The OIG Rejects Another Attempt to Take a Franchise Fee from Anesthesiologists
Most practicing anesthesiologists know that the federal anti-kickback statute prohibits hospitals, ambulatory surgical centers and others from asking for something of value in exchange for the referral of patients for anesthesia services. Paying for the anesthesia franchise violates the statute. So does soliciting payment for the franchise.
As simple as this general principle would seem, the Department of Health and Human Services Office of the Inspector General (OIG) periodically finds it necessary to spell out the parameters again. Most recently, anesthesiologists who had an exclusive hospital contract requested and received an advisory opinion (No. 13-15) from the OIG stating that a proposed arrangement involving reassignment of fees to a psychiatry group and a per diem payment to the anesthesiologists “could potentially generate prohibited remuneration under the anti-kickback statute and that the OIG could potentially impose administrative sanctions." In other words, the parties would proceed with the arrangement only at their peril.
The arrangement that the anesthesiologists challenged was designed to accommodate a new psychiatry group that brought its electroconvulsive therapy (ECT) work to the hospital. First the anesthesiologists, when their exclusive contract came up for renewal in 2011, were forced to accept a carve-out to allow a psychiatrist who was double-boarded in anesthesiology to provide anesthesia care for ECT patients. The anesthesia group was also required to provide up to six weeks of coverage for the psychiatrist/anesthesiologist.
The following year, the contract was again renewed and this time it contained an “Additional Anesthesiologist Provision” allowing the psychiatrists 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.”
Based on this provision, the psychiatry group asked the anesthesiology to enter into an agreement to provide a part-time physician to furnish ECT anesthesia services every Monday as well as during the psychiatrist-anesthesiologist’s vacations and when emergency coverage was necessary. Such coverage would require 6 to 12 hours of an anesthesiologist’s time during each day of service.
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, according to the anesthesiologists.
The psychiatry group intended to keep the difference between the anesthesia fees collected and the per diem payments to the anesthesiologists.
The OIG had little difficulty in finding the proposed arrangement problematic, concluding that it appeared “to be designed to permit the Psychiatry Group to do indirectly what it cannot do directly; that is, to receive compensation, in the form of a portion of Requestor’s [the anesthesia group’s] anesthesia services revenues, in return for the Psychiatry Group’s referrals of ECT patients to Requestor for anesthesia services.”
As noted in almost every advisory opinion published by the OIG, “The statute has been interpreted to cover any arrangement where one purpose of the remuneration was to obtain money for the referral of services or to induce further referrals.” (Emphasis in original.)
In the present situation, as presented to the OIG (which does not evaluate the allegations but renders a decision limited to the facts asserted), there was no suggestion of any purpose for the compensation to the psychiatry group other than as remuneration for referrals of ECT patients to the anesthesiology group. This situation was thus different from the company model scenario that the OIG determined would potentially violate the anti-kickback statute in its 2012 Advisory Opinion No. 12-06. There the company model involved the employment of the ambulatory surgical 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. See our Alerts of February 4, 2013 (The Company Model Presents Risks for Anesthesiologists and for ASCs) and of June 11, 2012 (OIG to Anesthesia Practices: Think Again Before You Payer Your ASC for the “Franchise”). Neither characterization of the “company model” arrangement passed OIG muster, even though the parties to that proceeding made a greater effort to show that the anesthesiologists were receiving some benefit other than access to patients in return for the portion of their fees that they surrendered to the ambulatory surgical center’s owners. The psychiatry group’s retention of a portion of the anesthesiologists’ professional fees in the newer advisory opinion did not stand a chance.
A threshold determination in the OIG’s analysis was whether the proposed arrangement came within the “safe harbor” for personal services and management contracts. If it did, there would be no illegal kickback. The arrangement here failed to satisfy the conditions of the safe harbor for three reasons: (1) the proposal's aggregate compensation was not fixed in advance; (2) it was not consistent with fair market value and (3) the personal services and management contracts safe harbor only applied to remuneration from the principal (e.g., employer) to the agent and not to payments from the agent to the principal.
In a footnote that is highly likely to be quoted in future analysis, the OIG spelled out its misgivings over other aspects of the hospital-physician relationships:
(1) the Hospital agreed to negotiate for the 2012 additional anesthesiologist provision in exchange for, or to reward, the Psychiatry Group's continued referral of patients to the Hospital for ECT procedures; (2) the Hospital leveraged its control over its large base of anesthesia referrals to induce the Requestor to agree to the 2012 additional anesthesiologist provision; and (3) the Requestor agreed to the additional anesthesiologist provision in exchange for access to the Hospital's stream of anesthesia referral.
In other words, 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.
In this advisory opinion, the OIG thus stated clearly its view that the referring physicians’ opportunity to generate a fee for their group by ordering anesthesiology services and keeping the difference between patient payments and the per diems could violate the laws. It is interesting that the OIG did not make any mention of the raison d’être of the anti-kickback statute, preventing overutilization of health care services. There is no implication that the ECT services would have been performed without anesthesia without the remuneration that the psychiatrists could generate—medical necessity seems to have been presumed, and properly so. The harm consisted simply in the 2012 contract’s having allowed the psychiatry group “to wield undue influence over the Requester” and its presenting a "significant risk that the remuneration Requester would provide to the Psychiatry Group . . . would be in return for the Psychiatry Group's anesthesia referrals to the Requester."
We hope that as a result of this latest statement of the OIG’s position, there will be less pressure on anesthesiologists to pay franchise fees to hospitals, ambulatory surgical centers or referring physicians.