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Understanding Financial Arrangements Between Anesthesiologist and Ambulatory Surgical Centers as per the Recent OIG Opinion

On Behalf of | Jun 6, 2014 | Abuse and Regulatory Compliance, Articles, Fraud, Healthcare Law, Healthcare Transactions

By: Mathew J. Levy, Esq. & Stacey Lipitz Marder, Esq.Email the Author


The Department of Health and Human Services’ Office of Inspector General (“OIG”) issued a long awaited advisory opinion on May 25, 2012 offering guidance as to the proposed arrangements between Ambulatory Surgery Centers and anesthesia services providers (OIG Advisory Opinion No. 12-06). In today’s healthcare arena, Ambulatory Surgery Centers (especially those whose physicians specialize in gastroenterology and endoscopy) have been placing increased pressure on anesthesiologists to enter into various financial arrangements that would allow the Ambulatory Surgery Center or its owners to share in the income received by anesthesiologists who provide anesthesiology services to the Ambulatory Surgery Center.  These arrangements take a variety of forms, however, they all have one element in common:  the Ambulatory Surgery Center (and/or the surgeons who own the Ambulatory Surgery Center), who are in a position to refer business to the anesthesiologists, are seeking to share in the revenue generated by the anesthesiologists who are the beneficiaries of such referrals.  As per the recent OIG Opinion, the OIG has expressed concerns with these arrangements as they could result in findings that the arrangements are in violation of the Anti-kickback Statute[1].   As such, especially in light of this new OIG Opinion, any arrangement between an anesthesiologist and an Ambulatory Surgery Center (or any other provider for that matter) must be analyzed in the context of the general prohibitions in both New York and Federal law against kickbacks in order to ensure that such arrangements are compliant and minimize risk.

The OIG Opinion/Analysis

As per the recently issued OIG Opinion, two proposals with respect to the arrangement between an Ambulatory Surgery Center (hereinafter the “ASC”) and the Requestor (a physician-owned anesthesia services provider) were evaluated.   The OIG found that each of the proposed arrangements could be found to be in violation of the Anti-Kickback Statute.

Proposal 1 (the “Services Model”):

As per the first proposal, the Requestor would serve as the ASC’s exclusive provider of anesthesia services and would bill and retain all collections from patients and third party payors, including Medicare, for its services.  The Requestor would pay the ASC for “Management Services” including pre-operative nursing assessments; adequate space for all of the Requestor’s physicians, including their personal effects; adequate space for the Requestor’s physicians’ materials, including documentation and records; and assistance with transferring billing documentation to the Requestor’s billing office on a per patient basis. Such payment would be made on a per-patient basis, which would be set at fair market value and not take into account the volume or value of referrals or other business generated.   The Requestor indicated that such “Management Services” are included in the facility fees paid by private payors and the ASC payment paid by Medicare.   Furthermore, federal health care program patients would be excluded from the Management Services fee calculation.

The OIG concluded that this arrangement implicates the federal Anti-Kickback Statute as it appears that the payments to the ASC would be to induce referrals to the Requestor. Furthermore, the ASC would essentially be paid twice for the same services, and the additional remuneration paid by the Requestor in the form of the Management Services fees could unduly influence the ASC to select the Requestor as the ASC’s exclusive provider of anesthesia services.  Furthermore, the OIG found that the “carve out” of federal program beneficiaries from Requestor’s payment would not reduce the risk of fraud and abuse.

Although this model has historically not been the most lucrative for Ambulatory Surgery Centers since they only received the fair market value of the services provided, many physicians believed that this arrangement was “low risk” as this model was able to be structured to fall within the safe harbors for space rental (42 C.F.R. §1001.952(b)), equipment rental (42 C.F.R. §1001.952(c)) and personal services and management contracts (42 C.F.R. §1001.952(d)).   However, based upon the OIG Opinion, any arrangement whereby an anesthesiologist is  providing  (or intends to provide) services on behalf of an Ambulatory Surgery Center or any other entity and is paying such entity for “Management Services”  needs to be reviewed and scrutinized in order to ensure that there is no suggestion of fraud and abuse.

Proposal 2 (the “Company Model”):

As per the second proposal, the ASC’s physician-owners would establish separate companies (hereinafter “Subsidiaries”) to provide anesthesia-related services to outpatients undergoing surgery at the ASC.  Such Subsidiaries would exclusively furnish and bill for all anesthesia-related services provided at the ASC.  The Subsidiaries would then employ or contract with anesthesia providers for the clinical services, as well as contract with Requestor to provide all other administrative, management, and operational oversight services on behalf of the Subsidiaries.  The Subsidiaries would pay the Requestor a negotiated rate for the services which would be paid out of the Subsidiaries’ profits for anesthesia – the remaining profits for anesthesia would be retained by the Subsidiaries.

The OIG has indicated that as per its review,  this arrangement poses more than a minimal risk of fraud and abuse since it would constitute a “suspect joint venture” in accordance with previous guidance issued by the OIG (See Special Advisory Bulletin concerning Contractual Joint Ventures-April 2003) for the following reasons: (1) the ASC physician-owners would contract out substantially all of the operations exclusively to the Requestor; (2) the ACS’s physician-owners would be expanding into a related line of business-anesthesia services that would be wholly dependent on the ASC’s referrals; (3) the ASC’s physician-owners’ actual business risk would be minimal because they would control the amount of business they would refer to the Subsidiaries; (4) Requestor and the ASC’s physician-owners would share in the economic benefit of the Subsidiaries; and (5) Requestor would otherwise be a competitor of the Subsidiaries since Requestor would provide the same services.  Furthermore, the OIG has determined that with respect to this proposal there are no safe harbors which would protect the remuneration the Subsidiaries would distribute to the ASC’s physician-owners.  Essentially, the OIG found that in this arrangement the ASC physician-owners are indirectly doing what they cannot do directly (derive compensation for anesthesia services in exchange for referrals).

The recent OIG Opinion has reiterated our concerns with respect to the “Company Model[2].  From our perspective, the issue that has always existed with the Company Model is that the arrangement would have to qualify either under the Safe Harbor for investment interests[3] or for investments in group practices[4], which it is unable to do.  However, some of these concerns might be ameliorated by allowing the anesthesiologists to acquire equity interests in the “New Company”.  However, the basic problem of having non anesthesiologists share in the profits of a group practice through which they do not practice would remain.  As such, any arrangement similar to the “Company Model” must be evaluated as it is currently subject to scrutiny.


As further demonstrated by the recent OIG Opinion, any arrangement between health care providers whereby referrals are being made and there is money being exchanged between the parties may be under scrutiny.  Especially with respect to the relationship between anesthesiologists and Ambulatory Surgery Centers (and their owners), the existing arrangements each pose hurdles with respect to satisfying applicable Safe Harbors under the Anti-Kickback Statute.  Due to the significant penalties associated with violations of the state and federal law regarding kickbacks, it is especially important that any such relationships be carefully analyzed by a health care attorney taking into account the specific facts and circumstances.

About the Authors:

Mathew J. Levy is a Partner of the firm and co-chairs the Firms corporate transaction and healthcare regulatory practice. Mr. Levy has particular experience in advising health care clients with respect to contract issues, business transactions, practice formation, regulatory compliance, mergers & acquisitions, professional discipline, healthcare fraud & billing fraud, insurance carrier audits including prepay and post payment review, litigation & arbitration, and asset protection-estate planning. You can reach Mathew Levy at 516-627-7000 or email: [email protected].

Stacey Lipitz Marder is an associate at Weiss Zarett Brofman Sonnenklar & Levy, PC., with experience representing healthcare providers in connection with transactional and regulatory matters including the formation and structure of business entities, negotiating and drafting contracts and commercial real estate leases, stock and asset acquisitions and general corporate counseling.  Ms. Marder also has experience advising healthcare clients on a wide range of regulatory issues including Stark, the Anti-Kickback Statute, fraud and abuse regulations, HIPAA, reimbursement and licensing matters.


[1]The Anti-Kickback Statute makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce or reward referrals of items or services reimbursable by a Federal health care program. See 42 U.S.C. § 1320a-7b(b).  For purposes of the anti-kickback statute, “remuneration” includes the transfer of anything of value, directly or indirectly, overtly or covertly, in cash or in kind.  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. As such, intent needs to be proven United States v. Kats, 871 F.2d 105 (9th Cir. 1989); United States v. Greber, 760 F.2d 68 (3d Cir.), cert. denied, 474 U.S. 988 (1985).

An individual who violates the Anti-Kickback Statute can be guilty of a felony upon a conviction, and may be fined not more than $25,000 or imprisoned for not more than five years, or both. See 42 USCA §1320a-7b(1).  In addition to the criminal penalties described above, violation of the Federal anti-kickback statute can result in civil penalties and exclusion from participation in Medicare and Medicaid.  See 42 USCA §1320a-7a.

The Department of Health and Human Services has promulgated safe harbor regulations that define practices that are not subject to the Anti-Kickback Statute because such practices would be unlikely to result in fraud or abuse. See 42 C.F.R. § 1001.952.

[2] This “Company Model” is described in a June 16, 2010 letter from the American Society of Anesthesiologists to the OIG (the “ASA Letter”)” and involves the formation of a separate entity (the “New Company”) by the owners of an Ambulatory Surgery Center to provide anesthesia services whereby such anesthesia services are contracted out to a third party

[3] The investment Safe Harbor requires, among other things, that no more than 40% of the equity interests in the entity be held by investors who are in a position to make referrals.  See 42 C.F.R. §1001.952(a). As such, ASC physician-owners would not be able to own more than 40% of the “New Company” as the physician-owners are in a position to make referrals to the “New Company”.

[4] The group practice Safe Harbor includes a requirement that “the equity interests in the practice or group must be held by licensed health care professionals who practice in the practice or group.”  See 42 C.F.R. §1001.952(p).  However, as described in the ASA Letter, this requirement would not be satisfied because the New Company only provides anesthesia services, while its owners are physicians who practice through other practice entities.