Expect the Expected: OIG Remains Suspicious of Suspect Contractual Joint Ventures in Advisory Opinion Involving IONM Industry

Firm Publication

On August 18, the U.S. Department of Health and Human Services Office of Inspector General (OIG) published Advisory Opinion 23-05, finding that an entity’s proposal to facilitate referring surgeons’ ownership of turnkey intra-operative neurophysiological monitoring (IONM) companies could violate the federal Anti-Kickback Statute (AKS).

This unfavorable advisory opinion is unsurprising given OIG’s longstanding concerns with certain joint venture arrangements in which a provider establishes a new business dependent on referrals from the provider’s existing business and contracts out substantially all of the operations to an established operator of the same business line.

Providers and other healthcare organizations should remain aware of OIG’s repeated warnings against questionable contractual arrangements that may disguise prohibited payment for referrals and create risk of overutilization, corruption of medical judgment, and inappropriate patient steering, particularly in light of the expansion of remote care during and after the COVID-19 public health emergency.

The Proposed Arrangement

IONM is used to monitor a patient’s neural pathways during surgery and prevent damage to neurological structures, and it involves both a technical and a professional component. The technical component involves a neurophysiologist (the technician operating the monitoring equipment onsite during the surgery); the professional component involves a neurologist (the physician monitoring the neural pathways, often doing so remotely through real-time access to the data).

Under the Requestor’s current model, the Requestor contracts directly with ambulatory surgery centers (ASCs) and hospitals to perform the technical component of the IONM services and arranges for the professional component to be performed by neurologists who are employed or engaged as independent contractors by a physician practice that has a management services agreement with the Requestor.  The Requestor bills the hospital or ASC for the technical component, but the physician practice bills directly for the professional component.

In its proposal, the Requestor effectively asks OIG to opine on the model allegedly employed by the Requestor’s competitors, which is favored by surgeons because it allows them to own interest in the IONM company performing (and billing for) surgical monitoring. Under the Proposed Arrangement, the Requestor would assist referring surgeons in establishing a wholly-owned company (NewCo) to furnish and receive payment for the provision of IONM services.

The surgeons would form NewCo but would delegate the performance of all day-to-day business operations to the Requestor. The Requestor would perform billing, collections, and other administrative services for NewCo pursuant to a Billing Services Agreement and would furnish the services of both the neurophysiologists performing the technical component and the physicians performing the interpretive services through a Professional Services Agreement. The Requestor would receive a fee for each of these administrative and professional services, and NewCo would not hire employees to perform any other functions.

NewCo would contract with hospitals and ASCs under an IONM services agreement and would typically bill the hospital for the technical component and the payor or patient for the professional component of IONM. The Requestor, in performing billing and collections services on NewCo’s behalf, would take direction from NewCo’s owners on amounts billed for services. The Requestor predicts that NewCo would generate substantial profits and that Requestor would, in turn, achieve lower profits under the Proposed Arrangement than under its current model.  Importantly, not only would NewCo’s revenues for billing the professional component of IONM exceed the cost of providing its services, but NewCo would likely pay less under the Professional Services Agreement than the interpreting physicians could receive by billing directly for their services due to “aggressive” discounts offered by the Requestor’s competitors who have adopted the Proposed Arrangement.

A Familiar Refrain

OIG posited that the Proposed Arrangement would create multiple streams of remuneration, including:

  1. Discounts offered to NewCo for its purchase of professional services under the Professional Services Agreement.
  2. The opportunity for NewCo to generate “substantial profits” through the difference between NewCo’s payments for administrative and professional services furnished by Requestor and NewCo’s revenue from billing IONM directly.
  3. Returns on investment interests in NewCo to the surgeon-owners.

OIG concluded at the outset that several, if not all, of the streams of remuneration would be unable to qualify for safe harbor protection. Citing guidance from its 2003 Special Advisory Bulletin on suspect contractual joint ventures, OIG opined that the Proposed Arrangement contains similar features to and presents the same fraud and abuse risks as the problematic arrangements described in the bulletin. Specifically, the Proposed Arrangement creates a scenario whereby the surgeon-owners expand into a new service line, contract out significant operations to a would-be competitor, and share in the profits generated by their own referrals.

Like the suspect arrangements described in its 2003 bulletin, OIG found that the surgeon-owners would have minimal business risk because they would be in a position to influence the amount of business directed to NewCo. OIG further noted that the physician owners’ expansion into IONM services—a related line of business—would unfairly affect competition and drive referrals and business generated by the physician owners. The Proposed Arrangement would also encourage the Requestor and physician practice to forego the potential profits they could make by providing the same services without offering surgeon ownership. OIG further concluded that it could negatively affect the physician owners’ medical decision-making, resulting in overutilization or inappropriate utilization of IONM services and patient steering to NewCo.

No Protection from Carve-Out Efforts

Although the Requestor certified that it would attempt to carve out federal healthcare program (FHCP) business by not referring surgical patients covered by FHCPs to NewCo, OIG declined to change its conclusion for two reasons. First, NewCo could nevertheless bill FHCPs from time to time as the Requestor would not be able to enforce restrictions on the surgeon-owners’ referrals, effectively “pulling-through” FHCP business along with the commercial business. Second, even if the Requestor were able to prevent referrals of FHCP business to NewCo, the profit generated for NewCo (even if only based on commercial payor revenue) could induce the surgeon-owners to refer those FHCP beneficiaries to the Requestor and its affiliated neurologists for IONM. Therefore, the carve-out would not save the Proposed Arrangement from potentially generating prohibited remuneration in exchange for the surgeon-owners’ referrals of FHCP business—in essence, a “swap.”

Key Takeaways

This request appears crafted to draw an unfavorable opinion, likely in an effort to tamp down a competitor’s business practices. OIG’s conclusions should come as no surprise given that the Proposed Arrangement bears many of the hallmarks of OIG’s decades-old guidance on suspect contractual joint ventures. Indeed, OIG’s oft-cited indicia of suspect joint ventures may have served as an outline for this request. That it involves the IONM industry merely demonstrates that OIG’s concerns remain alive and well in the remote-monitoring age, but the basic AKS framework is unchanged. The same is true with respect to OIG’s belief that FHCP “carve-outs” are not always curative.

Although the Proposed Arrangement presented OIG with a “significant risk of fraud and abuse,” this unfavorable opinion applies only to the Requestor and does not render any arrangement illegal, per se. Stakeholders may be able to structure arrangements with distinguishable facts and sufficient safeguards and possibly avoid a similar result. After all, OIG’s view on these issues is well-documented, so we are not starting from scratch.

Please contact the authors if you have any questions about this topic.

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Firm Publication

On August 18, the U.S. Department of Health and Human Services Office of Inspector General (OIG) published Advisory Opinion 23-05, finding that an entity’s proposal to facilitate referring surgeons’ ownership of turnkey intra-operative neurophysiological monitoring (IONM) companies could violate the federal Anti-Kickback Statute (AKS).

This unfavorable advisory opinion is unsurprising given OIG’s longstanding concerns with certain joint venture arrangements in which a provider establishes a new business dependent on referrals from the provider’s existing business and contracts out substantially all of the operations to an established operator of the same business line.

Providers and other healthcare organizations should remain aware of OIG’s repeated warnings against questionable contractual arrangements that may disguise prohibited payment for referrals and create risk of overutilization, corruption of medical judgment, and inappropriate patient steering, particularly in light of the expansion of remote care during and after the COVID-19 public health emergency.

The Proposed Arrangement

IONM is used to monitor a patient’s neural pathways during surgery and prevent damage to neurological structures, and it involves both a technical and a professional component. The technical component involves a neurophysiologist (the technician operating the monitoring equipment onsite during the surgery); the professional component involves a neurologist (the physician monitoring the neural pathways, often doing so remotely through real-time access to the data).

Under the Requestor’s current model, the Requestor contracts directly with ambulatory surgery centers (ASCs) and hospitals to perform the technical component of the IONM services and arranges for the professional component to be performed by neurologists who are employed or engaged as independent contractors by a physician practice that has a management services agreement with the Requestor.  The Requestor bills the hospital or ASC for the technical component, but the physician practice bills directly for the professional component.

In its proposal, the Requestor effectively asks OIG to opine on the model allegedly employed by the Requestor’s competitors, which is favored by surgeons because it allows them to own interest in the IONM company performing (and billing for) surgical monitoring. Under the Proposed Arrangement, the Requestor would assist referring surgeons in establishing a wholly-owned company (NewCo) to furnish and receive payment for the provision of IONM services.

The surgeons would form NewCo but would delegate the performance of all day-to-day business operations to the Requestor. The Requestor would perform billing, collections, and other administrative services for NewCo pursuant to a Billing Services Agreement and would furnish the services of both the neurophysiologists performing the technical component and the physicians performing the interpretive services through a Professional Services Agreement. The Requestor would receive a fee for each of these administrative and professional services, and NewCo would not hire employees to perform any other functions.

NewCo would contract with hospitals and ASCs under an IONM services agreement and would typically bill the hospital for the technical component and the payor or patient for the professional component of IONM. The Requestor, in performing billing and collections services on NewCo’s behalf, would take direction from NewCo’s owners on amounts billed for services. The Requestor predicts that NewCo would generate substantial profits and that Requestor would, in turn, achieve lower profits under the Proposed Arrangement than under its current model.  Importantly, not only would NewCo’s revenues for billing the professional component of IONM exceed the cost of providing its services, but NewCo would likely pay less under the Professional Services Agreement than the interpreting physicians could receive by billing directly for their services due to “aggressive” discounts offered by the Requestor’s competitors who have adopted the Proposed Arrangement.

A Familiar Refrain

OIG posited that the Proposed Arrangement would create multiple streams of remuneration, including:

  1. Discounts offered to NewCo for its purchase of professional services under the Professional Services Agreement.
  2. The opportunity for NewCo to generate “substantial profits” through the difference between NewCo’s payments for administrative and professional services furnished by Requestor and NewCo’s revenue from billing IONM directly.
  3. Returns on investment interests in NewCo to the surgeon-owners.

OIG concluded at the outset that several, if not all, of the streams of remuneration would be unable to qualify for safe harbor protection. Citing guidance from its 2003 Special Advisory Bulletin on suspect contractual joint ventures, OIG opined that the Proposed Arrangement contains similar features to and presents the same fraud and abuse risks as the problematic arrangements described in the bulletin. Specifically, the Proposed Arrangement creates a scenario whereby the surgeon-owners expand into a new service line, contract out significant operations to a would-be competitor, and share in the profits generated by their own referrals.

Like the suspect arrangements described in its 2003 bulletin, OIG found that the surgeon-owners would have minimal business risk because they would be in a position to influence the amount of business directed to NewCo. OIG further noted that the physician owners’ expansion into IONM services—a related line of business—would unfairly affect competition and drive referrals and business generated by the physician owners. The Proposed Arrangement would also encourage the Requestor and physician practice to forego the potential profits they could make by providing the same services without offering surgeon ownership. OIG further concluded that it could negatively affect the physician owners’ medical decision-making, resulting in overutilization or inappropriate utilization of IONM services and patient steering to NewCo.

No Protection from Carve-Out Efforts

Although the Requestor certified that it would attempt to carve out federal healthcare program (FHCP) business by not referring surgical patients covered by FHCPs to NewCo, OIG declined to change its conclusion for two reasons. First, NewCo could nevertheless bill FHCPs from time to time as the Requestor would not be able to enforce restrictions on the surgeon-owners’ referrals, effectively “pulling-through” FHCP business along with the commercial business. Second, even if the Requestor were able to prevent referrals of FHCP business to NewCo, the profit generated for NewCo (even if only based on commercial payor revenue) could induce the surgeon-owners to refer those FHCP beneficiaries to the Requestor and its affiliated neurologists for IONM. Therefore, the carve-out would not save the Proposed Arrangement from potentially generating prohibited remuneration in exchange for the surgeon-owners’ referrals of FHCP business—in essence, a “swap.”

Key Takeaways

This request appears crafted to draw an unfavorable opinion, likely in an effort to tamp down a competitor’s business practices. OIG’s conclusions should come as no surprise given that the Proposed Arrangement bears many of the hallmarks of OIG’s decades-old guidance on suspect contractual joint ventures. Indeed, OIG’s oft-cited indicia of suspect joint ventures may have served as an outline for this request. That it involves the IONM industry merely demonstrates that OIG’s concerns remain alive and well in the remote-monitoring age, but the basic AKS framework is unchanged. The same is true with respect to OIG’s belief that FHCP “carve-outs” are not always curative.

Although the Proposed Arrangement presented OIG with a “significant risk of fraud and abuse,” this unfavorable opinion applies only to the Requestor and does not render any arrangement illegal, per se. Stakeholders may be able to structure arrangements with distinguishable facts and sufficient safeguards and possibly avoid a similar result. After all, OIG’s view on these issues is well-documented, so we are not starting from scratch.

Please contact the authors if you have any questions about this topic.

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