A recent OIG Advisory Opinion (Adv. Op. 13-15) is, to a certain degree, more interesting for one of its footnotes than the body of the opinion itself. The footnote addresses a hotly debated issue, originally raised in an OIG Management Advisory Report (MAR) in 1991. That MAR took the position that an agreement between a hospital and a hospital-based physician group was a “suspect arrangement” under the Anti-Kickback Statute because the physician group was essentially required to split its revenue with the hospital–including requiring the group to provide uncompensated services to the hospital.

The OIG modified this position somewhat in the Supplement Compliance Program Guidance for Hospitals in 2005. In that compliance guidance, the OIG stated that an exclusive arrangement that required a hospital-based physician group to provide “reasonable administrative or limited clinical duties directly related to the hospital-based profession services at no or a reduced charge” would be permissible. The Compliance Guidance cautioned, however, that uncompensated or below-market-rate services would still be subject to “close scrutiny.”

The facts outlined in this Advisory Opinion and the requested opinion involved a proposed arrangement between a hospital-based anesthesia group (which was also the “Requestor” in the opinion) and a psychiatry group.  Nevertheless, as the footnote indicates, the facts also beg for close scrutiny of the hospital.

As outlined in the Advisory Opinion, from 1993 until early 2011, the Anesthesia Group contracted with a hospital to provide all anesthesia services, other than chronic pain management procedures, on an exclusive basis. The scope of this exclusive arrangement included anesthesia services for electroconvulsive therapy (ECT) procedures performed at the Hospital. In December 2010, the psychiatry group, which had a medical practice focused on ECT procedures, relocated its practice to the hospital. One of the owners of the psychiatry group was “Dr. X,” who was board-certified in both psychiatry and anesthesiology.

During negotiations of the renewal of the requestor’s exclusive anesthesia contract for 2011, the hospital negotiated for Dr. X’s right to provide anesthesia services to ECT patients. Although the Anesthesia Group refused to accept the carve-out, the final 2011 contract included a provision permitting Dr. X to provide anesthesia services for ECT procedures in the hospital and requiring the anesthesia group to provide up to six weeks of coverage for Dr. X.

Subsequently, in the course of negotiating the 2012 renewal of the anesthesia services contract, the Hospital sought to further curb the anesthesia group’s exclusivity. The resulting contract stated that in the event the psychiatry group or the hospital determined that an additional anesthesiologist was needed to provide ECT anesthesia services (and the parties could not agree on terms for the anesthesia group to provide the additional services), then so long as the last offer from the psychiatry group was at a fair market value rate, the psychiatry group or Dr. X. could contract with an additional anesthesiologist to provide anesthesia services for ECT procedures.

After the 2012 contract went into effect, the psychiatry group determined that an additional part-time physician was needed to provide ECT anesthesia services. It then proposed the “Proposed Arrangement” that was the subject of this Advisory Opinion. In the Proposed Arrangement, the anesthesia group would reassign its right to bill for the additional, part-time ECT anesthesia services to the psychiatry group. The psychiatry group would in turn pay the anesthesia group a fixed, per-diem rate for its services. The psychiatry group would retain the difference between the amount it billed and collected for the anesthesia group’s physician and the per-diem rate it pays to the anesthesia group. The anesthesia group attested that the psychiatry group’s proposed per diem rate was below fair market value and below the reimbursement it would otherwise receive if it billed for the services directly.

The OIG concluded that the proposed arrangement posed more than a minimal risk under the AKS. First, the psychiatry group would have the opportunity to generate a fee equal to the difference between the amounts the psychiatry group would bill and collect and the per diem fee paid to the anesthesia group. Such fee could be viewed as compensation in return for the psychiatry group’s referrals of ECT patients to the requester for anesthesia services.

Second, the per diem compensation arrangement would not qualify for protection under the AKS personal services and management contracts safe harbor because not only was the aggregate compensation not set in advance, but it was not consistent with fair market value. Moreover, even if the safe harbor applied, it would only protect the per diem payments made by the psychiatry group (principal) to the anesthesia group (agent), and not the remuneration generated by difference between the psychiatry group’s billing and collections and the per diem fee. Without the safe harbor protection, the OIG ultimately concluded that the proposed arrangement would pose more than a minimal risk under the AKS because the arrangement would provide the psychiatry group remuneration—the difference between billing and collections and the per diem rate—for its referrals to the anesthesia group.

The missing party in all of this analysis is, of course, the hospital, who negotiated the contracts narrowing the scope of the anesthesia group’s exclusivity, which allowed the Psychiatry Group to put it in this spot. In a footnote, the OIG pointed out that it was the hospital that had made the proposed arrangement that was the subject of this unfavorable opinion possible, even though the hospital was not a party to the proposed arrangement. If the hospital had not insisted that the provision for the additional anesthesiologist be included in the 2012 contract, the anesthesia group’s exclusivity rights would have precluded the psychiatry group from billing for any anesthesia services provided at the hospital other than those provided by Dr. X. The OIG went on to state that, even though it was not requested to opine on this part of the proposed arrangement, it was unable to exclude the possibility that: (1) the hospital agreed to negotiate for the 2012 additional anesthesiologist provision in exchange for, or to reward, the psychiatry group’s continued referral of patients to the hospital for ECT procedures; (2) the hospital leveraged its control over its large base of anesthesia referrals to induce the anesthesia group to agree to the 2012 additional anesthesiologist provision; and (3) that the anesthesia group agreed to the additional anesthesiologist provision in exchange for access to the hospital’s stream of anesthesia referrals.

In its Compliance Guidance for Hospitals, the OIG noted that “it is typically the hospitals that are in a position to influence the flow of business to [hospital-based] physicians, rather than the physicians making referrals to the hospitals.” The OIG went on to note that “in this regard, arrangements between hospitals and traditional hospital-based physicians generally do not pose the same potential to cause the harms typically associated with kickback schemes.” In this situation, however, as the OIG pointed out, it appears that the hospital leveraged its referrals to the anesthesia group to force it to accept the carve-out for Dr. X, as well as the additional anesthesiologist provision in the 2012 contract. Moreover, by doing so, the appearance is that the hospital rewarded the psychiatry group for referring ECT patients to the hospital by giving it the opportunity to profit from the arrangement.

From this advisory opinion, we can be sure that the OIG will scrutinize any situations in which hospitals improperly benefit from exclusivity arrangements and corresponding carve-outs created to benefit other referral sources. Hospitals should closely examine their own exclusivity arrangements to determine if there are any potential kickback issues.