OIG Publishes Negative Advisory Opinion on Proposed Anesthesia Arrangements at Physician-Owned ASCs

June 2012Articles Staying Well Within the Law

The U.S. Department of Health and Human Services, Office of Inspector General (OIG) issued a negative advisory opinion, No. 12-06, on May 25, 2012, in connection with two proposed business arrangements involving an anesthesia practice and physician-owned ambulatory surgery centers (ASCs). The opinion expressed concerns over aspects of both arrangements and found that if the requisite intent existed, either arrangement could constitute grounds for penalties and/or administrative sanctions under the federal Anti-Kickback Statute.

The requestor of the opinion (Requestor) was a physician-owned anesthesia services provider comprised of 31 physician members, 10 physician employees and 3 administrative employees. The Requestor provides anesthesia services on an exclusive basis at several physician-owned ASCs. The ASCs are operated by the physician-owners in accordance with the ASC Safe Harbor to the Anti-Kickback Statute [42 CFR 1001.952(r)]. Under the Requestor’s existing arrangements with the ASCs, it billed separately for the professional fees associated with the anesthesia services provided at the ASCs.

Faced with increasing financial pressure from competitors, the Requestor proposed two different variations to its existing exclusive anesthesia services arrangement:

Pursuant to Arrangement A, the Requestor would remain the exclusive anesthesia provider at the ASCs and continue to bill separately for its professional services. However, it would begin paying the ASCs a per patient management fee for the following “management services”:

  • pre-operative nursing assessments;
  • space for the Requestor’s physicians, their personal effects, and their documentation and records at the ASC; and
  • assistance with transferring billing documentation to Requestor’s billing office.

The management fee payable to the ASCs would be in addition to their facility fee reimbursement from Medicare and private payors; however, federal healthcare program patients would be excluded from the management fee calculation. The Requestor certified that the management fee would represent fair market value for the management services provided and would not take into account the volume or value of referrals or any other business generated between the parties.

Pursuant to Arrangement B, the physician-owners of the ASCs would themselves set up separate subsidiary companies (the Subsidiaries) to provide anesthesia services at the ASCs. The Subsidiaries would furnish and bill for the anesthesia services at the ASCs. In turn, the Subsidiaries would engage the Requestor (the anesthesia practice) as an independent contractor to essentially manage all of the day-to-day operations of the Subsidiaries. In return, the Requestor would receive a negotiated fee for these management services that would be paid out of the collections for anesthesia services received by the Subsidiaries, with the Subsidiaries retaining any profits.

The OIG analyzed each of the proposed Arrangements separately in light of the requirements of the Anti-Kickback Statute and found both of them to be problematic.

First, the OIG concluded that the management fee payable under Arrangement A was problematic because the payments that the ASCs received from Medicare and other payors for facility fees were inclusive of the same services that the ASCs were now receiving a management fee for from the Requestor. So, in essence, the ASCs were double dipping – getting paid for the same services twice. The OIG concluded that the fact that federal program beneficiaries were excluded from the management fee was irrelevant because the additional monies paid to the ASCs by the Requestor could unduly influence the ASCs to select the Requestor as the exclusive provider of anesthesia services at the ASCs.

Second, the OIG found Arrangement B to be problematic for several reasons. First, the OIG found that the ASC Safe Harbor would not protect the arrangement since it only applies to surgical services, not anesthesia services. Next, neither the employment safe harbor nor the personal services and management contracts safe harbor to the Anti-Kickback Statute would protect the profits of the Subsidiaries payable to the physician owners under Arrangement B.

The OIG then concluded that Arrangement B was troublesome in that it possessed many of the characteristics of a suspect contractual joint venture as outlined in the Special Advisory Bulletin entitled “Contractual Joint Ventures” [68 Fed. Reg. 23,148 (April 30, 2003)]. Specifically, the arrangement was suspect where:

  • the owners of the ACSs were expanding into a related line of business that was dependent on referrals from the ASCs;
  • the owners’ business risk in the venture was minimal because the owners controlled the stream of referrals;
  • the owners were proposing to contract out to the Requestor virtually the entire operation of the Subsidiaries;
  • the Requestor was an established provider of the same anesthesia services that the Subsidiaries would be providing, and would otherwise be a competitor of the Subsidiaries;
  • the owners and the Requestor would be sharing in the economic benefit of the Subsidiaries; and
  • the Requestor admitted it was under financial pressure to enter into the proposed Arrangement or risk losing the business of the ASCs.

The OIG concluded that Arrangement B was designed to permit the owners of the ASCs to do indirectly what they could not do directly – to receive compensation in the form of a portion of the Requestor’s anesthesia services revenues in return for their referrals to the Requestor.

Accordingly, the OIG stated that both Arrangement A and Arrangement B could potentially generate prohibited remuneration under the Anti-Kickback Statute and that the OIG could potentially impose administrative sanctions against the parties if the requisite intent was present.