On June 1, 2012, the United States Department of Health and Human Services Office of Inspector General (the “OIG”) issued Advisory Opinion No. 12-06 concluding that certain proposed arrangements between an anesthesiology group (the “Anesthesiology Group”) and several outpatient surgery/endoscopy centers certified as ambulatory surgery centers (the “ASCs”), could violate the federal anti-kickback statute.
Under the current arrangement between the Anesthesiology Group and the ASCs, the Anesthesiology Group assumes responsibility for employing personnel to staff the ASCs’ anesthesiology needs and independently bills patients and third party payors, including Medicare, for the professional fees associated with these services. The ASCs independently bill private payors and Medicare for the ASCs’ facility services (which include the use of the facility where the surgical procedures are performed and supplies and equipment for the administration and monitoring of anesthesia).
The opinion was requested by the Anesthesiology Group, which told the OIG that it was under pressure to enter into two proposed arrangements in order to compete with other anesthesia groups in its area.
Proposed Arrangement A
Under Proposed Arrangement A, the Anesthesiology Group would begin paying the ASCs a per-patient fee for "Management Services," such as paying for space in the referring physician’s facility and paying for the services of the ASCs’ personnel to transfer billing documentation to the Anesthesiology Group’s billing office. Federal health care program patients (e.g. Medicare and Medicaid patients) would be excluded from the per-patient Management Services fee. Notably, the Anesthesiology Group stated that payment for the expenses associated with the Management Services is already included in the facility fees paid by Medicare and private payors. Therefore, even though federal health care program patients would be excluded from the per-patient Management Services fee, the ASCs would essentially be paid twice for the Management Services for non-federal health care program patients.
The OIG noted its long-standing concern that arrangements which “carve out” federal health care program beneficiaries may disguise remuneration for referral of federal program business. Since the ASCs would be paid twice for the same services, as noted above, the additional payment paid by the Anesthesiology Group in the form of the Management Services fees could unduly influence the ASCs to select the Anesthesiology Group as the exclusive provider of anesthesiology services, including services to federal program beneficiaries.
Proposed Arrangement B
Under Proposed Arrangement B, the ASCs’ physician-owners would form subsidiary anesthesia companies in order to share in anesthesia revenue. The subsidiaries would be established for the sole purpose of providing anesthesia services to the ASCs’ patients. The subsidiaries would engage the Anesthesiology Group as an independent contractor to provide anesthesia services and would pay the Anesthesiology Group a negotiated rate while retaining any profits. The OIG analyzed the Proposed Arrangement B under several legal principles and determined that no safe harbor would protect the remuneration the subsidiaries would distribute to the ASCs’ physician-owners under this arrangement.
The subsidiaries would be established for the sole purpose of providing anesthesia services to the ASCs’ patients. Since the subsidiaries would not provide surgical services, they would not qualify as Medicare-certified ASCs for purposes of the ASC safe harbor and the subsidiaries’ income would therefore not be protected by the ASC safe harbor.
- Employment Safe Harbor and Personal Services Safe Harbor
While the employment safe harbor and the personal services safe harbor would protect the payments made by the subsidiaries to bona fide employees of the subsidiaries and/or independent contractor anesthesia personnel (if all the remaining requirements of the applicable safe harbor were met), neither the employment safe harbor nor the personal services safe harbor would protect the subsidiaries’ profits that would be distributed to the ASCs’ physician-owners. The OIG found that such remuneration to the ASCs’ physician-owners would be prohibited under the anti-kickback statute if one purpose of the remuneration would be to generate or reward referrals for anesthesia services.
The OIG analyzed the Proposed Arrangement B in light of its concern about contractual joint venture arrangements discussed in its April 23, 2003 Special Advisory Bulletin on Contractual Joint Ventures (the "Advisory Bulletin"). In the Advisory Bulletin, the OIG focused on arrangements where a health care provider in one line of business (the "Owner") expands into a related health care business by contracting with an existing provider of a related item or service (the "Supplier") to provide the related item or service to the Owner’s existing patient population, including Medicare and Medicaid patients. The Supplier not only manages the line of business for the Owner, but may also supply it with inventory, employees, space, billing, and other services. In other words, the Owner contracts out substantially the entire operation of the related line of business to the Supplier—otherwise a potential competitor—receiving in return the profits of the business as remuneration for its federal program referrals. In the Advisory Bulletin, the OIG identifies a number of factors it considers indicative of a questionable contractual joint venture arrangement, noting that the list is not exhaustive and that presence or absence of any one factor is not determinative.
Analyzing the Proposed Arrangement B in light of the OIG’s guidance on contractual joint ventures, the OIG considered the physician-owners and Anesthesiology Group to be in the same position as the Owner and Supplier in the Advisory Bulletin:
The physician-owners would expand into a related line of business dependent on their referrals.
The physician-owners would contract out substantially all of the operations exclusively to the Anesthesiology Group.
The physician-owners’ business risk would be minimal because they would control business referred to the subsidiaries. Significantly, the OIG notes that the Advisory Bulletin cites failure to provide financial, capital and human resources, but concludes that Arrangement B presents more than minimal risk of fraud and abuse regardless of the level of the physician-owners’ contributions.
The Anesthesiology Group provides the same services as the subsidiaries would provide, and would be a competitor but for the contractual arrangement.
- The Anesthesiology Group and physician-owners would share the benefit of the new business, with the Anesthesiology Group receiving contracted payments and the physician-owners receiving residual profits.
This Advisory Opinion provides a reminder that the “carve-out” of federal heath care program beneficiaries from an arrangement does not eliminate fraud and abuse concerns if the arrangement can be viewed as an inducement of the referral of federal health care program beneficiaries. More importantly, it illustrates the OIG’s skepticism about arrangements enabling referral sources to capture the income stream from their referrals regardless of the level of investment made by the referral sources.
The Advisory Opinion was welcomed by the American Society of Anesthesiologists, which noted that it has long tried to bring to the OIG’s attention concerns it has with anesthesia staffing models such as Arrangement B (sometimes called the “company model”). These arrangements have become increasingly common, however. And others will likely object that, far from being a kickback to the anesthesia providers, Arrangement B is a legitimate arrangement which simply represents the most efficient and commercially reasonable way to provide more advanced anesthesia services in certain surgery centers.