Anesthesia Models Under Attack

Increasingly, surgery centers and practices related to surgery centers attempt to profit from the providing of anesthesia services. In the last couple of years, the American Society for Anesthesia has attacked various models as improper kickback relationships and has argued to the Office of Inspector General that the real intent of these relationships is to provide profits to surgeons who refer business to the ambulatory surgery center through the ability to profit from anesthesia services. More recently, the Maryland Association of Nurse Anesthetists has filed for a declaratory judgment with the Maryland of Department of Health and Mental Hygiene which regulates physicians. Here, the anesthetists argued that a model whereby a physician practice or Ambulatory Surgery Center (ASC) pays the Certified Registered Nurse Anesthetists (CRNAs) a flat fee per day and CRNAs assign all theirs fees to the practice or ASC was illegal.
The key background facts as set forth in the anesthetists request for declaratory judgment were stated as follows:

1) Petitioner has received numerous inquiries from its members regarding the propriety and legality of certain contractual arrangements between physician group practices and its members.

2) Historically CRNAs and Anesthesiologists have provided anesthesia services for ASCs on a fee for services basis whether working individually or through an anesthesia group practice. Under this type of relationships the CRNA or anesthesiologist practices as an independent contractor and billed independently for their anesthesia services.

3) Recently however, at least four non-anesthesia physician group practices utilizing ASCs have required anesthesia providers, including CRNAS, to enter into contractual relationships with the physician group practices. Under the Agreement the CRNA is required to relinquish all rights to independently bill and are required to assign all billing rights and rights to compensation to the non-anesthesia physician group practice.

4) Under this new business model, the non-anesthesia group practice is able to dramatically increase profit margins by collecting the fee for service normally collected by the anesthesia provider and in turn, compensating the anesthesia provider, including CRNAs, a flat daily fee. These non-anesthesia physician groups have also increased the rates for the anesthesia procedures care to further maximize their profit.2 Until this recent development, the non-anesthesia group practices did not bill for the anesthesia services.

5) The non-anesthesia physician group practices in question presented contracts to the CRNAs and informed the CRNAs that they would accept the contract or the non-anesthesia group physician practice would find other anesthesia providers. The CRNAs had no bargaining power and were essentially forced into a contract of adhesion.

6) The new business model adopted by the non-anesthesia physician groups raises serious patient safety concerns. it is feared that the referring physicians may classify a patient's risks factors incorrectly in order to utilize ASCs instead of a hospital setting because of profit motive. Until the implementation of this new business model, the physician's choice of surgery site, hospital or ASC, had no effect on the physician's reimbursement for anesthesia services. Now referring physicians and group physician practices have a financial incentive for performing higher risk procedures in an ASC.

7) Simply put, this new business model results in the redirection of anesthesia fees, earned by the CRNA or Anesthesiologists, to the referring non-anesthesia physician group practice; raises serious concerns about patient safety; and violates Maryland law.

The state Department of Health and Mental Hygiene in a response dated February 2010 indicated that it would be willing to issue a declaratory judgment but in order to do so the CRNAs had to set forth the names and entities that were involved. The physicians have been given until June 17, 2010 to respond.

The practice in question is under increasing scrutiny. An ASC should be able to hire anesthesiology providers to practice in the ASC, if applicable state law does not prohibit same, as a valid means to assure that a center has adequate anesthetist coverage. However, where there is no direct employment relationship, and the ASC merely seeks to extract a profit in exchange for the business generated for the anesthesiology providers, there are serious regulatory concerns.

The Maryland situation is a case that will be watched closely because it has multiple implications on both the state and federal level. To be sure, similar compensation models are proliferating across the country raising a host of questions regarding their legality under state and federal anti-kickback and self-referral laws.

Anti-Kickback Laws

The federal Anti-kickback Statute (AKS) and similar state anti-kickback statutes make it unlawful for any person to offer or pay, or to solicit or receive, any remuneration in order to induce or reward business reimbursable under federal or state health care programs. Under the federal law, violation of the statute is punishable criminally by up to five years imprisonment, a fine of $25,000, or both, and by exclusion from participation in the Medicare and Medicaid programs, as well as other potential administrative and civil penalties.

Applied to compensation arrangements between facilities (physician group practices, surgery centers, ASCs, etc.) and anesthesia providers, the OIG has recognized that the dynamic is unique.3 This is because rather than the common situation where physicians make referrals to the facility, here, the facility is in a position to generate business for the anesthesia provider. As such, any remuneration received or solicited by the facility in exchange for access to the facility's referral stream potentially violates the AKS. With respect to anesthesia services, specific examples of illegal kickbacks would include situations where a facility compensates anesthesia providers less than fair market value for the services they provide, or a facility requiring anesthesia providers to pay more than fair market value for services provided by the facility to the anesthesia group. In both cases, the OIG's concern under the AKS is that the anesthesia provider's willingness to either accept less for its services, or pay more for the facility's services is actually disguised remuneration paid in return for referrals. The OIG has stated that kickback schemes can often lead to "overutilization of services, increased costs for Federal health care programs, corruption of professional judgment, and unfair competition."4

For example, a popular model that is facing increased scrutiny under the AKS is the "company model." Under this model, owners of an ASC form a separate entity under the same ownership to administer anesthesia services. The anesthesia providers are generally paid a flat-fee or a salary, and the owners of the newly-formed entity bill for the professional anesthesia services as well as the facility fees. The company model, similar to the Maryland model referenced above, allows ASC owners to profit from the administration of anesthesia services.

In a 2003 Advisory Opinion, the OIG warned against arrangements where an existing supplier gives a referral source the opportunity to generate a profit.5 The basis for the warning was the concern that the profit opportunity provided by supplier (in this case, the anesthesia provider) was actually a form of remuneration paid in exchange for continued business from its referral source (in this case, a physician group practice or ASC). Applied specifically to the company model, the concern is that anesthesia providers are signing over all or a portion of their professional fees and/or accepting smaller flat salaries in order to secure the steady business provided by the facility. As such, there is a risk that the OIG may find that the facility is receiving anesthesia services at below-market rates in exchange for providing access to its federal or state health care program business in violation of the AKS.

Other types of compensation arrangements drawing attention under the AKS are those where anesthesia providers lease and/or purchase space, equipment, supplies, or services from the physician group practice or ASC. Often, these payments are at above-market rates or are for items or services that are already provided for as part of the practice's facility fees. Examples of these practices include requiring anesthesia providers to pay full-time rates when their employees work part-time, or forcing them to pay for the costs of pharmaceuticals or to rent space when those costs should be covered by the physician group practice or ASC. These characteristics raise serious red-flags and may also be considered illegal kickbacks provided in exchange for federal or state health care program business.

Self-Referral Statutes

Business models between anesthesia providers and physician group practices or ASCs may also violate state self-referral statutes. As a general matter, these statutes prohibit referrals when the referring health care practitioners stand to benefit financially from the referral.

For example, the declaratory judgment referenced above bases its claims on the Maryland Self Referral Statute which states that "referrals are generally prohibited if the physician refers the patient to a health care entity in which the physician has a beneficial interest or compensation arrangement with the health care entity.6 The Maryland Association of Nurse Anesthetists argues that under their business model, the physician group practice is both referring the patient to an ASC and to a CRNA for anesthesia health care services. In addition, the physician group practice and the CRNA have a compensation arrangement in which the physician group practice is receiving remuneration from the CRNA for each patient treated via the assignment of their billing rights. They claim this constitutes an illegal referral relationship under Maryland law.

While the outcome of the Maryland matter will ultimately depend on how the Maryland Department and perhaps later, the courts rule on the application of a number of definition and exception questions, it is clear that compensation models between physician group practices and anesthesia providers pose risk under self-referral statutes and as such, arrangements should be structured around the specific state requirements.

Fee-Splitting Laws

State fee-splitting laws may also be implicated by certain types of compensation arrangements between physician group practices or ASCs and anesthesia providers. Designed primarily to prevent the offering of kickbacks for referrals, fee-splitting statutes are increasingly being used to challenge the legitimacy of these business models. For example, in a recent decision, the Tennessee Court of Appeals voided an agreement between a hospital and an anesthesia group because it violated the state's fee-splitting prohibition.7 In that case, the court found that the assignment of the anesthesia group's collections (less a 20% administrative fee for collection expenses) in return for a fixed monthly payment from the hospital was unenforceable because it constituted illegal fee-splitting.

The petitioners in the Maryland declaratory ruling request also allege fee-splitting violations. Under the Maryland Fee Splitting statute, a physician may be disciplined if the physician "[p]ays or agrees to pay any sum to any person for bringing or referring a patient or accepts or agrees to accept any sum from any person for bringing or referring a patient."9 Unlike a direct employment model where the two parties (ideally) negotiate a salary in exchange for the anesthesia provider's services and professional fees, the concern with the Maryland model and the company model is that physician group practice is using its leverage to extract the billing rights of the anesthesia group members (as independent contractors) in exchange for a smaller flat-fee and access to the referral stream of the physician group practice. Opponents of such models claim that this practice, in effect, constitutes an illegal splitting of physician fees.8

The fee-splitting arguments are particularly significant because unlike most anti-kickback or self-referral laws, they generally cover all patients and thus have the potential to implicate models that do not involve federal or state health care program business.

As physician group practices and ASC owners continue to adopt new models that allow their businesses to profit from anesthesia services, serious questions remain regarding whether these models comply with the requirements of state and federal laws.
While proponents argue that these compensation arrangements are legal ways to secure consistent, high-level anesthesia services, others have argued that these compensation arrangements constitute improper and illegal kickbacks in violation of anti-kickback and self-referral laws and violate certain state fee-splitting laws. Opponents further argue that the growth of these business models will lead to the overutilization of anesthesia services and the corruption of professional judgment now that physician-owners stand to profit from the administration of more and/or higher levels of anesthesia services than may be medically necessary. In light of these competing considerations and the undeniable popularity of risky compensation arrangements like the company model, the decision rendered in Maryland will have a significant impact on the manner in which ASCs and physician group practices structure their compensation models with anesthesia providers.

1. CRNAs have independent billing rights and work in collaboration with a physician to provide anesthesia services.
2. The identify of the group practices and the CRNAs have been withheld because the CRNAs involved are concerned about retribution from the physician group practices in question.
3. OIG Supplemental Compliance Program Guidance for Hospitals, 70 Fed. Reg. 4858 (Jan. 31, 2005).
4. OIG Advisory Opinion No. 03-13, June 16, 2003.
5. Id.
6. Md. Code Ann. Health Occ. Sec. 1-302(a).
7. Cookesville Reg'l Med. Ctr. Auth. V. Cardiac Anesthesia Servs. PLLC, No.2007-02561-COA-R3-CV (Tenn. App. Ct. Nov. 24, 2009).
8. For the complete reading of the statute, see Tenn. Code Ann. § 63-6-225.
9. Md. Code Ann. Health Occ. § 14-404(a)(15).

© Copyright ASC COMMUNICATIONS 2021. Interested in LINKING to or REPRINTING this content? View our policies by clicking here.


Featured Webinars

Featured Whitepapers