Anesthesia Contracts Drawing Scrutiny

Recent government enforcement actions involving anesthesia arrangements with ambulatory surgery centers (ASCs) highlight the need to vet such arrangements carefully, even as ASCs deal with the pressure of securing anesthesia coverage amid shortages. The government’s recovery of seven- and eight-figure settlements is a likely sign that federal and state prosecutors will maintain their focus on anesthesia providers, management companies and ASCs.

$7.2 Million Settles Anesthesia Management False Claims Act Case

In April of this year, an anesthesia management company, its two principal owners, and 18 affiliated entities entered into a $7.2 million False Claims Act settlement with the federal government and the states of Georgia, Texas and Florida. In the whistleblower’s complaint, a former Senior Vice President and Chief Operating Officer of the anesthesia management company, Care Plus Management, LLC (CPM), alleged that the defendants violated the Anti-Kickback Statute (AKS) by entering into kickback arrangements with referring physicians in exchange for the referrals for anesthesia services. The whistleblower alleged that CPM unlawfully split a percentage of anesthesia service revenue with referring gastroenterologists, vascular surgeons and podiatrists, who were also owners of the ASCs. The whistleblower also alleged that CPM subsidized the referring physicians’ purchases of drugs, supplies, and equipment for their ASCs in exchange for referrals of anesthesia services.

Owner-Management Structure and “Sham Joint Ventures”

The government and the whistleblower both took particular issue with the ownership and management structure of CPM and its affiliated entities, and the exclusive anesthesia services they provided to the referring physicians’ ASCs. They alleged that CPM and its affiliated entities and owners induced referring physicians and their ASCs to enter into lucrative exclusive (or de-facto exclusive) service agreements with entities that CPM owned and controlled. These inducements, according to the whistleblower’s complaint and the government’s allegations, included providing the referring physicians with partial ownership in the anesthesia service entities that CPM created in order to service the various ASCs.

As alleged, this arrangement created “sham joint ventures” as a means for CPM to remunerate the referring physicians. Payments were alleged to have taken the form of a percentage of revenue from the anesthesia services referred to CPM-affiliated companies from the physicians’ own ASCs. As alleged by the whistleblower and the government, CPM and the physician-owners of each ASC would create a joint venture anesthesia company dedicated to each respective ASC. According to the allegations, CPM was ceded complete control over the joint ventures’ operations, providing all management, staffing and billing services for the joint venture.

A Second Set of Kickback Allegations

The other set of kickback allegations related to remuneration provided in the form of subsidies for drugs, supplies, and equipment for the physicians’ ASCs. The whistleblower and the government alleged that these discounted goods were merely a vehicle for disguising kickbacks to CPM’s referral sources. As alleged in the whistleblower’s complaint, CPM paid sham “storage fees” to various ASCs for anesthesia drugs and supplies, even though storage costs were the ASCs’ obligations and were part of the facility fees paid by Medicare. The complaint also alleges that CPM paid for all drugs and supplies for each fee-for-service client, which it describes as “nothing more than a method for CPM to lock up referrals and pay a kickback for the same . . . .”

Competitor’s Whistleblower Complaint Leads to $28 Million Settlement

The CPM False Claims Act settlement is similar to an earlier False Claims Act settlement in November 2021 which also involved anesthesia provider business arrangements with ASCs. In that case, Ambulatory Anesthesia of Atlanta (AAA) and several ASCs paid $28 million to settle allegations that they violated the False Claims Act by making illegal payments of operating expenses and costs to ASCs in exchange for exclusive anesthesia services contracts. The whistleblower was a competitor of AAA’s, Capitol Anesthesiology.

According to the complaint, AAA secured contracts with ASCs by agreeing to pay certain operating expenses and costs, including the salary of a pre-op nurse who performed pre-op assessments, even though the global surgery fee already includes payment for such pre-op assessments. In addition, AAA agreed to pay for supplies that were also already covered by the global surgery fee. According to the government, AAA violated the Anti-Kickback Statute by paying for drugs, supplies, equipment and labor and providing free staffing to induce ASCs to enter into exclusive anesthesia services contracts. AAA disputed many of the government’s allegations, denying that it paid for drugs and supplies and arguing that the pre-op assessments performed by the pre-op nurse were anesthesiology pre-op assessments done for AAA, which independently billed patients and third party payors for anesthesia services, and were not pre-op assessments performed for the ASC. Despite these denials, AAA and the ASCs ultimately decided to enter into the $28 million False Claims Act settlement.

Four Tips for Structuring Anesthesia Contracts

Looking closely at certain hallmarks of the arrangements that were the subjects of these settlements can help others avoid similar traps when structuring anesthesia arrangements, contracting with providers or evaluating anesthesia relationships in acquisitions. It’s important to note that while none of following acts on its own means an anesthesia management contract is definitively structured in a way that violates the anti-kickback statute, the presence of any of them can be indicative of an arrangement that creates inappropriate incentives and merits a careful look.

1. Overlapping Ownership

Any arrangement where, like the CPM example, there is overlapping ownership between the service provider and the referral source should be scrutinized carefully by counsel familiar with the AKS and relevant OIG guidance. This fact indicates the presence of opportunity and potential incentives to create a kickback scheme, so it’s well worth turning over every stone to make sure the arrangement is structured safely.

2. Follow the Money

Generally, the safest arrangements simply arrange for coverage by the anesthesia provider and require each party to bill patients and payors separately for its fees. Any exchange of revenue between the facility and the service provider – for example, the subsidies and storage fees allegedly paid by CPM to the contracting ASCs – deserves a closer look.

3. Risk, Reward and Who’s in Control

Watch out for a scenario where the provider performing and billing for services is outsourcing a large portion of the burdens or financial risk, like the CPM joint venture entities that ceded effectively all control over operations to CPM. Another possible red flag might be a scenario where services are provided solely or primarily by CRNAs who are independent contractors – i.e., the anesthesia provider entity is keeping a portion of the reward without assuming any of the risk an employer would bear for its employees’ acts and omissions.

4. Contracting Facilities Are at Risk

A final key takeaway from these settlements is that the contracting facilities can get caught up in these investigations, too, so it’s important for any facility that contracts for anesthesia and similar professional services, or any company in the business of acquiring them, to do thorough due diligence on the way the contracting provider is structured.