The U.S. Department of Health and Human Services Office of Inspector General (OIG) issued an unfavorable Advisory Opinion on Aug. 15, 2023, involving an intraoperative neuromonitoring (IONM) services arrangement. The Advisory Opinion is significant because the proposed arrangement is not atypical in the ambulatory surgery center (ASC) industry.
IONM services are utilized to observe a patient's neurological functions during certain surgeries in which the patient's neurological structures are at risk. The underlying surgeries are typically performed in a hospital or ASC. For billing purposes, IONM services have a technical component (TC) and a professional component (PC). The TC involves a neurophysiologist, who sets up the IONM equipment and ensures that it functions properly. The neurophysiologist is present in the operating room while the surgery takes place. The PC involves a neurologist monitoring in real time the test results and waveforms generated by the IONM equipment during the surgery. The neurologist physician is typically located in a remote location.
The entity requesting the Advisory Opinion from OIG (Requestor) has services agreements with hospitals and ASCs under which the Requestor provides the TC of the IONM services through its employed neurophysiologists. Requestor also arranges for the provision of the PC of the IONM services from a physician practice (Practice). The Practice employs or otherwise engages the neurologist physicians as independent contractors, and the Requestor has a management services agreement (MSA) with the Practice. A surgeon will contact the Requestor when a referral for IONM services for a surgical case is necessary. The Requestor then schedules a neurophysiologist to perform the TC and contacts the Practice to assign a neurologist to perform the PC for the surgery. The Requestor will bill the hospital or ASC for the TC, and the Practice will bill the patient or third-party payor, as applicable, for the PC.
The Requestor sought guidance from OIG as to whether another proposed arrangement (Proposed Arrangement) in which Requestor would assist referring surgeons with the formation and operation of a turnkey IONM services practice (Newco) owned by the surgeons (Surgeon Owners) would constitute conduct in violation of the federal Anti-Kickback Statute (AKS). Newco would contract with hospitals and ASCs for Newco to provide (or arrange for the provision of) both the PC and TC of IONM services.
The Proposed Arrangement also contains the following characteristics:
- Neither the Requestor nor the Practice would hold any ownership interest in Newco.
- The Surgeon Owners would refer patients of their own surgical practices to Newco for IONM services when a surgery required IONM, as determined in the referring surgeon's discretion.
- The Surgeon Owners would receive distributions of Newco's profits in return for their investment interests in Newco.
- The Surgeon Owners would be responsible for forming Newco and preparing Newco's governance documents.
- The Requestor would provide billing, collection, and other administrative services to Newco in exchange for a fee (Billing Services Agreement).
- The Practice would provide the services of its neurologists and neurophysiologists (which the Practice would lease from the Requestor under the MSA between the Requestor and the Practice) to Newco in exchange for a fee (Personal Services Agreement). Newco would pay the Practice less for professional services under the Personal Services Agreement than the Practice could bill a third-party payor for the same services because competing IONM companies marketing similar arrangements to surgeons have aggressively discounted their charges for these services.
- The Requestor certified that the services provided by the Requestor and the Practice under the Billing Services Agreement and Personal Services Agreement would constitute essentially all of the day-to-day requirements of an IONM business.
- Newco would bill the hospital or ASC for the TC.
- Newco would bill the patient or third-party payor, as applicable, for the PC. The Requestor would take direction from the Surgeon Owners regarding the amounts to be billed for professional services.
The Requestor certified that competitive reasons were its motivation for the Proposed Arrangement. The Requestor explained that its existing surgeon clients are continually approached by other IONM companies encouraging the surgeons to enter into similar arrangements, and the Requestor sought to retain business from its existing surgeon clients that otherwise would be lost to these competing businesses.
For the reasons set forth below, OIG explained that the Proposed Arrangement, if undertaken, would generate prohibited remuneration under the AKS if the requisite intent were present. OIG concluded that the Proposed Arrangement would include risks of patient steering, unfair competition, inappropriate utilization and increased costs to federal healthcare programs. OIG further indicated that Safe Harbor protection would not be available for the Proposed Arrangement.
In key part, OIG stated that the Proposed Arrangement would present more than a minimal risk of fraud and abuse on the premise that the Proposed Arrangement appeared to create a suspect "contractual joint venture," as defined in OIG's 2003 Special Advisory Bulletin on Contractual Joint Ventures (2003 SAB).
Aspects of the Proposed Arrangement, which are problematic characteristics of a contractual joint venture, identified by OIG in the Advisory Opinion and 2003 SAB include:
- The Surgeon Owners, through Newco, would be expanding into a related line of business that is dependent on referrals from, or other business generated by, the Surgeon Owners' existing medical practice businesses. Also, the Requestor and the Practice are existing providers of the same types of services as Newco's new line of business (i.e., the Requestor already provides the TC and the Practice already provides the PC of IONM services through arrangements with hospitals and ASCs). Further, the Requestor and the Practice would be competitors to Newco absent the Proposed Arrangement.
- The Surgeon Owners would neither operate Newco on a day-to-day basis nor would they commit substantial financial, capital or human resources to Newco. Instead, Newco would outsource substantially all operational functions of Newco (via services contracts) to the Requestor and the Practice, which are both existing providers of such services. The Requestor explicitly certified as to this, and indicated that it does not anticipate that Newco would even need any dedicated employees.
- Newco on the one hand, and the Requestor and the Practice on the other, would share the economic benefit of Newco's new line of business, with the Requestor and the Practice taking their share in the form of payment under the services contracts with Newco and Newco and the Surgeon Owners benefiting by retaining the residual profit from the business.
- Discounts under the Personal Services Agreement provided by the Practice to Newco could be considered inappropriate remuneration under the AKS. OIG identified similar discounts as problematic in the 2003 SAB, providing that this kind of discounted compensation paid and received through a "common venture" would not be considered negotiated through an arms' length transaction).
- By effectively agreeing to provide services they could otherwise provide in their own right for less than the available fee/reimbursement, the Requestor and the Practice would be providing Newco (and the Surgeon Owners) with the opportunity to generate a profit through the difference between the fees paid by Newco to the Requestor and the Practice under the services agreements and the reimbursement Newco would receive for such services from third parties. OIG explained in the 2003 SAB that the opportunity to generate a fee is itself remuneration that may implicate the AKS.
- OIG indicated that the factors identified above pose a risk that the Proposed Arrangement could be used as a vehicle to induce inappropriate referrals of federal healthcare program business from the Surgeon Owners to Newco due to the Surgeon Owners' financial incentives. OIG explained that the Requestor's motivations to enter into the Proposed Arrangement from pressure to retain existing surgeon clients who would otherwise be lost to competing IONM companies engaging in similar arrangements, too, would pose risks of unfair competition and improper patient steering potentially in violation of the AKS.
Further, the Requestor's certification that it would attempt to ensure that the Surgeon Owners would not refer federal healthcare program patients to Newco for IONM services did not allay OIG's concerns. As a practical matter, the Requestor would not be able to enforce restrictions regarding where the Surgeon Owners refer their patients for IONM services. The Requestor certified that even if the Surgeon Owners did not refer any federal healthcare program patients to Newco, it is likely that the Surgeon Owners would instead refer such patients to the Requestor (for the TC ) and the Practice (for the PC). Accordingly, even if the Requestor could ensure that the Surgeon Owners do not refer federal healthcare program patients to Newco, this "carve out" of federal healthcare program business would not be dispositive of an AKS violation – as remuneration to Newco under the Proposed Arrangement could induce the Surgeon Owners to refer IONM services reimbursable by a federal healthcare program to Requestor and Practice.
Unfavorable advisory opinions are rare, and OIG's assignment of AKS risk to the Proposed Arrangement reinforces its long-standing concerns with contractual joint ventures that are without any meaningful risk. Healthcare providers exploring or engaged in similar arrangements should carefully review and consider these risks arrangements and seek advice from healthcare counsel to ensure they are properly structured.
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