OIG Warns Against Certain Arrangements Between Anesthesiologists and ASCs

June 15, 2012 | Corporate | Health Services

The Office of the Inspector General (the “OIG”) recently issued Advisory Opinion No 12-06 (the “Opinion”) on two proposed arrangements between the exclusive providers of anesthesia services to a group of ASCs (the “Provider”) and physician-owned ASCs (the “ASC”).  Briefly stated, the Provider wished to enter into one of two possible arrangements to provide anesthesia services to the ASC.  Pursuant to the first proposed arrangement, the Provider would pay a management fee to the ASC for all patients not federally insured. The management fee would cover, among other items, space use and other managerial and administrative costs incurred by the ASC.  Under the second proposed arrangement, the owners of the ASC would form a subsidiary corporation that would subcontract with the Provider to provide anesthesia services to the ASC, an arrangement commonly known as the “company model.” The subsidiary would bill for the anesthesia services, pay the Provider for the services provided to the subsidiary, and then retain the profits.

The Provider was concerned that the proposed arrangements implicated the federal Anti-Kickback Statute (“AKS”), and in both instances, the OIG agreed.  Specifically, the OIG opined that both arrangements could potentially generate prohibited remuneration, resulting in the potential imposition of administrative sanctions.[1]

The Anesthesia Management Arrangement

Under the first arrangement, the Provider proposed to bill the patients and third party payors for the anesthesia services, and would pay the ASC for “management services.”  It was contemplated that the management services would include space for the Provider’s materials, records and personal effects, pre-operative nursing assessments, and assistance in the transfer of billing documentation to the Provider. The management services fee would be paid on a per-patient basis, but would not include payment for management services related to Federal health care program beneficiaries. The ASC would continue to charge a facility fee to Medicare and all other payors.

The OIG found the carve-out of Federal health care program beneficiaries to be troublesome enough so as to raise possible AKS liability.[2] The OIG stated that such carve-outs could be viewed as disguised remuneration for the referral of anesthesia services.  Specifically, the OIG was concerned that since the ASC had an exclusive arrangement with the Provider for the provision of anesthesia services to all patients, including Federal health care program beneficiaries, such beneficiaries would continue to be referred to the Provider. Therefore, the OIG believed that there was still a significant risk that the management fee could induce referrals of Federal health care beneficiaries along with the patients for which the management fee would be paid.

The “Company Model”

The second arrangement proposed by the Provider entailed the creation of a subsidiary by the ASC for the provision of anesthesia-related services to the ASC.  The subsidiary would be wholly owned by the ASC or its owners, and would bill for anesthesia-related services. The subsidiary would then sub-contract with the Provider for anesthesia services including logistical support in billing, recruiting, quality assurance, and similar programs.  The subsidiary would pay the Provider for its services from income collected for the anesthesia services, and retain any profits.

Notably, an arrangement similar to this was flagged by the American Society of Anesthesiologists (the “ASA”) in 2009.  In a letter addressed to the OIG, the ASA referred to the arrangement as the “company model,” and expressed concern that it facilitated illegal kickbacks.  The kickback occurred, the ASA argued, when the anesthesia subsidiary returned its profits to the parent corporation, which was owned by the same physicians who referred the anesthesia cases to the subsidiary in the first place.  In addition, the ASA was concerned that the arrangement promoted the overutilization of anesthesia services. 

Although the OIG was silent on the ASA’s letter, it found in this Opinion that the proposed arrangement, which mimicked the “company model”, implicated the AKS.  Specifically, the OIG found that the profits from the referral of anesthesia services could constitute impermissible remuneration, and that the arrangement did not fit into any safe harbor. As such, the arrangement was found to create potential AKS liability.

While the lack of a safe harbor is not itself fatal, the OIG stated that the arrangement posed a greater than minimal risk of fraud and abuse.  The OIG analogized the arrangement to a joint venture between those in a position to make referrals (here, the ASC physician-owners) and those furnishing services for which Medicare pays (here, the subsidiaries).  In issuing the Opinion, the OIG relied on its Special Advisory Bulletin, “Contractual Joint Ventures,” to demonstrate the OIG’s concern with the arrangement.  Substantially the same concern articulated by the OIG in the Special Advisory Bulletin was found to be present in the proposed arrangement.  That is, the arrangement allowed the ASC owners to indirectly receive a portion of the Provider’s revenues in return for the ASC’s referrals to the Provider through the subsidiary. 

Moreover, the OIG found that the arrangement did not fit within any applicable safe harbor.  Specifically, the ASC safe harbor was found to be inapplicable to this arrangement because the subsidiary was not an ASC, as the subsidiary would not operate “exclusively for the purpose of providing surgical services . . . .” The employment safe harbor was also found to be inapplicable because, while bona fide employees of the subsidiary would qualify under the safe harbor, the receipt by the owners of the ASC of the profits would not fit within that safe harbor.  Finally, the OIG found that while the personal services and management contracts safe harbor could be applicable to the Provider’s relationship with the subsidiaries, it would again not protect the remuneration being provided to the ASC owners from the subsidiaries.


This Opinion is significant because it clearly illustrates that providers cannot shield themselves from liability under AKS by simply carving out services or payments to Federal health care beneficiaries when the proposed arrangement would not otherwise fit into an applicable safe harbor. In addition, the Opinion confirms the ASA’s concerns about the “company model” and is consistent with the OIG’s position taken in its Special Advisory Bulletin on Contractual Joint Ventures that such arrangements are considered to be suspect under the AKS.

For full text of OIG Advisory Opinion No. 12-06, please visit: http://oig.hhs.gov/fraud/docs/advisoryopinions/2012/AdvOpn12-06.pdf.

For full text of the ASA’s 2009 letter, please visit: http://www.nyssa-pga.org/Professional—Practice-Issues/Legal-Issues/ASA_OIG_Letter-2009-03-19.aspx.

For the full text of the Contractual Joint Venture Special Advisory Bulletin, please visit: http://oig.hhs.gov/authorities/docs/03/043003sabjointventureFRN.pdf.

[1] In both of these arrangements, as with any AKS inquiry, intent to solicit or induce referrals must also be demonstrated to trigger liability.

[2] Although the Opinion did not raise the issue, it is of note that such an arrangement would also not fit into the Personal Services and Management Contracts safe harbor.  That particular safe harbor requires, among other criteria, that the aggregate compensation for the arrangement be set in advance.  Under the proposed arrangement, the aggregate compensation would fluctuate based on the number of patients seen.

This article was co-written by Gregory Mitchell, a third-year law student at Emory University, who is a Summer Law Clerk in the firm’s Health Services Practice Group.

Reprinted with permission.  All rights reserved.

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