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June 1, 2013 Volume 77, Number 6
‘But Isn’t the Company Model Illegal?’: An Update on the ‘Company Model’ James (Jay) R. Mesrobian, M.D., Chair Committee on Practice Management

Judith Jurin Semo, J.D. Principal, Judith Jurin Semo, PLLC,



“But isn’t the “company model” illegal? Didn’t the Office of Inspector General (OIG) say that it was a kickback?” On June 1, 2012, the Department of Health and Human Services, OIG posted Advisory Opinion 12-06 (AO 12-06) in which it found that a “company model” arrangement and a management services arrangement raised concerns under the federal Anti-Kickback Statute oig.hhs.gov/fraud/docs/advisoryopinions/2012/AdvOpn12-06.pdf. Following issuance of that advisory opinion, many anesthesiologists thought that “company model” arrangements had been declared illegal and that referring physicians no longer would propose such arrangements.

The situation is, however, far more complex. This article will provide a brief overview of post-AO 12-06 developments and the continuing demands that anesthesiologists face to share their professional fees with referring physicians as a condition to receiving referrals from such physicians.

The “company model” defined: A traditional “company model” arrangement is one in which referring physicians create a separate “anesthesia company” that contracts with or employs anesthesiologists and/or non-physician anesthetists to provide anesthesia services for the referring physicians’ patients. Typically, the referring physicians also own the facility where surgical procedures and anesthesia services are provided, such as an ambulatory surgery center (ASC). The referring physicians bill for the anesthesia services through the anesthesia company, pay the anesthesia personnel and retain the balance of the anesthesia professional fees.

The OIG’s concern: In AO 12-06, in response to a request from an anesthesia practice for an advisory opinion regarding such an arrangement, the OIG noted that there was no safe harbor protection for the retained profit and expressed concern that the “company model” arrangement was designed to permit the referring physicians “to do indirectly what they cannot do directly; that is, to receive compensation, in the form of a portion of the Requestor’s [the anesthesia group’s] anesthesia services revenues, in return for their referrals to the Requestor.”

As is true of all OIG advisory opinions, AO 12-06 applies only to the facts of the advisory opinion request. Nonetheless, the legal community views OIG advisory opinions as important guidance regarding how the OIG would approach particular situations. Each arrangement must be judged separately. Because the Anti-Kickback Statute is a criminal statute, the intent of the parties is critical; there has to be intent for a party to give or obtain something of value in exchange for referrals of services or items payable under federal health care programs in order to violate the Anti-Kickback Statute. Importantly, intent can be inferred.

“Company Model” variations: A “company model” arrangement is one of a variety of “structures” that consultants have offered to referring physicians as a way to “capture the anesthesia revenue stream,” often as a means to offset declining professional fees in the referring physician’s own medical specialty. The choice of a particular model often depends upon how many different groups of referring physicians and non-physicians (such as ASC management companies) plan to share in the anesthesia revenue. The following arrangements are among the variations on the “company model.” (From this point forward, the term “company model,” appearing without quotation marks, shall be used to refer to any one of these arrangements.) a. Under what is called the “In-House Provider Model,” the ASC, which is owned by the referring physicians, either employs or contracts with anesthesia personnel and bills for their anesthesia services. The consultants note that one advantage of this model is that anesthesia income is distributed to all referring physician owners.

 A variation of this arrangement is the “Anesthesia Provider Subsidiary Model,” in which the ASC sets up an anesthesia company subsidiary to employ or contract with anesthesia personnel and to bill and collect for the anesthesia services. Consultants note that this model was developed as a result of some commercial payers denying payment or paying a lower rate when ASCs billed for anesthesia services.

 In AO 12-06, the OIG stated that the safe harbor for ASC investments would not protect distribution of anesthesia revenues to referring physician owners of the ASC. b. Under the “Group Practice/Contracted Provider Model,” the existing practice of the referring physicians employs anesthesia personnel and submits claims to payers for the anesthesia services. Consultants note that this approach is more practical when only one or two specialties own an ASC. This model appears to be designed to rely on the safe harbors for 1) investments in group practices and 2) employees. c. Under the “Anesthesia Partner Model,” the referring physicians establish a new company along with the anesthesiologists and/or non-physician anesthetists. The new company contracts with anesthesia personnel and bills for their services. Consultants have commented that this arrangement can be customized to allow some or all referring physicians to profit from anesthesia fees. This arrangement may involve less profit for referring physicians, as they share ownership of the new anesthesia company with the anesthesiologists and/or non-physician anesthetists. d. The “Anesthesia Practice Management Model” involves formation of two companies. First, the referring physicians and non-physicians, such as an ASC management company, together form an anesthesia management company. The anesthesia management company provides administrative services to the ASC and receives a fee for these services, which is distributed to the equity owners of the company – the referring physicians and non-physician managers. The referring physicians also create a separate “anesthesia company” that is owned by the referring physicians who also own the ASC. This anesthesia company contracts with or employs the anesthesiologists and bills for the anesthesia services.

 Consultants tout this model as enabling non-physician owners of the ASC (often the consultants themselves), as well as referring physicians, to profit from the revenues of the anesthesia management company.

Assessing the legality of company model variations: The legality or illegality of any particular arrangement must be determined on a case-by-case basis. Typically, the first question is whether there is “safe harbor” protection for the arrangement. (The OIG has outlined a series of payment and business practices, known as “safe harbors,” which, although potentially capable of inducing referrals of business under federal health care programs, will not be treated as criminal offenses under the Anti-Kickback Statute if all elements of the safe harbors are satisfied.) Both sides of a transaction must be considered: is there protection for payment to the anesthesia personnel, possibly under the safe harbors for personal services and management contracts, or for employees, and is there protection for the referring physicians’ retained profit, possibly under the safe harbor for investments in group practices? The absence of safe harbor protection does not mean that the arrangement is illegal. It does, however, require review of the facts to determine if there is problematic intent.

The stakes are high: the Anti-Kickback Statute is a criminal statute. Violations are felonies and carry sanctions (for both parties) of $25,000 and imprisonment for up to five years. Conviction leads to automatic exclusion from participation in federal health care programs. In addition, the government can impose civil monetary penalties of up to $50,000 per violation, plus three times the value of the remuneration. Moreover, every claim resulting from an illegal kickback arrangement is a false claim for purposes of the False Claims Act, which can be enforced by private whistleblowers, with penalties of up to $11,000 per claim plus three times the value of the claim.

Anesthesiologists who may be involved in questionable arrangements need to consider their repayment obligations, as physicians must report and return overpayments within 60 days of identifying them. If an arrangement violates the Anti-Kickback Statute, the amounts received from federal health care programs constitute overpayments. Since the anesthesiologist reassigned his/her right to payment, the anesthesiologist and the referring physician are jointly and severally (i.e., individually) responsible to return the overpayment. Overpayments that are not returned become false claims for purposes of the False Claims Act. In a proposed rule, the government has said the “look back” period for purposes of returning overpayments is 10 years.

Apart from Anti-Kickback Statute compliance, anesthesiologists need to consider the legality of any such arrangements under state law. State self-referral laws may require particular disclosures or may render the arrangements illegal. Anesthesiologists should consult with their legal advisors regarding specific arrangements.

Hospitals seeking “carve-outs” from otherwise exclusive contracts for company model-type arrangements: Despite issuance of AO 12-06, anesthesiologists report that hospitals are seeking exceptions to otherwise exclusive contracts to allow referring physicians to bill and collect for, and profit from, anesthesia services. These arrangements typically occur when hospitals acquire ASCs and single-specialty centers, or when hospitals recruit new physicians.

Such requests by hospitals for a carve-out to exclusivity relate just to the ASC or center being acquired, where the referring physicians can expect to profit from anesthesia services. They do not relate to inpatient cases the referring physicians perform, where there generally is less opportunity to profit from anesthesia services.

Putting aside the legality of the referring physicians’ relationships with the anesthesia personnel, a request by a hospital for the anesthesia group to forgo a valuable right in exchange for continuing to serve as the (otherwise) exclusive contractor raises separate Anti-Kickback Statute concerns for both the hospital and the anesthesia group, as both parties to a kickback arrangement are liable for the violation. Such arrangements also pose separate legal concern relating to the hospitals’ willingness to allow the referring physicians to profit from anesthesia services.

Post-AO 12-06 activity: Issuance of AO-12-06 has led to reexamination of the legality of some company model arrangements, but it has not had the effect of halting referring physicians’ efforts to capture, or to continue to capture, anesthesia revenue.

  • Consultants that promote company model and similar types of arrangements continue to offer their services to implement structures that allow referring physicians to profit from their referrals for anesthesia services. The sole business model of some firms is to sell anesthesia management services to referring physicians.
  • Some business and legal consultants interpret AO 12-06 narrowly. • Some assert that the Advisory Opinion result is based upon the fact that the request was submitted by an anesthesia practice. • Some recommend that company model arrangements be structured and implemented in a good faith manner that focuses on improving quality, efficiency and coordination of care as a way to avoid violating the Anti-Kickback Statute. • Counsel for referring physicians sometimes takes the position that company model arrangements do not violate the Anti-Kickback Statute so long as the referring physicians divide the anesthesia revenue equally.
  • Some consultants point to the language in AO 12-06 about it not applying to anyone other than the requester as the basis for differentiating other proposed company model arrangements.

  • Again, the OIG did not address all of the permutations of company models. Each one needs to be addressed in the context of the facts of the situation. That said, when the intent is for the referring physicians and their consultants to “capture the anesthesia revenue stream,” the Anti-Kickback Statute is implicated.

    Although AO 12-06 has garnered attention, referring physicians often have been less than willing to give up the substantial anesthesia revenue stream they have realized through implementation of the company model and related types of arrangements. Further guidance on both federal and state law is needed to convince referring physicians and their consultants of the serious legal risks involved in company model arrangements. To that end, in late February 2013, ASA filed comments with the OIG requesting such guidance. For now, anesthesiologists are best advised to avoid arrangements in which, as a condition of being able to provide anesthesiology services, they agree to accept only a fraction of their professional fee, with referring physicians – directly or indirectly – retaining the balance of the anesthesia professional fee.

    ASA Workgroup on the Company Model: At the conclusion of the ASA House of Delegates meeting in October 2012, the Committee on Practice Management was charged with heading efforts to address the issue of the company model on behalf of ASA members. Since November 2012, a workgroup of the committee has met via teleconference three times and via email multiple times. The workgroup consisted of: Amr Abouleish, M.D., M.B.A.; Michael Champeau, M.D.; Dan Cole, M.D.; Sharon Merrick, M.S., CCS-P (ASA Director of Payment and Practice Management); Jay Mesrobian, M.D. (Chair); Jacky Ralston, M.D.; Judy Semo, J.D.; Stan Stead, M.D., M.B.A.; and Jonathan Slonin, M.D., M.B.A. Former ASA Associate General Counsel Mary Kuffner, J.D. also provided guidance to the workgroup.

    The workgroup considered a number of initial steps and recommended the following actions, approved by the ASA Board of Directors at its meeting in March 2013:

    1. That ASA continue to raise awareness of the threat posed by the company model via publication of articles in the ASA NEWSLETTER, ASAP email blasts and presenta- tions at the ASA annual meeting and PRACTICE MANAGEMENT conference.
    2. That Jason Hansen, J.D., ASA Director of State Affairs, monitor the ongoing status of this issue in different states, identify relevant existing state laws (e.g., anti-kickback, self-referral, fee-splitting and disclosure) and serve as a resource for ASA members who seek guidance on this issue.
    3. That ASA again should survey membership about prevalence of the company model. The first survey was published in December 2010.
    4. That Tom Miller, Ph.D., M.B.A., ASA Director of Health Policy Research, collect information about anesthesia services utilization and payments at ASCs.
    5. That ASA establish a three-month pilot program to solicit cases for review by outside legal counsel for possible submission to the OIG, with the goal of having the OIG rule on variations of the company model not addressed in AO 12-06.
    6. That ASA consider providing assistance to a selected component society to identify and develop a successful strategy to address the concerns that anesthesiologists have with the company model in its state.

    Lastly, in December 2012, the OIG issued a call for proposals to 1) modify existing safe harbors under the federal Anti-Kickback Statute and 2) develop new special fraud alerts. Given the due date of February 26, 2013 for submission of proposals, the workgroup requested financial support from the ASA Administrative Council in order to prepare comments to the OIG in time to meet this deadline. ASA supported this effort and retained outside counsel to draft a response to the OIG. In late February, ASA President John Zerwas, M.D. submitted this response in a letter to the OIG that outlined in detail continuing company model activity and proposed modifications to existing safe harbors to clarify that they do not apply to variations of company model arrangements. Dr. Zerwas’s letter also requested issuance of a special fraud alert on company model-type arrangements.

    At the time of this writing, the workgroup is implementing the above recommendations. The company model remains a significant threat to many ASA members and their patients. The Committee on Practice Management will continue to monitor this issue and work to develop feasible and realistic recommendations to combat it.

    Members can find additional resources and information on the company model in the “Washington Alerts” section of the ASA website at www.asahq.org/For-Members/Advocacy/Washington-Alerts.aspx and then scrolling to the alert for Wednesday, February 27, 2013.



    James (Jay) R. Mesrobian, M.D. is a staff anesthesiologist with Aurora Medical Group, Milwaukee.

    Judith Jurin Semo, J.D. is a member of the Semo Law Group, Washington, D.C.



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