OIG Issues Advisory Opinion on Ambulatory Surgical Center Relationships with Anesthesia Providers

On June 1, 2012, the Department of Health and Human Services Office of Inspector General (“OIG”) posted an Advisory Opinion wherein it analyzed a request from an anesthesia services provider (“Anesthesia Provider”) concerning the legality of several proposed arrangements with the physician owners of an ambulatory surgical center (“ASC”) under the federal anti-kickback statute. The Anesthesia Provider contended it was under pressure to consent to the proposed arrangements. Based on the facts provided, OIG concluded that each of two proposed arrangements could potentially result in prohibited remuneration under the anti-kickback statute and could result in administrative sanctions.

Under the current relationship, the ASC bills and receives payment from Medicare for surgical procedures including ancillary items, materials, staff and services along with a facility fee. The physicians' professional services are billed separately. Under the existing arrangement, an Anesthesia Provider provides its service to the ASC and bills Medicare for its own professional services.

OIG analyzed two separate proposed arrangements. Under the first proposed arrangement (“Arrangement A”), the Anesthesia Provider would continue to serve as the ASC’s exclusive provider of anesthesia services and would continue to bill and retain collections. However, the Anesthesia Provider would have to pay the ASC for “management services” that would include pre-operative nursing assessment, the provision of space for the Anesthesia Provider's materials and records, and certain billing documentation assistance. Currently, Medicare pays the ASC for these services as part of the facility fee. In exchange for the management services, the Anesthesia Provider would pay a per patient fee to the ASC but would not pay the fee for Medicare and Medicaid patients. The management services fees would be set at fair market value and would not take into account the value or volume of referrals.

OIG decided that Arrangement A presented a risk under the anti-kickback statute even if no payments were made for Medicare/Medicaid patients. OIG’s reasoning cited its long-standing concern that such arrangements may "disguise" remuneration for referrals of federal healthcare patients through the payment of amounts related to non-federal program business. The OIG further stated that while the ASCs would not charge the Management Services fee with regard to federal care patients, because the Anesthesia Provider is the exclusive provider of anesthesia services for all of the ASC's patients, carving out these patients does not ensure that the Anesthesia Provider's payments to the ASC for management services would not be paid to induce referrals to the Anesthesia Provider of Medicare and Medicaid patients. Moreover, the fees sought for “management services” were already being paid by Medicare so the ASC would receive payment twice for the same service.

Under Arrangement B, the physician owners of the ASC would form a new company (the “Subsidiaries”), which would contract with the ASC to exclusively provide and bill for anesthesia services provided at the ASC. The Subsidiaries would be owned, indirectly, by the physician owners of the ASC through a PC or LLC or by the ASC itself. The Subsidiaries would then hire the Anesthesia Provider as an independent contractor to provide certain anesthesia-related services to the Subsidiaries on an exclusive basis including supplying the anesthesia personnel, supplies, monitoring compliance, quality assurance, and logistics. The Anesthesia Provider would receive payment at a negotiated rate from the Subsidiaries who would make such payments out of its collections and retain the remainder as profits.

With respect to Arrangement B, OIG opined it has long been concerned about investments in ASCs serving as way to reward referrals. Although the AKS provides a safe-harbor exception from the definition of “remuneration” for any payment that is a return on an investment interest made to an investor where the investor is a Medicare-certified ASC and satisfies certain additional conditions. The OIG indicates that even if the physician owners' investment in the ASC qualifies for the ASC safe harbor, their investment in the Subsidiaries does not. No safe harbor would protect the Subsidiaries’ profits that would be distributed to the physician owners because the ASC investment safe harbor only applies where the investment entity operates exclusively for the purpose of providing surgical services to patients not requiring hospitalization. Anesthesia services are not surgical services and thus do not qualify for the ASC safe harbor.

OIG then determined whether there was more than a minimal risk of fraud under Arrangement B using a joint venture analysis. The OIG's analysis turns primarily on its prior analysis in the Special Advisory Bulletin titled "Contractual Joint Ventures." See 68 Fed. Reg. 23,148 (Apr. 30, 2003) and the indicia of a suspect joint venture set forth therein. The OIG analogizes certain of the indicia of a suspect joint venture to Arrangement B. Specifically, the OIG points to the fact that the Physician Owners would be expanding into a "related line of business" (anesthesia services) that would be wholly dependent on the ASCs' referrals. The OIG also points out that, because the Physician Owners would control the patient volume for anesthesia services, they would have minimal actual business risk, and would not actually participate in the operation of the Anesthesia Company, contracting out substantially all of the operations to the Anesthesia Provider. (Note, however, the OIG later states that the extent of the Physician Owners' commitment of financial, capital and human resources to the Anesthesia Company "is unclear ... ".) Other indicia of a suspect joint venture under the Special Advisory Bulletin that the OIG focused on in the current analysis are that the Anesthesia Provider is an established provider of the same services as the Anesthesia Company, and would otherwise be a competitor of the Anesthesia Company, and that the Anesthesia Provider and the Physician Owners would share in the economic benefit of the ASCs' new business, with the Anesthesia Provider receiving the negotiated rate and the Physician Owners receiving a profit distribution.

OIG concluded that Arrangement B is designed to permit the ASC physician owners to indirectly receive compensation, in the form of the Anesthesia Provider’s revenues, in return for referrals to the Anesthesia Provider. However, any definitive conclusion concerning the legality of the proposed arrangements requires a determination of the parties’ intent which OIG did not determine in its opinion.