Summary of OIG Advisory Opinion 12-06

by Nexsen Pruet, PLLC

{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. 


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


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.

© Nexsen Pruet, PLLC | Attorney Advertising

Written by:

Nexsen Pruet, PLLC

Nexsen Pruet, PLLC on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.