June 22, 2015

Last week’s Alert brought a new Fraud Alert from the Office of the Inspector General (OIG) to readers’ attention.  The OIG is on the lookout for arrangements in which physicians receive compensation for medical director services that are intended to induce referrals of patients.  We wish the OIG were equally interested in the anti-kickback statute ramifications of the “company model,” in which anesthesiologists are asked to share their clinical revenues and thus compensate other physicians and/or facilities for referrals.

We last wrote about company model-like behavior in our Alert dated November 18, 2013 (The OIG Rejects Another Attempt to Take a Franchise Fee from Anesthesiologists), and some of our readers have asked us to address the issue again.

Third parties have continued to seek to enter into company model arrangements.  In February 2014, the American Society of Anesthesiologists (ASA) renewed its request that the OIG amend several of the anti-kickback statute safe harbors or issue a special fraud alert in a 19-page letter.  As ASA observed, company models “are expanding to referring physicians in increasing numbers of medical specialties.  They also are expanding beyond the ASC [ambulatory surgical center] environment to single specialty centers, offices, and even hospitals.”  To substantiate its concerns, ASA conducted two surveys of its members, one in 2012 and the second in 2013.  The later survey received 828 responses from all fifty states, Washington, D.C. and Puerto Rico.  The data showed that 420 practices (more than half) had been approached about engaging in a company model, an increase from the 125 practices in the initial survey. Of the 420 practices, 306 received a company model request at a facility where they already were providing services.  Rejecting the request to participate in a company model caused 42.5 percent of the practices that received such requests to lose their contracts.  (“A Growing Problem: Results of the Second ASA Survey on the Company Model,” American Society of Anesthesiologists Newsletter, December 2013, Vol. 77, N. 12, pp. 46-48.)

The reason that ASA asked the OIG for a special fraud alert or for modifications to the safe harbors for investments in ASCs and for investments in group practices was that many consultants, and many specialists such as ophthalmologists and gastroenterologists, are not dissuaded from creating company model, or other arrangements in which providers siphon off anesthesia revenues in exchange for referring cases to the anesthesiologists, by the OIG’s two key Advisory Opinions on the subject.  In both of these Advisory Opinions, the OIG found that the arrangement appeared “to be designed to permit the [referring physician group] to do indirectly what it cannot do directly; that is, to receive compensation, in the form of a portion of  [the anesthesia group’s] anesthesia services revenues, in return for”  referrals of patients to the anesthesiologists.

In the first Advisory Opinion, No. 12-06, the company model involved the proposed engagement of the ambulatory surgical/endoscopy center’s anesthesiologists by subsidiary companies at a negotiated rate lower than the anesthesia fees collected, or, alternatively, the payment of a management fee by the anesthesiologists to the ambulatory surgical center for use of the facility or its staff.  The payment of a management fee as a condition of the anesthesia franchise was clearly problematic:  the OIG said this arrangement would implicate the anti-kickback statute because the fee that the anesthesia group would pay would be for some of the same services that the ASC facility fee is intended to cover.  The ASC would essentially be paid twice for the same services.  As for the creation of the subsidiary companies to engage the anesthesiologists as independent contractors and to bill for their clinical services, retaining a share of the profits, the physician owners of the ASC argued unsuccessfully that the safe harbors for investments in ASCs, for employment and for personal services should immunize the arrangement.

The later Advisory Opinion, No. 13-15, featured an arrangement in which an anesthesiology group whose exclusive contract came up for renewal was forced by their hospital to accept a carve-out to allow a psychiatrist who was double-boarded in anesthesiology to provide anesthesia care for ECT patients.  Subsequently the contract was renewed with an “Additional Anesthesiologist Provision” allowing the psychiatry group to contract with an independent anesthesiologist of their choice if they were unable to negotiate an agreement for ECT coverage, as long as the last offer from the psychiatry group to the incumbent anesthesiology group was “at a fair market value rate, as reasonably determined by the Hospital.”  Of key importance, the psychiatry group proposed to bill and collect for the anesthesiology group’s professional services and to pay the group a fixed per diem rate.  The per diem rate was below fair market value and below the rate normally received.  This was not technically a company model case, but the intent was the same; the hospital’s role in obtaining below-market anesthesia services suggested a kickback to the psychiatrists for the ECT business and also a kickback sought from and given by the anesthesiologists in exchange for the continued referral of anesthesia patients.

Despite these Advisory Opinions, other physicians and facilities continue to pressure anesthesiologists to enter into company model arrangements, as consultants and various law firms continue to advise them that such arrangements do not necessarily violate the anti-kickback statute.  These consultants and lawyers argue that the Advisory Opinions do not stand in the way of other company model deals for reasons such as:

• Advisory Opinions all contain disclaimers stating that they have “no application to, and cannot be relied upon by, any other individual or entity.”
• The Requestors in Advisory Opinions 12-06 and 13-15 were the anesthesiology groups, not the endoscopists or psychiatrists.
• The arrangements do not violate the anti-kickback statute, so long as the referring physicians divide the anesthesia profits equally.
• If a safe harbor appears to apply, the arrangement will be considered legal.
• Since physicians and nonphysician practitioners can reassign their Medicare payments to an ASC by contract, such reassignment will be legal even if it is remuneration for access to anesthesia patients.
• There is a difference between the company model in Advisory Opinion No. 12-06, which involved a separate anesthesia company, and an “In-House Provider Model,” in which an ASC owned by referring physicians directly contracts with anesthesiologists, requiring them to reassign their anesthesia fees to the ASC rather than to the separate company.
• The proposed arrangement would be structured and “implemented, in a good faith manner and involve circumstances that reflect good intent, such as improving quality, efficiency and coordination of care or other permissible purposes.”  (Viewing the Recent OIG Company Model Advisory Opinion for What It Truly Is: Meaningful Guidance That Must Be Incorporated Into These Arrangements (But Certainly Not the Death Knell to All Company Models Across the Country), Health Law Attorney Blog, June 5, 2012.)

None of these reasons is sound.  OIG Advisory Opinions by the nature only apply formally to the situation on which they are based, but they provide valuable guidance as to likely OIG analyses of similar fact patterns.  The identity or interest of the requesting party is irrelevant, as is the proportion of profits taken by the referring physicians.  The safe harbors do not shield the company model in which the referring physicians rake off a portion of the anesthesia fees.  It doesn’t matter whether the ASC collects its payments for referrals directly or through a subsidiary or separate anesthesia company.  Finally, the OIG has stated over and over again that the anti-kickback statute is violated if even one purpose of the arrangement is to reward or incentivize referrals of Federally-insured patients, so countervailing “good intent” is not going to render the arrangement lawful.

What can an anesthesiologist do who is asked to enter into an arrangement that appears to involve paying referring physicians or a referring facility for the franchise?  The risks and consequences of violating the anti-kickback statute are considerable.  Violations are felonies, subjecting to maximum fines of $25,000 and/or imprisonment up to five years as well as to civil monetary penalties of up to $50,000/violation plus damages up to three times total remuneration.  Further still, claims arising out of violations of the anti-kickback statute can trigger the False Claims Act.  Penalties for violation of the False Claims Act include civil penalties of $5,500 to $11,000 plus three times the government’s damages per false claim.  On top of the federal laws, anesthesiologists must take into account state anti-kickback statute, which are on the books in most states, vary widely and do not necessarily have the safe harbors available under federal law.  Violations of any of these laws can also lead to exclusion from the Medicare and Medicaid programs, which is tantamount to a professional death sentence for most anesthesiologists.  Thus it is imperative that anesthesiologists who are solicited to participate in a company model arrangement obtain the advice of expert counsel.

The price of being wrong here is simply too great to tread with anything other than the utmost caution.  

With best wishes,

Tony Mira
President and CEO