Note: A more in-depth discussion of the new advisory opinion will appear in our August 31, 2023, monthly newsletter. If you’re not already a subscriber, sign up here.
Although they’re binding only on the requestor, OIG advisory opinions are a window into the thinking (and propensity to recommend prosecution) of the agency charged with regulation and enforcement of the federal anti-kickback statute (“AKS”).
In August 2023, the OIG released a negative opinion (Adv. Op. 23-05) shooting down a proposed contractual joint venture arrangement involving intraoperative neuromonitoring (“IONM”).
Even if you have no interest in neuromonitoring, the concepts discussed in the advisory opinion impact business schemes in other referral-based specialties, notably in regard to anesthesia in the ambulatory surgery setting. Whether prosecutions and/or whistleblower actions follow is anyone’s guess, but an educated guess is that it’s simply a matter of time.
IONM involves a technical component performed by a neurophysiologist and a “live”, but often remote, monitoring of the test results and waveforms by a neurologist.
The company seeking the advisory opinion (“Requestor”) employs neurophysiologists and has a management services agreement with a physician practice (“Practice”) that employs or subcontracts with neurologists.
Currently, surgeons schedule IONM services for their surgical cases by making a referral to Requestor, which then schedules one of its neurophysiologists to perform the technical component and contacts with Practice to assign a neurologist to perform the professional component. Requestor bills and collects for the technical component and the Practice bills and collects for the professional component.
Requestor sought the OIG’s opinion as to a new arrangement (“Proposed Arrangement”) that would allow the referring surgeons to capture some of the profit from their referrals in response to their demand for it. It informed the OIG that it seeks to retain business from its existing surgeon clients that otherwise would be lost to competing IONM companies willing to engage in the same scheme.
The Proposed Arrangement would have Requestor assisting surgeons (“Surgeon-Owners”) with the formation and operation of a turnkey physician-owned entity (“Newco”) that would perform IONM services.
The Surgeon-Owners would form Newco and would set the terms of their respective ownership interests and the methodology for the distribution of profits amongst themselves.
After formation, the Surgeon Owners would have limited participation in Newco’s day-to-day business operations and would instead contract with Requestor and Practice as follows:
- Pursuant to a billing services agreement between Requestor and Newco, Requestor would provide billing, collection, and certain other administrative services in exchange for a fee from Newco (the “Billing Services Agreement”).
- Pursuant to a personal services agreement between Practice and Newco, Practice would provide to Newco the services of its neurologists and the services of neurophysiologists (which Practice would lease from Requestor) in exchange for a fee from Newco (the “Personal Services Agreement”).
The Requestor certified that the services provided by Requestor and Practice under these contracts would constitute virtually all of the day-to-day requirements of an IONM business. Requestor does not expect that Newco would need to hire any dedicated employees because Requestor and Practice would provide all necessary services for Newco.
Newco would contract with various hospitals and ASCs under an IONM services agreement that would govern Newco’s provision of the technical and professional components of IONM services for surgeries at such facilities. Generally, Newco would bill the hospital or ASC for the technical component and would bill the surgical patient or insurer, as applicable, for the professional component.
Although Newco would pay a fee to Requestor under the Billing Services Agreement and would pay a fee to Practice under the Personal Services Agreement, Requestor anticipates that Newco would achieve substantial profits from the Proposed Arrangement (i.e., the difference in fees paid to Requestor and Practice under the services agreements and reimbursement received from third parties) and anticipates that Requestor and Practice would earn substantially less profit under the Proposed Arrangement than under their current business model.
The Underlying Law
The AKS prohibits the offer of, demand for, payment of, or acceptance of any remuneration for referrals of Medicare or Medicaid patients. There are exceptions, most notably regulatory “safe harbors,” that describe certain arrangements not subject to the AKS because they are unlikely to result in fraud or abuse.
Broad OIG Guidance
The OIG has issued two fraud alerts applicable to the analysis of joint venture model deals: its 1989 Special Fraud Alert on Joint Venture Arrangements, which was republished in 1994, and a 2003 Special Advisory Bulletin on Contractual Joint Ventures.
Although each alert is illustrative of the regulatory posture of the OIG, the 2003 Special Advisory Bulletin is particularly on point in connection with analyzing structures such as presented in regard to IONM as well as other “popular” arrangements designed to capture referral profits.
In it, the OIG focuses on arrangements in which a health care provider in an initial line of business (for example, a surgeon) expands into a related business (e.g., IONM or anesthesiology) by contracting with an existing provider of the item or service (e.g., neurophysiologist, neurologists, anesthesiologists, or nurse anesthetists) to provide the new item or service to the owner’s existing patient population.
The 2003 bulletin lists some of the common elements of these problematic structures in general terms, with bracketed examples inserted by the author:
• The surgeon expands into [IONM or an anesthesia business] that is dependent on direct or indirect referrals from, or on other business generated by, the owner’s existing business [such as the surgeon’s practice or ASC].
• The surgeon does not operate the [IONM or anesthesia] business—the [IONM provider or anesthesiologist] does— and does not commit substantial funds or human resources to it.
• Absent participation in the joint venture, the [IONM provider or anesthesiologist] would be a competitor [of the surgeon’s IONM or anesthesia company], providing services, billing and collecting [for the IONM company’s or the anesthesiologist’s own benefit].
• The [surgeon] and the [IONM company or anesthesiologist] share in the economic benefit of the [surgeon’s] new [IONM or anesthesia] business.
• The aggregate payments to the [surgeon] vary based on the [surgeon’s] referrals to the new [IONM or anesthesia] business.
OIG’s Opinion
The OIG determined that the Proposed Arrangement would involve several forms of remuneration, including, but not limited to: (i) discounts under the Personal Services Agreement provided by Practice to Newco; (ii) the opportunity for Newco to generate a profit through the difference between the fees paid by Newco to each of Requestor and Practice under the services agreements and the reimbursement Newco would receive for such services from third parties; and (iii) returns on investment interests in Newco to the Surgeon Owners. These streams of remuneration could induce the Surgeon Owners to make referrals of IONM services for which payment could be made by a Federal health care program.
The OIG found that there was no safe harbor protection for the Proposed Arrangement’s streams of remuneration, and that it would have many of the indicia of suspect contractual joint ventures about which the OIG has longstanding and continuing concerns.
It found that the Proposed Arrangement would present a host of risks of fraud and abuse under the AKS, including patient steering, unfair competition, inappropriate utilization, and increased costs to Federal health care programs. The OIG stated that it is possible that the Proposed Arrangement could enable Requestor and Practice to do indirectly what they could not do directly: pay the Surgeon Owners a share of the profits from their referrals for IONM services that could be reimbursable by a Federal health care program.
Even if Requestor could ensure that no IONM services reimbursable by a Federal health care program would ever be referred to Newco, the remuneration to Newco under the Proposed Arrangement could induce the Surgeon Owners to refer their IONM services reimbursable by a Federal health care program to Requestor and Practice, thereby disguising remuneration for Federal health care program beneficiary referrals through the payment of amounts purportedly related to non-Federal health care program business.
The Essential Takeaways for You
1. Contractual joint venture arrangements are fraught with kickback danger for all parties involved.
2. Just because “everyone is doing it” is no defense from AKS prosecution any more than the fact that dozens of people are selling crack on street corners is a defense to drug charges.
3. Just because the facts of the Proposed Arrangement involve IONM doesn’t lessen the value of the opinion as an indication of the OIG’s position vis-à-vis other joint venture scams, such as the role played by so-called anesthesia management companies in helping gastroenterologists and other surgical specialists to set up and manage captive anesthesia companies for their ASCs.
4. Each situation must be analyzed carefully as there is a high chance of an AKS violation leading to criminal fines, civil penalties, whistleblower lawsuits, exclusion as a provider, and even imprisonment.
