The Company Model - Not Such Good Company…

  • Chamberlin, Keith, MD, MBA, FASA
| Dec 09, 2013

In last week’s blog post by Dr. Karen Sibert, you read about selling an anesthesia practice.  This week is yet something else your practice can experience: the “Company Model.” Very likely you’ve heard something about this, so I thought I would try to make things a bit more transparent by answering the following questions about the company model:  What is it? Why is it a problem for us and for everyone involved? And why has it come to the forefront now?  The short answer: it is all about money.  Surprised?

What is it?
The Company Model is a business model where a group of non-anesthesiologist referring physicians forms a company that hires or contracts with anesthesiologists (either as employees or as independent contractors) to provide anesthesia for the referring physicians. The company then bills for the anesthesiologists’ services, pays the anesthesiologists an artificial rate (below the rate the company is compensated), and pockets the difference. A nice tidy sum and, to the referring physician group, a nice arrangement.  Unless you are the anesthesiologist. Or the government.

Why is it a problem for anesthesiologists and others?
It turns out the government frowns a bit on these arrangements, in the form of the Medicare Anti-Kickback Statute.  So what exactly is the Medicare Anti-Kickback Statute??

“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 paid, received, offered, or solicited 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.” (Underlining and bold added)

Read More: Medicare Fraud & Abuse: Prevention, Detection and Reporting

Basically, you cannot be part of any plan or scheme that involves any hint of payment to another group, a hospital, or an entity, “including kickbacks, bribes, and rebates made directly or indirectly, overtly or covertly, or in cash or in kind to induce referrals from a federal health program (Medicare-Medicaid -Tricare, etc.).

And the penalties are severe, since it is a criminal law, as opposed to Stark regulation violations, where failing to comply results in civil penalties.

Learn More: Comparison of the Anti-Kickback Statute and Stark Law

Why is the Anti-Kickback Statute a renewed issue now?
On November 12, 2013, the Office of Inspector General (OIG) within the Department of Health and Human Services— government lawyers— released an Advisory Opinion about such an arrangement involving an anesthesia group with an exclusive contract, the involved hospital, and a psychiatry group who had a double boarded doctor (psychiatry and anesthesiology) doing electroconvulsive therapy (ECT).

Basically, the psychiatrist/anesthesiologist wanted to administer and bill for the anesthesia for ECTs and insisted on a “carve out” from the anesthesia group’s exclusive contract to allow him to do it.  In addition, the psychiatry group wanted either guaranteed coverage from the anesthesia group when this psychiatrist/anesthesiologist went on vacation, or the ability to get their own outside anesthesiologist to cover.

When filling in for the vacationing physician, the group anesthesiologists would get a “per diem” (daily) rate from the psychiatry group, and the psychiatry group would bill and collect for the anesthesiologists (naturally, the per diem rate was substantially below the billings). Nice, yes? 

Apparently too nice.  The OIG opinion, requested by the anesthesia group (the “Requestor”) hit the nail squarely on the head.

“The Proposed Arrangement appears to be designed to permit the Psychiatry Group to do indirectly what it cannot do directly; that is, to receive compensation, in the form of a portion of Requestor’s anesthesia services revenues, in return for the Psychiatry Group’s referrals of ECT patients to Requestor for anesthesia services.” 

In addition, the OIG noted there was no safe harbor protection for this arrangement, since there was no set dollar amount for the entire term of the contract and the final amount paid was less than fair market value. These are among the required elements to qualify as a safe harbor.  Moreover, per diem payments do not meet the criteria for a safe harbor.

The OIG opinion went on (in a footnote - actually even beyond the request to comment) to implicate potential hospital issues by saying it was concerned that the hospital pressured the anesthesia group to make this arrangement, in trade for more referrals from the hospital, and the anesthesia group agreed “in exchange for access to the Hospital’s stream of anesthesia referrals.”

Wow, the downstream problems. Like a pebble tossed into a pond, you never know where the ripples stop or who gets involved.

Judy Semo, Esq., a highly regarded attorney affiliated with the ASA, commented:

“This advisory opinion should be useful in resisting the increasing efforts by hospitals to force anesthesia groups with exclusive contracts to agree to carve-outs to allow referring physicians to benefit from their referrals by having their own anesthesia arrangements and retaining a portion of the anesthesia revenue. It underscores the regulatory risk involved in agreeing to arrangements in which the referring physicians benefit from their referrals by retaining a portion of the professional anesthesia fee.”

It is important to remember here that if an arrangement is found to violate the Medicare Anti-Kickback Statute, BOTH parties are guilty, even if the anesthesiologists wanted to agree. You cannot break the law just because your biggest referring physician group asks you to.  It is not a defense to say: “They forced me to agree.”

This situation described in the OIG opinion a variation on a traditional Company Model arrangement and represents a phenomenon that is being increasingly observed in the anesthesia community. The more common scenario is where the endoscopy center or the ambulatory surgery center (ASC), where you have been practicing anesthesia for years, suddenly decides you should now be either an employee or an independent contractor paid by the center or a separate anesthesia company that the referring physicians create— generally at a salary or day rate (careful about that per diem). And you will be required to assign your billing to them, and they will bill and collect and pocket the difference. These are likely your friends and colleagues, MDs you have been working with for years. Ouch…

What does the OIG have to say about this arrangement? Basically, their approach is as follows:

“The anti-kickback statute seeks to ensure that referrals will be based on sound medical judgment, and that health care professionals will compete for business based on quality and convenience, instead of paying for referrals.”

Each situation stands on its facts. Unfortunately, some abusive arrangements may be eligible for protection under a safe harbor, which is why the ASA requested modification of some of the existing safe harbors in its February 2013 comments to the OIG. Do not forget, no matter WHO bills for your service, you are responsible. Any errors in billing, coding, or other fraud will always come back to you, the anesthesia provider.

Now what? Where does that leave us in California?
I have spoken with a number of groups facing this problem, both in SoCal and NorCal. Greed is ubiquitous. We all understand the concept of adapting to the new medico-economic environment, to a point.  But very likely, at least for the next few years, you will eventually be asked to participate in some economic arrangement that skims your fees and puts them in the pocket of others.  Whether it is a direct payment of “management fees,” “office and equipment rental fees,” or simply a poorly disguised kickback; it puts you at risk of committing a felony.

Now, that said, there are arrangements like this that are legal, depending on the structure.  My advice – be very very careful if you are approached for anything even close to the models described above.  Get the specific details in writing (if no one wants to put it in writing – red flag goes up.) Find a knowledgeable attorney.  Get your own legal opinion. There are a number of ASC and Endoscopy “Management” companies pushing their surgeons and physicians into this type of model, with their own “legal opinions.” I am aware of one situation that was blatantly illegal and after some pointed discussion the parties involved are “reconsidering.”

We are in the middle of a very difficult time.  But take heart, if we are clever enough, it will get better.  We are watching a change of reimbursement models, designed to discourage fee-for-service volume abuses– not something we have any control over. But when full risk models arrive for physicians, our training and instincts can serve us well - the 4 “abilities” of anesthesiologists:  ability, availability, flexibility and affability.  (And I will add a new one: “stretch-ability” - the ability to get out of the OR and become a true perioperative physician.)

The new economic models depend on efficient cost conscious care:  the “abilities” we demonstrate every day.  It is exactly because your value is so high that others want some of it in dollars.  Be aware of this, and stay very far away from any arrangement that even hints of a Medicare Anti-Kickback violation.  You are known by the company you keep – choose wisely.

For more information, check out the ASA’s materials on the Company Model.

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