On June 1, 2012, the Department of Health and Human Services Office of Inspector General (the “OIG”) posted an advisory opinion in which it concluded that two proposed arrangements between an anesthesia services provider (the “Anesthesia Group”) and physician-owned ambulatory surgery centers (“ASCs”) could result in federal anti-kickback statute violations. 

Under the first proposed arrangement, the OIG rejected a proposal that would shift costs from the ASCs to the Anesthesia Group, concluding that “the Centers would be paid twice for the same services” and that the fee charged by the ASCs could unduly influence them to choose the Anesthesia Group as its exclusive provider of anesthesia services.   In declining to approve the second proposed arrangement, the OIG found that it bore several hallmarks of contractual joint ventures, of which the OIG has expressed long-standing disapproval.

The Proposed Arrangements

The Anesthesia Group provides anesthesia services on an exclusive basis at several ASCs owned and operated by physicians.  The Anesthesia Group is responsible for employing personnel to meet the ASCs’ anesthesia needs, and it independently bills patients and third party payors, including Medicare, for the professional fees associated with its services.  The physician owners of the ASCs bill for the professional services that they provide at the ASCs, and the ASCs bill for the facility fee associated with such services.  

Under the first proposed arrangement (“Proposal A”), the Anesthesia Group would continue to act as the exclusive provider of anesthesia services to the ASCs and to bill and retain all collections from patients and third party payors.  However, the Anesthesia Group would also pay a fee to the ASCs for certain “management services”, including nursing assessments; the use of space in the ASC; and transferring billing information to the Anesthesia Group’s office.  The management services fee would be charged on a per-patient basis.   

Under the second proposed arrangement (“Proposal B”), the physician owners of the ASCs would establish subsidiary companies to provide anesthesia services to patients at the ASCs.  These subsidiaries would engage the Anesthesia Group as an independent contractor to provide certain anesthesia-related services, such as: engaging and scheduling anesthesia personnel; ordering and maintaining supplies and equipment; assisting with the selection of a third-party billing company; and quality assurance.  Under Proposal B, the subisidiares would employ or contract with the anesthesia personnel managed by the Anesthesia Group.  The subsidiaries would bill for all anesthesia services provided at the ASCs, and pay the Anesthesia Group a negotiated rate for these services.  Any profits would be retained by the subsidiary companies.  

OIG’s Analysis

The OIG observed that, under Proposal A, the ASCs would continue to bill for the facility fee associated with the surgical procedures performed at the ASCs, and also receive the per-patient management services fee from the Anesthesia Group.  Because the fee to be paid by the Anesthesia Group would be made for some of the same services that the facility fee is intended to cover, the ASCs would essentially be paid twice for the same services.  The OIG concluded that this additional remuneration could unduly influence the ASCs to choose the Anesthesia Group as their exclusive provider of anesthesia services.

With respect to Proposal B, the OIG concluded that anti-kickback statute ASC safe harbor protection would be unavailable to the subsidiary companies because, as professional anesthesia services providers, they could not qualify as ASCs.  The OIG also found that Proposal B exhibited several of the elements that the OIG found common in “suspect joint venture arrangements” in a Special Advisory Bulletin issued in 2003.  Included among these elements are: (1) the ASCs’ physician owners’ expansion into a related line of business (by creating the subsidiary companies) that would be wholly-dependent on referrals from the ASCs; (2) the physician owners’ contracting out substantially all of the operations to the Anesthesia Group; and (3) the minimal business risk borne by the physician owners in operating the subsidiary companies (because the physician owners would control the amount of business they refer to the subsidiary companies). 

The OIG also highlighted the fact that the Anesthesia Group is an established provider of the services that the subsidiary companies would provide (and would otherwise be a competitor of the subsidiary companies) and that the anesthesia services provider and the ASCs’ physician owners would share in the economic benefit of the ASCs’ new business. 

On the basis of this analysis, the OIG concluded that Proposal B appears to be designed to permit the ASCs’ physician owners to do indirectly what they cannot do directly—namely, receive compensation (in the form of a portion of the anesthesia services provider’s revenues) in return for their referrals to the Anesthesia Group.  The OIG found additional support for its conclusion in the Anesthesia Group’s assertion that it is under pressure to enter into the proposed arrangements in order to compete with other anesthesia groups in its area that are engaging in similar practices. 

Conclusion

The OIG’s advisory opinion is consistent with its long-held suspicion of arrangements through which health care providers expand into a related line of business and receive remuneration from a third party which provides the bulk of the services associated with the new business line.  The opinion also confirms that attempting to charge a referral source fees for items or services for which the recipient of referrals already receives third-party payor reimbursement is problematic.  In the wake of this advisory opinion, ASCs and other health care providers should carefully evaluate their anesthesia services arrangements to avoid the troublesome aspects of the proposals evaluated here by the OIG, particularly in markets where multiple anesthesia providers compete for exclusive services agreements with ASCs. 

Dan Murphy is a partner in the Health Care Practice Group at Bradley Arant Boult Cummings. Travis Lloyd is an associate with the firm’s Health Care practice group.