December 7, 2021

Volume XI, Number 341


December 06, 2021

Subscribe to Latest Legal News and Analysis

OIG Issues Advisory Opinion on Ambulatory Surgery Center Anesthesia Models

The OIG has posted a new advisory opinion addressing physician ownership of ASC anesthesia providers.

On June 1, 2012, the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services posted OIG Advisory Opinion No. 12-06, an unfavorable advisory opinion regarding two types of proposed ambulatory surgery center (ASC) anesthesia arrangements (the Proposed Arrangements).  Under both arrangements, the physician owners of ASCs (the Physician Owners) would profit from the professional services of an anesthesia service provider (the Anesthesia Provider).  The Anesthesia Provider requested the opinion, representing that it was under pressure to enter into the Proposed Arrangements to compete effectively and stem the loss of business.

Factual Background

The Anesthesia Provider currently has a traditional exclusive relationship with the ASCs.  That is, the Anesthesia Provider is responsible for employing or contracting with sufficient personnel to meet all the ASCs' anesthesia coverage needs, and the Anesthesia Provider independently bills patients and third party payors (including Medicare) (Payors) for its professional fees.  The Anesthesia Provider is solely responsible for compensating its anesthesia personnel who provide the anesthesia services at the ASCs.  The Physician Owners independently bill for the surgical or procedural component of the services that they provide at the ASCs, and the ASCs bill Payors a facility fee.

Proposed Arrangement A

Under the first proposed arrangement, Arrangement A, the Anesthesia Provider would continue to serve as the ASC’s exclusive anesthesia provider, and would bill and retain all collections for its services.  However, the Anesthesia Provider would also contract with the ASC for certain “Management Services,” including pre-operative nursing assessments, the provision of space for the Anesthesia Provider’s materials and records, and certain billing documentation assistance.  Notably, the Anesthesia Provider represents that the ASC is already compensated for the Management Services through the facility fee paid by Payors.  In exchange for these Management Services, the Anesthesia Provider would pay the ASC a per-patient fee, except that federal health care program (Medicare and Medicaid) patients (Program Patients) would be excluded from the fee calculation.  The Anesthesia Provider certified the per-patient fee would be set at fair market value, and not determined in a manner that takes into account the volume or value of referrals or other business conducted between the parties. 

Proposed Arrangement B

Under the second proposed arrangement, Arrangement B, the Physician Owners of the ASC would form and capitalize a new company (the Anesthesia Company), which would contract with the ASC as the exclusive provider of anesthesia services to the ASC.  The Anesthesia Company would be owned, indirectly, by the Physician Owners of the ASC. 

As the exclusive provider of anesthesia services to the ASC, the Anesthesia Company would be responsible for meeting the anesthesia coverage needs of the ASC, instead of the Anesthesia Provider.  The Anesthesia Company would then contract with the Anesthesia Provider to provide certain management services (the Services), including the recruitment, credentialing and scheduling of anesthesia personnel, as well as certain administrative assistance (such as the acquisition of supplies and equipment, regulatory compliance, quality assurance and selection of a third-party billing company).  The Anesthesia Company would, however, directly employ or contract with the Anesthesia Provider’s anesthesiologists and nurse anesthetists.  

Under Arrangement B, the Anesthesia Company would bill and collect for the anesthesia services provided at the ASC.  The Anesthesia Company would then pay the Anesthesia Provider a “negotiated rate” for the Services, as well as compensate its employed or contracted anesthesiologists and nurse anesthetists.   

OIG’s Analysis

The OIG first considered the anti-kickback safe harbors that might apply to the Proposed Arrangements.  While the OIG accepted the Anesthesia Provider’s representation that the ASCs are operated in compliance with the ASC safe harbor, and acknowledged that the employee compensation and personal services and management contracts safe harbors potentially apply to Arrangement B, it concluded that both arrangements could potentially generate illegal remuneration to the Physician Owners that is not protected by the safe harbors. 

Arrangement A

The OIG first addressed whether Arrangement A even implicates the Anti-Kickback Statute if the Management Services fee under Arrangement A “carves out” Program Patients.   The OIG concluded that the Anti-Kickback Statute is still implicated, noting its long-standing concern that such arrangements may “disguise” remuneration for referrals of Program Patients through the payment of amounts related to non-federal program business.  The OIG goes on to explain that while the ASCs would not charge the Management Services fee with regard to Program Patients, because the Anesthesia Provider is the exclusive provider of anesthesia services for all of the ASC’s patients, carving out Program Patients does not ensure that the Anesthesia Provider’s payments to the ASC for Management Services would not be paid to induce referrals to the Anesthesia Provider of Program Patients. 

The OIG also points out that, under Arrangement A, the ASC would continue to bill and collect from Payors the facility fee, in addition to charging the Anesthesia Provider the Management Services fee.  Accepting the Anesthesia Provider’s contention that compensation for the Management Services is already included in the facility fees paid to the ASCs by Payors, the OIG concludes that the ASC is being paid twice for the same services.  This additional remuneration, the OIG concludes, while structured as a per-patient fee without regard to federal health care program patient volume, nevertheless presents a risk that the Anesthesia Provider would be paying the Management Services fee to induce the ASC to refer all of its patients to the Anesthesia Provider (i.e., make the Anesthesia Provider the exclusive provider of anesthesia services at the ASC).

Arrangement B

In Arrangement B, the OIG applies its suspect contractual joint venture analysis, focusing on the Physician Owners’ opportunity to earn a profit by contracting with a company to supply services for which the Physician Owners can refer patients.  In this case, the contract is for professional anesthesia services, and the profit would be the profit the Anesthesia Company retains from its collections for anesthesia services after it pays the Anesthesia Provider and the anesthesia personnel. 

Safe Harbors

The OIG indicates that even if the Physician Owners’ investment in the ASC qualifies for the ASC safe harbor, their investment in the Anesthesia Company does not.  And even if the Anesthesia Company’s compensation arrangements with the Anesthesia Provider and anesthesia personnel met the employment and/or personal services and management safe harbors, these safe harbors would not protect the Anesthesia Company’s profits that would be distributed to the Physician Owners. 

Facts and Circumstances

Disposing of the possibility of a safe harbor for the Physician Owners’ return on investment in the Anesthesia Company, the OIG then analyzed the “facts and circumstances” surrounding Arrangement B.  Ultimately, the OIG concluded that Arrangement B would pose more than a minimal risk of fraud and abuse under the Anti-Kickback Statute. 

The OIG’s analysis turns primarily on its prior analysis in the Special Advisory Bulletin titled “Contractual Joint Ventures.”  See 68 Fed. Reg. 23,148 (Apr. 30, 2003) and the indicia of a suspect joint venture set forth therein.  The OIG analogizes certain of the indicia of a suspect joint venture to Arrangement B.  Specifically, the OIG points to the fact that the Physician Owners would be expanding into a “related line of business” (anesthesia services) that would be wholly dependent on the ASCs’ referrals.  The OIG also points out that, because the Physician Owners would control the patient volume for anesthesia services, they would have minimal actual business risk, and would not actually participate in the operation of the Anesthesia Company, contracting out substantially all of the operations to the Anesthesia Provider.  (Note, however, the OIG later states that the extent of the Physician Owners’ commitment of financial, capital and human resources to the Anesthesia Company “is unclear … ”.)  Other indicia of a suspect joint venture under the Special Advisory Bulletin that the OIG focused on in the current analysis are that the Anesthesia Provider is an established provider of the same services as the Anesthesia Company, and would otherwise be a competitor of the Anesthesia Company, and that the Anesthesia Provider and the Physician Owners would share in the economic benefit of the ASCs’ new business, with the Anesthesia Provider receiving the negotiated rate and the Physician Owners receiving a profit distribution. 

As the OIG stated in the Special Advisory Bulletin, the presence or absence of any one of the above indicia is not determinative of whether, in its view, a particular arrangement is suspect.  In this case, the OIG remarked that, while the referral source owners’ failure to commit financial, capital or human resources to the venture is one of the indicia of a suspect contractual joint venture, Arrangement B would present more than a minimal risk of fraud and abuse regardless of the level of the Physician Owners’ contributions. 

The OIG concluded its analysis of Arrangement B by stating that Arrangement B is designed to permit the Physician Owners to do indirectly what they cannot do directly; receive compensation in the form of a portion of the Anesthesia Provider’s anesthesia services revenue in return for referrals to the Anesthesia Provider.  The OIG points out that this conclusion is bolstered by the Anesthesia Provider’s indication that it is being pressured to enter into the arrangement in order to avoid the loss of its current business.


It should be noted that a negative advisory opinion does not mean that any particular arrangement necessarily violates the Anti-Kickback Statute or that enforcement action would be taken against it.  The OIG’s position is not entirely surprising given that the requestor was a provider of anesthesia services self-identified as disadvantaged by these arrangements and given the absence of any stated mitigating factors or safeguards.  Ultimately, these sorts of arrangements must be evaluated on an individual basis based on all of the facts and circumstances, but the advisory opinion does provide some guidance as to the general analytic framework the OIG would apply to such arrangements.

© 2021 McDermott Will & EmeryNational Law Review, Volume II, Number 158

About this Author

Jerry J. Sokol, McDermott Will & Emery LLP, Health Care Attorney

Jerry J. Sokol is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm's Miami office.  He has a national practice concentrated on the business aspect of health care law with an emphasis on mergers and acquisitions, joint ventures, and various contractual arrangements in the health care industry.  Jerry co-chair's the Firm's national Health Transactions group.

Jerry has an active health care private equity practice with a focus on leveraged buyout transactions.  Jerry and his team are uniquely qualified to perform both the...