under the first Proposed Arrangement (“Arrangement A”), the underlying elements of the current arrangements between Requestor and the Centers would remain the same, but Requestor would begin paying the Centers for “Management Services”, including pre-operative nursing assessments, space for Requestor’s physicians/personnel, records, etc. and assistance with transfers of billing documentation to Requestor’s billing office.  Requestor certified that the Centers are already reimbursed for the Management Services through the Medicare ASC facility fee and similar private reimbursement.  Nevertheless, under Arrangement A, Requestor would also compensate the Centers for these same services based on a per-patient fee, which Requestor certified would be set at fair market value and not take into account the volume or value of referrals or other business generated.  Federal health care program beneficiaries would be excluded from the calculation of the Management Services fee.

Under the second Proposed Arrangement (“Arrangement B”), the Centers’ physician-owners would establish separate entities (“Subsidiaries”) to provide anesthesia services to the Centers on an exclusive basis.  The Subsidiaries would employ or contract with anesthesia providers for the clinical services, and would contract with Requestor to provide all other administrative, management, and operational oversight services for the Subsidiaries’ operations.  The Subsidiaries would pay Requestor a negotiated rate for these services out of their collections for anesthesia services, and the physician-owners of the Subsidiaries would retain the remaining profit generated from the anesthesia services.

The OIG analyzed each of the Proposed Arrangements separately.  With respect to Arrangement A, the OIG first concluded that the “carve out” of Federal program beneficiaries from Requestor’s payment for Management Services to the Centers would not reduce the risk of fraud and abuse.  The OIG noted its long-standing concern related to “carve outs” of Federal program business, and indicated that, because Requestor would be the exclusive provider of anesthesia services under Arrangement A, the “carve out” would not reduce the risk that the Management Services fee for non-Federal program patients would be paid to induce referrals for Federal beneficiaries.  The OIG then noted that the Centers would be paid twice for the Management Services they provide under Arrangement A, and found that the additional remuneration paid by the Requestor could be found to be an improper inducement for the Centers’ Federal program beneficiary referrals.

With respect to Arrangement B, the OIG first found that the ASC safe harbor would not apply to the Subsidiaries, because they would not be providing “surgical services”, which is a required element of the ASC safe harbor.  The OIG also concluded that neither the employment safe harbor nor the personal services and management contracts safe harbor would protect the profits distributed to the physician-owners of the Subsidiaries. 

The OIG then found that Arrangement B has many of the hallmarks of arrangements which the OIG has warned against in prior opinions and the “Contractual Joint Ventures” Special Advisory Bulletin (68 Fed. Reg. 23 (April, 30, 2003)), and that it would pose more than a minimal risk of fraud and abuse for the following reasons: (1) the Centers’ owners would be expanding into a related line of business wholly dependent on the Centers’ referrals;  (2) the Centers would contract virtually the entire operation of the Subsidiaries to Requestor; (3) the Centers’ owners’ business risk in the Subsidiaries would be minimal due to their control of the referral stream; (4) Requestor is an established provider of the same services as the Subsidiaries, and would otherwise be a competitor but for the proposed arrangement; (5) Requestor and the Centers’ owners would share in the economic benefit of the Subsidiaries; and (6) Requestor represented that it is under competitive pressure to consider the Proposed Arrangements or risk loss of business.  In conclusion, the OIG found problematic that Arrangement B appears to be “designed to permit the Centers’ physician-owners to do indirectly what they cannot do directly; that is, to receive compensation, in the form of a portion of the Requestor’s anesthesia services revenues, in return for their referrals to the Requestor.”

*The Practice Group Leadership would like to thank Advisory Opinions Task Force members Joseph Kahn (Nexsen Pruet, PLLC, Raleigh, NC) and Claire Turcotte (Bricker & Eckler, LLP, West Chester, OH) for drafting and reviewing, respectively, this summary.

© 2012 American Health Lawyers Association - Washington, DC

Reprinted with permission

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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