A Subtle Seduction: Anesthesia and the Company Model

Summary: Some anesthesia groups have flirted with various business models that may or may not be in compliance with federal or state laws. Today's article takes a deep dive into the company model. We will review the OIG's rulings on this model and make recommendations on what anesthesia practices should consider before moving forward with such ventures.

It sounds good. A silver-tongued salesman tells you all about it: the bells, the whistles and the elegant appointments. What he doesn't talk about is the significant risk involved with his persuasive pitch. He doesn't go into the potential cost to the customer—a cost that could be exceedingly high.

There are times when all of us are presented with a purportedly rock-solid, can't-miss proposal that promises to put us on easy street—whether it concerns a piece of property, a business opportunity or a stock option. The healthcare industry is no stranger to such proposals. There are deals being dangled before doctors and their associates that promise extra income at no risk. One of these involves the so-called "company model," and it has been making the rounds within the anesthesia community.

The Legal Landscape

The federal anti-kickback statute (AKS) prohibits any offer, payment, or acceptance of remuneration in connection with referrals of patients who are covered by a federal healthcare program (e.g., Medicare, Medicaid, Tricare). Any action that is meant to inappropriately induce Medicare referrals, for example, is a no-no.

Like most laws, there are loopholes—exceptions that allow you some wiggle room. In the
AKS context, these are known as "safe harbors." These are government-specified protection zones that are meant to describe certain arrangements that are unlikely to result in fraud or abuse. According to one legal expert, the failure to qualify for one of these safe harbors is not necessarily fatal for the parties to the arrangement; rather, a detailed analysis of the statute itself and of the specifics of the arrangement would be required before a trier of fact could assess the potential for culpability. This is where anesthesia groups find themselves when it comes to the controversial concept of the "company model."

Defining the Model

Nationally known healthcare attorney, Mark Weiss (with offices in Dallas, Los Angeles and Santa Barbara), is an expert in the company model. He explains that, in its most direct form, the model involves the formation, by the surgeon-owners of an ambulatory surgery center (ASC), of an anesthesia services company to provide all of the anesthesia services for the center. In the typical scenario, prior to the formation of the company, all anesthesia services were provided by the anesthesia providers, either for their separate accounts or for the account of their anesthesia group.

After the introduction of the company model, according to Weiss, the anesthesia providers are employed or subcontracted by "the company," with a significant share of the anesthesia fee being redirected to the company owners, the surgeons. There may be variants of the model, such as that in which the facility itself directly employs the anesthesia providers or controls the company that, in turn, employs them.

The Cause for Concern

Two fraud alerts issued by the Office of Inspector General (OIG) of the Department of Health and Human Services (HHS) are particularly applicable for our analysis of arrangements involving the company model. They are the 1989 Special Fraud Alert on Joint Venture Arrangements (republished in 1994) and the 2003 Special Advisory Bulletin on Contractual Joint Ventures. To clarify, the term "joint venture" as used in this context covers any arrangement, whether contractual or involving a new legal entity, between parties in a position to refer business and those providing items or services for which Medicare or Medicaid pays.

According to attorney Weiss, the OIG has made clear that compliance with both the form and the substance of a safe harbor is required in order for it to provide protection to the arrangement. If one of the underlying intentions of the arrangement is to obtain a benefit for the referral of patients, the safe harbor would be unavailable, meaning the AKS would be implicated. In the 2003 Special Advisory Bulletin, the OIG focuses on arrangements in which a healthcare provider in an initial line of business (for example, a surgeon) expands into a related business (such as anesthesiology) by contracting with an existing provider of the item or service (anesthesiologists or CRNAs) to provide the new item or service to the owner's existing patient population.

Case Example

About 10 years ago, an anesthesia group requested the OIG's opinion on the propriety of two alternative proposed scenarios: (a) a management fee deal, and (b) a company model arrangement. In terms of the latter, the surgeons or their ASC would set up an anesthesia company to hold the exclusive anesthesia contract at the ASC. The anesthesia company would engage the anesthesia group at a negotiated rate as an independent contractor to provide the actual anesthesia care and certain related services. The anesthesia company would retain any profit.

In its Opinion 12-06, the OIG stated that the ASC investment safe harbor does not apply to protect distributions of anesthesia profits. That is, safe harbors would not apply to the company model profits that would be distributed to the surgeons, and such remuneration would be prohibited under the AKS if one purpose of the remuneration is to generate or reward referrals for anesthesia services. The OIG stated that the proposed company model venture could potentially generate prohibited remuneration under the AKS, and the OIG potentially could impose administrative sanctions on the requestor. In other words, the OIG declined to approve the arrangement.

Take Home Message

While the courts are not required to defer to OIG opinions, they will look at the facts surrounding each individual arrangement to determine if, in fact, the AKS has been violated. Again, there must be a finding of intent to provide/accept remuneration to induce referrals in order for the government to obtain convictions. However, the risk of engaging in, or cooperating with, an arrangement that could ultimately be found illegal is one that anesthesia groups should consider long and hard before moving forward. The American Society of Anesthesiologists (ASA) came out with a statement a few years ago warning its membership about such models. Among its comments was the following excerpt:

ASA has serious concerns about the impact of the company model, and variations of that arrangement, on anesthesiologists, the patients they serve, and the integrity and fiscal soundness of Federal health care programs. ASA has consistently advocated against company model arrangements.

We encourage our readers to consult with their attorneys before agreeing to any business arrangement that may put their practice in jeopardy. If you have questions for us, please feel free to contact your account executive, or you can go to info@anesthesiallc.com.

We wish to thank attorney Mark Weiss for his contribution to the above content.