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Can Surgery Centers Profit from Anesthesia?
The short answer to this question is yes, but participating in anesthesia profits is fraught with regulatory peril.
Mark Manigan
Publish Date: October 10, 2007   |  Tags:   Anesthesia

You spent the money and took the risk to build your surgery center. You and your fellow surgeons bring all the cases there. And yet the anesthesia providers, the ones with no risk and no overhead, just show up to do the cases - using your equipment, your supplies and your drugs - and make more per case than surgeons do. As one facility manger put it, "Anesthesia providers make much more than the surgeons ... despite reading a book half of the time."

So, you're asking yourself, shouldn't I get to wet my beak a little on anesthesia? While that line of reasoning may seem reasonable, and anesthesia services are potentially profitable, sharing in anesthesia revenue might invite more regulatory trouble than it's worth for physician-owners.

Slippery slope
Here's a rundown of three types of anesthesia-provider arrangements, where the potential for abuse lies and how you can avoid regulatory problems.

  • Traditional fee-for-service model. Nearly three-fourths (73 percent) of respondents to a recent Outpatient Surgery reader survey (n=145) use this arrangement, historically the most popular. Under this model, the surgery center hires an anesthesia group to provide all the anesthesia services at the facility. The anesthesia group directly bills and collects for the anesthesia services it provides. Aside from the anesthesia providers' leasing space and services from the ASC, there's no compensation arrangement between the ASC and the anesthesia group. The main advantage: Little regulatory risk, because the ASC and the anesthesia group are not linked in terms of ownership, compensation, or billing and collecting.

That's not to say that some ASCs with traditional fee-for-service arrangements don't attempt to increase revenues in other potentially problematic ways. For example, some ASCs lease space, equipment and/or personnel to their anesthesiologists, or provide billing and collection services for them. Nearly half (46 percent) of survey respondents indicated they had some form of leasing or service arrangement in place.

10 Anesthesia Arrangements Sure To Raise Red Flags

1. Anesthesia providers paying rent for space that is not commercially reasonable (for example, renting more space than they need)

2. Anesthesia providers paying rent that exceeds fair market value for commercially reasonable space ($500,000 for a broom closet)

3. Anesthesia providers paying a "tribute" to the ASC for their anesthesia arrangement or submitting part of their payments to the ASC

4. Anesthesia providers buying equipment, drugs or supplies on behalf of the ASC without reimbursement from the ASC

5. Anesthesia providers hiring the ASC to provide services for payment that doesn't reflect fair market value of the transaction (paying the ASC 20 percent of anesthesia collections for billing and collection services)

6. The ASC requiring anesthesia providers to buy an equity interest in the facility at less-than-favorable terms (orthopedists pay $10,000 a share, anesthesia providers pay $20,000 a share)

7. Making the anesthesia providers' contract contingent on referrals, such as pain management cases, to the ASC

8. Forcing anesthesia providers to make loans to the ASC

9. Entering into any financial arrangement with anesthesia providers, other than the traditional fee-for-service model, without trying to comply with a safe harbor or, at minimum, to price the transaction(s) at fair market value

10. Terminating a fee-for-service arrangement while starting an anesthesia company model arrangement with the same group of providers

- Mark Manigan, Esq.

If the anesthesia group pays more than fair market value for goods or services, one could argue the excess payment is a kickback in exchange for the right to provide anesthesia services. Because of this, such arrangements should be carefully structured to meet one of the applicable safe harbors (all of which include, at minimum, that the arrangement be in writing, signed by the parties, provide for fair market value compensation set in advance and be for a term of one year).

Although less than 4 percent of survey respondents admit doing so, I've seen ASCs require anesthesia providers to purchase - without reimbursement from the ASC - equipment, drugs and/or supplies necessary for anesthesia services. Regulators would ask why, other than for the purpose of securing its arrangement with the ASC, would the anesthesia providers incur expenses on behalf of the ASC without any compensation? Clearly, any such arrangement is problematic under the federal Anti-kickback Statute. These transactions are also suspect because the ASC gets paid for items it didn't provide - even though ASC facility fees include reimbursement for such items.

"In order to keep our contract, it has been suggested that the anesthesiologist pays for the drugs and equipment," says the director of anesthesia services at a surgery center. "Our argument not to pay for these things is that we feel it is paid by the facility fee."

  • Employment/independent contractor model. Under this model, used by more than one-fourth of survey respondents (26 percent), the ASC directly employs the anesthesia providers, paying each a salary, while the provider assigns to the ASC his right to bill for and collect professional fees. The ASC also bills for and collects the facility services. A variation of this model involves the anesthesia providers' directly billing for and collecting for the anesthesia services, then turning the collections over to the ASC in exchange for a guaranteed salary. This scenario is usually accomplished through a lock-box or similar arrangement. For example, the anesthesia collections are deposited into the lock-box (a third-party bank account), the ASC withdraws the money and then pays the anesthesiologists their guaranteed salary.

While this model lets ASCs capture revenues from anesthesia services, Medicare and third-party payers may refuse to process claims from an ASC that cover both facility and anesthesia services. In addition, the employment/independent contractor model might implicate the federal Anti-kickback Statute. You could view the anesthesia provider's assignment of his right to full payment in exchange for a lesser salary payment as a payment in exchange for anesthesia referrals. Remember that the more control, responsibility and risk the ASC assumes regarding anesthesia services, the weaker this regulatory argument becomes. To further weaken this argument, you would pay the anesthesia providers fair market value and structure the arrangement to qualify for safe harbor protection.

  • Anesthesia company model. To avoid payment denials, I've seen ASCs establish a separate professional service company (an anesthesia company) that has the same ownership as the ASC and employs anesthesia providers to provide services to the ASC. Facility-fee billing and anesthesia services are separate; the ASC bills for facility services, and the anesthesia company bills for anesthesia services. The anesthesia company's profits (collections minus anesthesia providers' wages, billing expenses and other costs) are distributed to the anesthesia company owners (also the ASC owners).

Reader Survey: How Do You Pay Anesthesia For Elective Procedures?

Who pays the anesthesia providers at your facility for elective procedures?

Patient

68%

Surgical facility

20%

Other

10%

Surgeon

2%

For elective cases, we notify the anesthesia provider beforehand so that he can work out a payment plan with the patient.

True

30%

False

70%

For elective cases, either a third-party payer or the patient pays one bundled fee, which is then divided by the surgeon, the facility and the anesthesia provider.

True

14%

False

86%

For elective cases, how much do you pay for anesthesia services per hour?

less than $200

31%

$200 to $300

43%

$300 to $400

14%

$400 to $500

12%

more than $500'

0%

We pay in half-hour increments.

10%

We pay on a tiered scale, higher for the beginning of procedure and less as time goes by.

14%

This is the newest and most aggressive model; 3 percent of survey respondents are using it. This model potentially implicates the Anti-kickback Statute. In a recent Special Advisory Bulletin, the OIG outlines six common characteristics of suspect arrangements.

1. The owner expands into a new healthcare service to be provided to the owners' existing patients.

2. The new business exclusively serves the owners' existing patient base.

3. The owners' primary contribution to the venture is referrals and invests little, instead delegating the entire operation to the supplier - while retaining the profits.

4. The supplier is a would-be competitor in this new line of business and has the capacity to provide virtually identical services and bill insurers and patients for them in its own name.

5. The supplier provides the key services to the new venture.

6. The practical arrangement essentially provides the owner an opportunity to bill insurers and patients for business otherwise supplied by the supplier.

In light of recent OIG guidance, my advice is to deal very carefully - if at all - with this model.

Business of anesthesia
More physician-owners are asking me to structure anesthesia-provider arrangements that shift the profits generated by anesthesia services from the anesthesiologists to them and their fellow owners. To find out if this is a national trend, Outpatient Surgery sent a Web-based survey to about 1,500 readers that asked a series of questions about how they compensate their anesthesia providers. Here are highlights of the 145 completed surveys:

  • More than one-fourth (26 percent) of respondents say their ASC is in the business of providing anesthesia, employing or engaging anesthesia providers and then billing and collecting for the facility and anesthesia services. The remaining three-fourths (74 percent) use the traditional fee-for-service model.
  • Nearly half of respondents (46 percent) says their facilities provide space, staff, equipment, supplies or drugs to their anesthesia providers. About one-fifth (18 percent) say they provide no such services.
  • Less than 4 percent say they require their anesthesia providers to supply their own drugs and supplies.

On the safe side
As more surgery center owners develop innovative ways to get into the business of providing anesthesia services, you can expect increased regulatory scrutiny. Be sure you carefully structure these arrangements to avoid regulatory problems. To be safe, consult healthcare counsel before entering into any such agreements or arrangements.

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