Guest post by Mark F. Weiss, J.D., Advisory Law Group
Background: The “company model” is the name given to a type of suspect anesthesia joint venture likely violative of the federal antikickback law. In its simplest form, it involves the creation of a business structure by the surgeons controlling the flow of referrals to an ASC in order to profit from the provision of anesthesia services at the facility. Read my article The Company Model: Is Making Less Money To Work at a Surgicenter Worth Jail Time? appearing in the January 2011 issue of Anesthesiology News and available on the articles page at advisorylawgroup.com.
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It’s one thing to make a profit from medical practice – in fact, I’m more than all for it.
It’s quite another to extort a kickback for the referral of patients. That’s a crime. In connection with Medicare and Medicaid patients it’s a violation of the federal antikickback statute (the “AKS”). In fact, simply offering or soliciting remuneration for referrals is a crime under that statute.
Over the past several years, the so-called “company model” of anesthesia services has taken form, through which ASC owner surgeons have extracted a share of fees from the anesthesiologists working at the facility.
Although this post is appearing on an anesthesia blog, you may want to remind your colleagues in other specialties that the company model is not simply an anesthesiologist’s issue. In a very real sense, anesthesiologists are the “canaries in the coal mine.” Little suspension of disbelief is required to see anesthesia company model thinking permeating into other areas, say, internists setting up entities to capture the profit of referrals to gastroenterologists.
Of course, all company model situations are rife with compliance concerns.
The AKS
The AKS prohibits remuneration, that is, the transfer of anything of value, for referrals. It also prohibits offering or soliciting that remuneration.
Certain exceptions, known as safe harbors, define permissible practices not subject to the antikickback statute because they are unlikely to result in fraud or abuse. The failure to fit within a safe harbor does not mean that an arrangement violates the law; there’s just no free pass.
Joint Ventures
HHS’s Office of Inspector General (the “OIG”) coordinates enforcement of the AKS.
The OIG uses the term “joint venture” to mean 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. Some joint ventures are legal – others are simply disguised violations of the AKS.
The OIG issued two important alerts on joint ventures, its 1989 Special Fraud Alert on Joint Venture Arrangements, republished in 1994, and a 2003 Special Advisory Bulletin on Contractual Joint Ventures, describing the features of suspect arrangements.
In essence, suspect ventures involve an owner in one line of health care business which expands into another related health care business line to serve the owner’s federal health care program patients. The expansion is accomplished by contracting with an existing provider of the second business line – that is, a potential competitor as to the second business line. The owner essentially arranges for the existing provider to run the new business line for the new venture, with the owner participating in the profits from what are essentially its own referrals.
Safe Harbors Are Not So Safe
Both the AKS and the OIG’s regulations set forth “safe harbors,” i.e., requirements, which if complied with, provide assurance that the payment practice will not be considered a violation of the AKS.
The OIG’s position is that good faith is required for protection within a safe harbor. Additionally, as the OIG made clear in the 2003 Special Advisory Bulletin, although a safe harbor may protect the payments in one direction, the discount given in the other direction may not be protected and therefore may trigger prosecution.
The Tighter the Economy the Stickier the Fingers
As the general, and the healthcare, economies become tighter, more individuals and entities in a position to generate referrals will consider the profitability of joint ventures. A subset will disregard the issue of legality.
For years, the American Society of Anesthesiologists has been urging the OIG to adopt a Special Fraud Alert on the company model situation. The ASA’s most recent letter to the OIG on this topic, dated February 2011, sites a survey in which 41% of the responding anesthesia practices indicated that they had been approached by ASCs to do company model deals, and that out of the total 332 requests to participate in a company model entity, the practices lost their contract to provide services at the requesting ASC in at least 159 instances. The OIG has yet to act.
However, in April 2011, the OIG issued an advisory opinion (Advisory Opinion 11-03) involving a proposed pharmacy company set up very similar to the average company model deal.
In the proposed facts disclosed to the OIG, a pharmacy providing products and services to long-term care facilities would form a new long-term care pharmacy to be owned in common with one or more long-term care facilities. The long term care facilities would, of course, now share in the profits of pharmacy services generated from their own facilities.
The OIG found the proposed arrangement likely violative, focusing on similarity between the proposed deal and the problematic arrangement outlined in the 2003 Special Advisory Bulletin, with the long-term care facility owners doing nothing to operate the new venture but receiving a share of the profits. Those facility owners would have little or no business risk and the payment to the new joint venture would vary with the volume or value of referrals from the facilities to the new business.
Even though, legally, the advisory opinion does not extend beyond that particular deal, it certainly does not bode well for potential requestors of opinions in respect of anesthesia company entities. Note, though, that a deal which is planned around the problematic elements of the Fraud Alert and the Special Advisory Bulletin may well receive the approval of the OIG.
Unfortunately, there’s no bright line test and the facts and circumstances of each situation must be fully analyzed to achieve an understanding of the potential risk. But in terms of potential penalties, fines, exclusion from Medicare and Medicaid, and even jail time, understanding the risk is worth substantially more than just a good night’s sleep.
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© 2012 Mark F. Weiss
Mark F. Weiss is an attorney who specializes in the business and legal issues affecting anesthesiology and other physician groups. He holds an appointment as a clinical assistant professor of anesthesiology at USC’s Keck School of Medicine and practices with Advisory Law Group, a firm with offices in Los Angeles and Santa Barbara, Calif. He can be reached by email at markweiss@advisorylawgroup.com and by phone at 800-488-8014. His website, www.advisorylawgroup.com, features a plethora of complimentary resources. He’s happy to discuss this blog post with any reader.
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