This article was written by Tony Mira of Anesthesia Business Consultants.
Anesthesia revenue streams are an attractive target for investors of various stripes.
Across the country, ambulatory surgical centers (ASCs) and certain medical specialty groups are looking at beefing up their incomes by sharing in anesthesia profits. At the January 24-26, 2013 ASA Practice Management Conference, Judith Jurin Semo, Esq., who presented an Update on the Company Model, noted that trade press articles encouraging such ventures appear regularly, going back at least to 2004 (Outpatient Surgery). The "company model" arrangement, which allows a third party to use an intermediate corporation to collect the professional fees while paying the anesthesiologists a negotiated rate, has been the object of considerable concern on the part of the ASA and the anesthesia community at large. Polled informally, one-third of anesthesiologists report having been approached about participating in a company model.
The company model is becoming familiar, but is it legal?
The Federal Anti-Kickback Statute
The chief legal obstacle to funneling anesthesia revenues to the ASC owners, or to the group that owns the office suite in which anesthesia services are furnished, is the federal anti-kickback statute, 42 U.S.C. §1320a-7b(b). The anti-kickback law prohibits the knowing and willful solicitation or receipt of any remuneration in exchange for referring a patient for a service or item for which payment may be made by Medicare, Medicaid or other federal health programs.
This is a very broad prohibition. "Any" remuneration includes bribes, kickbacks and rebates made directly or indirectly, overtly or covertly, in cash or in kind. Payment forgone or forgiven may be remuneration. "Knowing and willful" means intentional, but the courts have held that the statute is violated if even one purpose of the remuneration was to induce or reward referrals—even if there were other justifiable purposes, such as investment in quality improvement systems, to name but one example.
It is an easy task to fit the company model to the definition of an illegal kickback. In its Advisory Opinion No. 12-06, issued on June 1, 2012, the Office of the Inspector General did just that, as discussed in ABC's June 11, 2012 Alert OIG to Anesthesia Practices: Think Again before You Pay Your ASC for the "Franchise."
The anesthesia group requesting the Advisory Opinion presented the OIG with two scenarios. The first was a simple and direct proposed payment from the group to the physician-owned ASC: a per-patient "Management Services" fee covering preoperative nursing assessments, space for the anesthesiologists and for the group's records in the ASC, and the transfer of billing information. This was clear remuneration for the referral of anesthesia business to the group, even though the fees were not payable for Medicare and Medicaid patients. The second scenario was the quintessential company model, in which the referring physicians, who owned the ASC, would create subsidiary companies to furnish and bill for anesthesia services to patients. The subsidiaries would hire the anesthesiologists at a negotiated rate, either as independent contractors or as employees, to perform both clinical and administrative services, while billing and collecting for the anesthesia services provided to the ASC patients and retaining the profits. The only benefit received by the anesthesia group was access to the ASC's patients—referrals, pure and simple.
Much of the OIG Advisory Opinion was devoted to determining whether one of the regulatory "safe harbors" would prevent the arrangement from violating the anti-kickback law. The employment and personal services safe harbors were unavailing because the payment was to flow from the anesthesiologists to the ASC owners rather than vice versa. Nor did the safe harbor for investments in ASCs apply because the ASC owners' proposed investment was in the anesthesia services, not the surgical services.
Since no safe harbor immunized the arrangement, the OIG next examined whether it "would pose more than a minimal risk of fraud and abuse under the anti-kickback statute." The arrangement failed this test and the OIG concluded that the company model here was designed to permit the referring physicians to do indirectly what they could not do directly: receive remuneration in exchange for referrals. The factors considered by the OIG included the following:
Impact of the OIG Advisory Opinion
In the summary accompanying our June 2012 Alert, we wrote: "ASC-anesthesiologist arrangements involving remuneration to the ASC have been fairly common. That is going to change." It seemed to us that there would be very few instances in which referring physicians could capture a portion of the anesthesia revenues generated from procedures performed at their ASC in exchange for the franchise; at least one purpose of the arrangement would invariably be to compensate the ASC owners for the referrals.
Furthermore, the penalties for violating the anti-kickback statute are so extreme that we would expect the industry to be very conservative. Violation is a felony punishable by a fine of up to $25,000, imprisonment up to five years, or both, and automatic exclusion from federal health care programs. In addition, violators are subject to civil monetary penalties of up to $50,000 per violation plus damages of up to three times the total amount of remuneration (the combined total value of each claim submitted during the duration of the violation). As if those penalties were not enough, the Affordable Care Act brought violations of the anti-kickback statute within the aegis of the federal False Claims Act, under which each individual claim may give rise to penalties of up to $11,000 plus three times the value of the claim—and under which whistleblowers are given strong incentives to bring legal actions—exposure could easily be ruinous.
To the extent that a safe harbor or a feature of the arrangement might immunize a given company model under the federal anti-kickback law, various state laws present potential mine fields of their own. A number of states have their own anti-kickback statutes as well as prohibitions on fee-splitting and on the corporate practice of medicine. These laws may be enforced by state medical boards as well as by the courts.
Nevertheless, the appeal of what remains essentially a franchise fee is so strong that company models appear to be proliferating in spite of the legal risks. Consultants and lawyers are motivated to seek to limit the impact of the Advisory Opinion, which, like all OIG Advisory Opinions, applies only to the scenario presented by the party requesting OIG review and is not dispositive of other similar cases. Further, as noted by Ms. Semo,
Some legal commentary has sought to isolate the Advisory Opinion as one sought by anesthesiologists and to minimize its importance. Some attorneys have suggested that the company model arrangements may be legal if they are structured in a good faith manner and involve circumstances that reflect good intent, such as improving quality, promoting efficiency and coordinating care through increased alignment among providers.
The economics of anesthesiology practice are under threat from a variety of directions, not least of which is the Medicare Sustainable Growth Rate, of which we have written frequently in these Alerts. The interest of third parties, including referring physicians and facilities, in capturing a portion of the anesthesia revenue stream is of increasing concern. Sharing this concern, ASA has three times formally requested either a Special Advisory Bulletin or a Special Fraud Alert from the OIG, thus far without result. Currently the OIG is soliciting topics for Special Fraud Alerts and ABC intends to submit a letter urging that the company model be the subject of a Special Fraud Alert in 2013.
Meanwhile, we reiterate our recommendation that anesthesia practices invited to participate in company model arrangements—even those that reluctantly consider participation only because of competitive pressures; the OIG made it clear that such pressure did not justify paying kickbacks—obtain the thoughtful guidance of experienced counsel. The consequences of error might well be unaffordable.
Related Articles on Anesthesia:
Study: Exercise May Decrease Diabetes Related Neuropathic Pain
Chattanooga Anesthesia Practice Merge Following National Trend
Anesthesiologist Elected to Morristown Medical Center Board of Trustees
Anesthesia revenue streams are an attractive target for investors of various stripes.
Across the country, ambulatory surgical centers (ASCs) and certain medical specialty groups are looking at beefing up their incomes by sharing in anesthesia profits. At the January 24-26, 2013 ASA Practice Management Conference, Judith Jurin Semo, Esq., who presented an Update on the Company Model, noted that trade press articles encouraging such ventures appear regularly, going back at least to 2004 (Outpatient Surgery). The "company model" arrangement, which allows a third party to use an intermediate corporation to collect the professional fees while paying the anesthesiologists a negotiated rate, has been the object of considerable concern on the part of the ASA and the anesthesia community at large. Polled informally, one-third of anesthesiologists report having been approached about participating in a company model.
The company model is becoming familiar, but is it legal?
The Federal Anti-Kickback Statute
The chief legal obstacle to funneling anesthesia revenues to the ASC owners, or to the group that owns the office suite in which anesthesia services are furnished, is the federal anti-kickback statute, 42 U.S.C. §1320a-7b(b). The anti-kickback law prohibits the knowing and willful solicitation or receipt of any remuneration in exchange for referring a patient for a service or item for which payment may be made by Medicare, Medicaid or other federal health programs.
This is a very broad prohibition. "Any" remuneration includes bribes, kickbacks and rebates made directly or indirectly, overtly or covertly, in cash or in kind. Payment forgone or forgiven may be remuneration. "Knowing and willful" means intentional, but the courts have held that the statute is violated if even one purpose of the remuneration was to induce or reward referrals—even if there were other justifiable purposes, such as investment in quality improvement systems, to name but one example.
It is an easy task to fit the company model to the definition of an illegal kickback. In its Advisory Opinion No. 12-06, issued on June 1, 2012, the Office of the Inspector General did just that, as discussed in ABC's June 11, 2012 Alert OIG to Anesthesia Practices: Think Again before You Pay Your ASC for the "Franchise."
The anesthesia group requesting the Advisory Opinion presented the OIG with two scenarios. The first was a simple and direct proposed payment from the group to the physician-owned ASC: a per-patient "Management Services" fee covering preoperative nursing assessments, space for the anesthesiologists and for the group's records in the ASC, and the transfer of billing information. This was clear remuneration for the referral of anesthesia business to the group, even though the fees were not payable for Medicare and Medicaid patients. The second scenario was the quintessential company model, in which the referring physicians, who owned the ASC, would create subsidiary companies to furnish and bill for anesthesia services to patients. The subsidiaries would hire the anesthesiologists at a negotiated rate, either as independent contractors or as employees, to perform both clinical and administrative services, while billing and collecting for the anesthesia services provided to the ASC patients and retaining the profits. The only benefit received by the anesthesia group was access to the ASC's patients—referrals, pure and simple.
Much of the OIG Advisory Opinion was devoted to determining whether one of the regulatory "safe harbors" would prevent the arrangement from violating the anti-kickback law. The employment and personal services safe harbors were unavailing because the payment was to flow from the anesthesiologists to the ASC owners rather than vice versa. Nor did the safe harbor for investments in ASCs apply because the ASC owners' proposed investment was in the anesthesia services, not the surgical services.
Since no safe harbor immunized the arrangement, the OIG next examined whether it "would pose more than a minimal risk of fraud and abuse under the anti-kickback statute." The arrangement failed this test and the OIG concluded that the company model here was designed to permit the referring physicians to do indirectly what they could not do directly: receive remuneration in exchange for referrals. The factors considered by the OIG included the following:
- The arrangement was an expansion into a new line of business;
- The referring physicians would not be involved in the operations of the new business;
- The business was completely dependent on the ASC's referrals and had no other referral source;
- The referring physicians had minimal risk, because the amount of business they referred to the anesthesia group was within their sole control;
- The anesthesia group was an established provider and would normally be a competitor providing the services for its own account, billing and collecting for the services and retaining all profits, and
- The referring physicians would receive compensation, i.e. the profits from the new business.
Impact of the OIG Advisory Opinion
In the summary accompanying our June 2012 Alert, we wrote: "ASC-anesthesiologist arrangements involving remuneration to the ASC have been fairly common. That is going to change." It seemed to us that there would be very few instances in which referring physicians could capture a portion of the anesthesia revenues generated from procedures performed at their ASC in exchange for the franchise; at least one purpose of the arrangement would invariably be to compensate the ASC owners for the referrals.
Furthermore, the penalties for violating the anti-kickback statute are so extreme that we would expect the industry to be very conservative. Violation is a felony punishable by a fine of up to $25,000, imprisonment up to five years, or both, and automatic exclusion from federal health care programs. In addition, violators are subject to civil monetary penalties of up to $50,000 per violation plus damages of up to three times the total amount of remuneration (the combined total value of each claim submitted during the duration of the violation). As if those penalties were not enough, the Affordable Care Act brought violations of the anti-kickback statute within the aegis of the federal False Claims Act, under which each individual claim may give rise to penalties of up to $11,000 plus three times the value of the claim—and under which whistleblowers are given strong incentives to bring legal actions—exposure could easily be ruinous.
To the extent that a safe harbor or a feature of the arrangement might immunize a given company model under the federal anti-kickback law, various state laws present potential mine fields of their own. A number of states have their own anti-kickback statutes as well as prohibitions on fee-splitting and on the corporate practice of medicine. These laws may be enforced by state medical boards as well as by the courts.
Nevertheless, the appeal of what remains essentially a franchise fee is so strong that company models appear to be proliferating in spite of the legal risks. Consultants and lawyers are motivated to seek to limit the impact of the Advisory Opinion, which, like all OIG Advisory Opinions, applies only to the scenario presented by the party requesting OIG review and is not dispositive of other similar cases. Further, as noted by Ms. Semo,
Some legal commentary has sought to isolate the Advisory Opinion as one sought by anesthesiologists and to minimize its importance. Some attorneys have suggested that the company model arrangements may be legal if they are structured in a good faith manner and involve circumstances that reflect good intent, such as improving quality, promoting efficiency and coordinating care through increased alignment among providers.
The economics of anesthesiology practice are under threat from a variety of directions, not least of which is the Medicare Sustainable Growth Rate, of which we have written frequently in these Alerts. The interest of third parties, including referring physicians and facilities, in capturing a portion of the anesthesia revenue stream is of increasing concern. Sharing this concern, ASA has three times formally requested either a Special Advisory Bulletin or a Special Fraud Alert from the OIG, thus far without result. Currently the OIG is soliciting topics for Special Fraud Alerts and ABC intends to submit a letter urging that the company model be the subject of a Special Fraud Alert in 2013.
Meanwhile, we reiterate our recommendation that anesthesia practices invited to participate in company model arrangements—even those that reluctantly consider participation only because of competitive pressures; the OIG made it clear that such pressure did not justify paying kickbacks—obtain the thoughtful guidance of experienced counsel. The consequences of error might well be unaffordable.
Related Articles on Anesthesia:
Study: Exercise May Decrease Diabetes Related Neuropathic Pain
Chattanooga Anesthesia Practice Merge Following National Trend
Anesthesiologist Elected to Morristown Medical Center Board of Trustees