The United States Department of Health and Human Services Office of Inspector General (“OIG”) recently published an unfavorable Advisory Opinion that should prompt many medical practices to rethink the manner in which they utilize independent contractor relationships with other physicians or medical practices.
In Advisory Opinion 23-05, the OIG reviewed a “Proposed Arrangement” where the requestor would assist physicians who perform surgeries for which Intraoperative Neuromonitoring (“IONM”) is used, and who currently make referrals to Requestor for IONM services, with the formation and operation of a turnkey entity that would perform IONM services (“Newco”) and that would be owned by such referring physicians (the “Surgeon Owners”).
As a background, IONM is used to observe a patient’s neurological functions during certain surgeries in which the patient’s neurological structures are at risk. IONM services have a technical component and a professional component. The technical component of IONM involves a neurophysiologist, located in the operating room of a hospital or ambulatory surgical center (“ASC”) while a surgery takes place, setting up the IONM equipment and ensuring it works properly. The professional component of IONM involves a neurologist, typically located in a remote location, monitoring the test results and waveforms generated by the IONM equipment during the surgery in real time using a dedicated internet connection.
Under the Proposed Arrangement, Surgeon Owners would “refer” their intraoperative patients to Newco, and Newco would, in turn, subcontract with Requestor (via a management services agreement) to provide the equipment and neurophysiologists necessary to perform the technical component. Newco would also subcontract with Practice (via a professional services agreement) for the services of a neurologist who would perform the professional component. Essentially, Newco would not own any assets or perform any services directly; rather, it would subcontract all of its services via either Requestor or Practice. Even billing and administrative functions would be subcontracted via Requestor. The referring Surgeon Owners of Newco would receive the profits derived from these subcontracted services.
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.
Requestor 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 Requestor and Practice would earn substantially less profits under the Proposed Arrangement than under their current business model. This is primarily due to: (i) the reimbursement for the professional component of IONM can far exceed the cost of providing the service; and (ii) Practice would charge Newco less than it could bill a third-party payor for the same services under Requestor’s and Practice’s current business model.
The OIG concluded that the Proposed Arrangement would implicate the Federal anti-kickback statute. It would involve several forms of remuneration, including, but not limited to: (i) discounts in the provision of neurology services 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 concluded that the Proposed Arrangement would exhibit many attributes of a suspect contractual joint venture, about which OIG has longstanding concerns.
As a practical matter, the Advisory Opinion raises serious concerns about any arrangement where a referring practice subcontracts with another practice to perform the professional component of the referred service, thereby enabling the referring practice to bill for the service and pay a substantially smaller portion of the professional component to the physician who actually performs the service. Many physicians, and even some experienced healthcare attorneys, have fallen into the trap of assuming that if the physician who performs the service is paid a fixed per procedure or per diem amount that comports with fair market value, that the arrangement will comply with AKS. However, this Advisory Opinion makes clear that such an analysis does not protect the remuneration being retained by the referring practice. That remuneration may be perceived as a kickback by the performing physician in exchange for the referral of patients insofar as the performing physician is allowing the referring practice to bill for and retain a substantial portion of the fruits of the performing physician’s labor.
One recent and common example of an arrangement that resembles the prohibited conduct described in the Advisory Opinion is the relationship between referring practices (e.g., cardiology, nephrology and podiatry practices) and vascular surgeons who perform peripheral artery disease (“PAD”) services on patients of the referring practices. We have seen arrangements where surgeons, or other interventional proceduralists, are contracted at a per procedure or per diem rate via a professional services agreement whereby the referring practice bills for the professional component and pays something less than what it receives to the performing surgeon. These arrangements should be carefully reviewed in light of the above Advisory Opinion as they may implicate AKS.
If you are involved any arrangement that resembles the above, you should immediately consult with experienced healthcare counsel, who can assist you in evaluating the risk of the arrangement, and help you restructure or even unwind the arrangement if necessary.
