The Department of Health and Human Services Office of Inspector General (“OIG”) posted an advisory opinion on June 1, 2012 regarding two proposals by an anesthesia services provider (“Requestor”) to enter into agreements with physician-owned ambulatory surgery centers. The Requestor currently contracts exclusively with several ambulatory surgery centers (“Centers”) that are owned and operated by physician-owned professional corporations or limited liability companies to provide anesthesia services. According to the opinion, the proposed agreements could lead to administrative sanctions.
Under the first proposed agreement, the Requestor would continue to serve as the Centers’ exclusive provider of anesthesia services and to also bill and retain all collections. The Requestor would pay the Centers a fee for Management Services. The Requestor noted that the expenses associated with Management Services were included in the facility fees paid by private payors and the ASC payment paid by Medicare. However, Federal health care program patients would be excluded from the Management Services fee calculation under the proposed arrangement. The fee would be set at fair market value, and the fee would not take into account the volume or value of referrals or any other business conducted between the parties.
In analyzing the first arrangement, the OIG noted its long-standing concern about arrangements which “carve out” Federal health care program beneficiaries. Such arrangements may violate the anti-kickback statute by disguising remuneration for Federal health care program business through the payment of amounts purportedly related to non-Federal health care program business. Since the Requestor was the exclusive provider of all anesthesia services at the Centers, the risk of payments to induce referrals was not reduced by the carve out. In addition, the OIG indicated that the Centers would be paid twice for the same services and the Management Services fee could unduly influence the Centers to select the Requestor as the Centers’ exclusive provider of anesthesia services. Therefore, there was risk the Requestor would be paying the Management Services fees with regard to non-Federal health care program patients to induce the Centers’ referral of all of its patients, including Federal health care program beneficiaries.
Under the second proposed arrangement, the physician-owners would set up separate companies in order to provide anesthesia-related services to outpatients undergoing surgery at the Centers (“Subsidiaries”). The Subsidiaries would be wholly owned, either directly by the professional corporations or limited liability companies, or by the Centers. The Subsidiaries would exclusively furnish and bill for all anesthesia-related services provided at the Centers, and would contract with the Requestor as an independent contractor to provide anesthesia-related services to the Subsidiaries on an exclusive basis.
In the advisory opinion, the OIG reiterated its concern about the potential for investments in ASCs to serve as vehicles to reward referrals. The remuneration generated for the physician-owners would be the difference between i) the amounts the Subsidiaries would bill and collect from Medicare, Medicaid, other third party payors, and patients for anesthesia services, and ii) the amounts the Subsidiaries would pay to the Requestor for the Services, plus any amounts the Subsidiaries might directly pay for any employed or independent contractor anesthesia personnel. In this case, there was no safe harbor to protect the remuneration the Subsidiaries would distribute to the Centers’ physician-owners. The ASC safe harbor defines the term “ASC” as “any distinct entity that operates exclusively for the purpose of providing surgical services to patients not requiring hospitalization…” The OIG reasoned that because anesthesia services are not surgical services, the Subsidiaries could not qualify as Medicare-certified ASCs for purposes of the ASC safe harbor. Therefore, the Subsidiaries’ income would not be protected by the ASC safe harbor. In addition, the employment safe harbor or personal services and management contracts safe harbor did not apply to the Subsidiaries’ profits that would be distributed to the physician-owners. As a result, the arrangement did not fall under any safe harbor. Finally, the OIG noted that even though the failure to qualify for a safe harbor was not fatal, this particular arrangement would pose more than a minimal risk of fraud and abuse.
In conclusion, physician-owned ambulatory surgery centers contracting with providers should be cautious in structuring arrangements in which remuneration to a physician-owner would not fall under the ASC safe harbor. In addition, excluding payments for Federal health care program beneficiaries may not protect the arrangement from scrutiny.
This article was originally published in the June 2012 issue of Atlanta Hospital News.