Exploring Anesthesia Business Models for ASCs
Eric Callan
Posted On January 29, 2019 By Eric Callan
Categories:Ambulatory Surgery

Exploring Business Models

DISCLAIMER: The information provided in this article is intended to provide general guidance on matters of interest only. The application of the information provided below may vary widely based on the specific facts involved in each situation. Considering the changing nature of laws, rules, and regulations there may be exceptions or other developments not considered in this article. As such, LifeLinc Anesthesia is providing this information in the understanding that the authors and publishers are not rendering legal or other professional counsel. Seek legal advice regarding your specific anesthesia arrangement as failure to do so can have serious criminal and civil penalties.

Examining the Anti-Kickback Statute

When considering the varying business models employed in a joint venture between an anesthesia group and an ASC, the two parties should enter arrangements that are advantageous to both sides. However, before opening discussion, a careful analysis should be conducted to ensure the business model chosen does not violate the federal Anti-Kickback Statute and rules established by the U.S. Department of Health and Human Services, Office of Inspector General (OIG).

The Anti-Kickback Statute (42 U.S.C. Section 1320a-7b(b)) 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. Where remuneration is offered, paid, solicited, or received purposefully to induce or reward referrals of items or services payable by a federal health care program, the Anti-Kickback Statute is violated. Criminal penalties for violating the Anti-Kickback Statute may include fines, imprisonment, or both. The OIG has provided a number of “safe harbor” regulations to detail differing payment and business practices that will not be treated as breaches of the statute. These “safe harbors” exist for personal services contracts that meet all of the following seven conditions:

  1. The agreement is set out in writing and signed by the parties.

  2. The agreement covers all of the services the agent provides to the principal for the term of the agreement and specifies the services to be provided by the agent.

  3. If the agreement is intended to provide for the services of the agent on a periodic, sporadic or part-time basis, rather than on a fulltime basis for the term of the agreement, the agreement specifies exactly the schedule of such intervals, their precise length, and the exact charge for such intervals.

  4. The term of the agreement is for not less than one year.

  5. The aggregate compensation paid to the agent over the term of the agreement is set in advance, is consistent with fair market value in arms-length transactions and is not determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties for which payment may be made in whole or in part under Medicare, Medicaid or other federal health care programs.

  6. The services performed under the agreement do not involve the counseling or promotion of a business arrangement or other activity that violates any State or federal law.

  7. The aggregate services contracted for do not exceed those which are reasonably necessary to accomplish the commercially reasonable business purpose of the services.

Although an agreement not falling within the safe harbor is not necessarily illegal, working within these limits allows immunity from being in violation of the Anti-Kickback Statute (AKS). Violation of the AKS is a felony and punishable by fines of up to $25,000 per violation, felony conviction punishable by imprisonment up to five years, or both, as well as possible exclusion from participation in federal healthcare programs.

So, when undergoing consultations with your anesthesia group, the following aspects of the relationship will typically come under discussion: contract length, legal structure, and compensation. While contracts between ASCs and anesthesia providers vary somewhat from facility to facility, the following three business models form the basis of most negotiations. Approaching the conversation with care and with a firm grip on these models will ensure a profitable yet legal venture for all parties involved.

Fee-For-Service Model

To begin, examine the traditional fee-for-service arrangement. In this scenario, the anesthesia group will work directly with the ASC, providing its service and assuming responsibility for billing and collecting. Due to their being no financial connection between the anesthesia group and the ASC, this model carries no risk of violating the AKS.

Employment Model

Another option is the employment model, in which the ASC will employ the anesthesia providers directly, on a full-time basis, and provide their salary. In this case, the anesthesia providers perform anesthesia services at the ASC and give the ASC the right to collect professional fees for their services. In contrast to the traditional fee-for-service model, this allows the ASC to gain revenue undeviatingly from anesthesia services, which renders the model attractive to some ASC investors. This model also tends to put the ASC at the advantage, as regulating the anesthesia provider’s salary is intrinsic to the bottom line.

On the other hand, there are a few downsides to the employment model. First, the ASC is responsible for the anesthesia provider’s salary, even if revenues are less than expected. Besides this, some third-party payers may hesitate to process claims from an ASC that cover facility and anesthesia services simultaneously. Lastly, this arrangement could violate some state corporate practice of medicine and fee-splitting regulations.

Company Model

The third of the three arrangements is the company model. This arrangement entails the ASC creating its own separate company for anesthesia services which directly employs or contracts with anesthesia providers. The newly-formed company charges for the anesthesia services, whereas the ASC charges for facility fees. Thus, the profits gained from professional and service fees go directly back to the ASC owners. Of course, this arrangement is advantageous to the ASC, and has been used frequently. However, it is facing increased scrutiny by the OIG, and has recently resulted in at least one criminal conviction and one large civil settlement.

The U.S. Department of Justice (DOJ) issued a press release on December 20, 2018 announcing settlement agreements between the two physician-owners of a Florida pain management practice and the federal government in which the physicians each paid in excess of $1.7 million to settle claims brought by DOJ under the AKS and the federal False Claims Act.

The government’s allegations arose in part from the physicians’ ownership of a captive anesthesia practice from which they obtained the anesthesia services they required for their pain management patients – the Company Model.  The government took the position that the owners were receiving a kickback from the captive anesthesia group. One owner was convicted of a criminal offense under the AKS and paid a $2.8 million civil settlement. The other paid $1.718 million to resolve kickback allegations.Based on the above, the Company Model should be avoided.  Physicians who have structured their anesthesia under such arrangements should restructure immediately to avoid the risk of criminal and civil enforcement.

SOURCES: United States Government Printing Office. Anti-Kickback Statute. https://www.govinfo.gov/content/pkg/USCODE-2017-title42/pdf/USCODE-2017-title42-chap7-subchapXI-partA-sec1320a-7b.pdf Armon, Bruce, Ph.D, MD. (2009, October). Contracting With Your Anesthesia Group. Retrieved from http://www.saul.com/sites/default/files/1111_PDF_2125.pdf 3. Kaye, Joshua M. (2005, May). Five Ways Your ASC Can Profit From Anesthesia. Retrieved from http://www.surgistrategies.com/articles/2005/05/five-ways-your-asc-can-profit-from-anesthesia-ser.aspx 4. Stark Law Exceptions and Anti-Kickback Safe Harbors. Retrieved May 6th, 2014 from http://www.bricker.com/services/resource-details.aspx?resourceid=456 5. Levy, M., & Marder, S., Esqs. Understanding Financial Relationships Between Anesthesiologist and Ambulatory Surgery Centers As Per the Recent OIG Opinion. Retrieved May 5th, 2014 from http://www.drlaw.com/Articles/Understanding-Financial-Arrangements-Between-Anest.aspx