3 Core Models for Delivering Anesthesia Services: Trends, Legal Issues and Observations

This article briefly describes three different methods of delivering anesthesia services. Then, it discusses a few legal issues related to anesthesia services. Finally, it provides several different observations related to trends in anesthesia services.

Introduction

The American Society of Anesthesiologists sent a letter to the Office of Inspector General dated Mar. 19, 2009. In the letter, the ASA argues that only anesthesiologists should own, control andarguably profit from anesthesia and that arrangements by which surgeons and gastroenterologists profit from anesthesia are not legal. The following paragraphs from the ASA letter highlights some of the ASA’s views as well as the models being used and certain of the issues raised by such arrangement.

The letter states:

Traditional model

“The overwhelming majority of anesthesiologists are organized as independent group practices that contract with hospitals, ambulatory surgical centers (ASCs) or other outpatient providers to provide anesthesia services.

“Other than perhaps leasing space, equipment and/or administrative personnel services from the facility or office, there is usually no compensation agreement between the group and the facility or office.”

Employment model

“A limited number of anesthesia providers operate under an employment model whereby the facility directly pays the anesthesia providers a salary. In exchange for the salary, the anesthesia provider either assigns billing and collecting for professional fees to the facility or handles billing himself/herself and then turns over collections to the facility.”

Owner provider model

“A third model, the ‘company model,’ has grown in popularity in various areas of the country and is the impetus for this letter. Trade press articles increasingly note the popularity of this model amount ASCs (e.g., “Can Surgery Centers Profit from Anesthesia?” Outpatient Surgery, April 2004, and “Five Ways Your ASC Can Profit from Anesthesia Services,” SurgiStrategies, May 2005). Under the ‘company model,’ a physician-owned facility, such as an ASC, establishes and incorporates a separate anesthesia company under the same ownership as the facility. The anesthesia company employs anesthesia provides and exists to provide anesthesia services to the facility. The establishment of the separate corporation allows for billing of facility fees and anesthesia services fee, which is usually handled through the same billing/administrative company. After the anesthesia providers’ salaries, billing expense and other costs are extracted, the anesthesia company’s profits are distributed back to the owners of the facility. Some estimate these distributed profits as 40 percent or higher of the anesthesia fees. In most cases, the fees paid to the anesthesia providers are less than they could earn if they billed independently.

“As healthcare dollars become increasingly scarce, healthcare facilities are looking to areas, including anesthesia services, to enhance their profitability. The ‘company model’ is gaining traction across the country and is especially prevalent with endoscopy centers owned by gastroenterologists. We have learned of gastroenterologists establishing or proposing the company model in a number of states, including Tennessee, Florida, Pennsylvania, Oklahoma and North Carolina.”

Additional demands for payment

“Coupled with the increasing prevalence of the ‘company model’ are additional demands upon anesthesia providers to pay remuneration for services beyond what they actually receive, including non-clinical supplies, scrubs, locker room and lunch room use and full-time administrative office staff despite providing services for only part of a work week. We feel that these requests constitute kickbacks.”

“However, under the ‘company model’ the facility owners, who also own the anesthesia company and have a stake in the anesthesia profits, have an incentive to increase utilization of anesthesia services and thus, increase costs to the system and federal healthcare programs.”

ASA’s alleged kickback concerns

“Given the increased opportunity for profits from anesthesia services, the ‘company model’ is likely to result in corruption of professional judgment. In the example of the endoscopy center, a gastroenterologist performs the procedure as a physician and owner of both the center and the anesthesia company. He/she will receive income from the performance of the procedure, facility fee and administration of anesthesia. Now that he/she has a stake in the game in regard to anesthesia services, it does not take a leap of logic for one to surmise that he/she could pressure anesthesia providers, who are employees of his/her company, to administer anesthesia or administer a deeper level of anesthesia to patients who might be able to tolerate the procedure without such anesthesia services. The resulting increase in referrals for anesthesia services could amount to a violation of the self-referral laws. More important, they could have a detrimental impact on patient safety and quality of care.”

“Finally, the ‘company model’ requires anesthesia providers to pass back to the facility a substantial portion of the fees for the services they provide to patients. As previously stated, some have estimated 40 percent of the anesthesia fee is distributed to the physician owners of the facility. Further, anesthesia groups cannot economically compete with such a model unless they are willing to provide a similar illegal kickback to the facility.”

ASA’s request for action

“Given the fact that several anesthesiology group practices have seen their contracts terminated for failing to agree to the company model, and out of concern for patient safety and quality of care, we respectfully request the Office of Inspector General to issue a Special Advisory Bulletin clarifying the merits, implications and legality of the company model described.”

A. Models of delivering service

There are multiple different models of arranging for anesthesia services. Three of the most prevalent include the following:

Under the traditional model of delivering anesthesia services, a local anesthesia group contracts with a center, and the local group keeps and bills for the fees. Some of the most critical issues that are determined and negotiated with respect to the traditional model include whether the agreement will be exclusive or nonexclusive, whether there will be a stipend or no stipend (including any sort of guarantee), whether the agreement will be short or long term, whether there will be termination rights and what the termination rights will be and whether the parties will be aligned for managed care purposes (i.e., will one be in-network and the other out-of-network).

Under the second core model for providing anesthesia services — a model which is increasing in its use — is the model whereby ASC owners or the ASC itself attempt to profit from anesthesia services. Under this model, the ASC may employ the anesthesiologist directly. In such situation, the ASC will bill for the professional fees and pay the anesthesiologist a salary or percentage of fees collected. Under the alternative model, the ASC owners themselves would establish a related professional corporation that provides services to the ASC. Some or all of the ASC owners may be owners of the related PC.

In the third basic model, an ASC will engage an anesthesiology management company to assure that services are provided to the ASC. This may take the form of a simple independent contractor agreement whereby the anesthesia management company simply provides services and keeps the fees from such services, or in a situation where the management company has a related PC, the PC provides services to the center. This model may or may not include some local anesthesiologists, and like other models, there may or may not be a stipend or fee or guaranty.

1. Key legal issues. The anesthesia models can raise corporate practice of medicine issues — such as state laws that allow the ASC employ anesthesiologists or state antikickback issues. It is important to ask several questions regarding anesthesia practices and ASCs: Is the ASC requiring kickbacks in the form of rental, equipment or other types of agreements from the anesthesiologist? Or, as to newer types of kickback concerns, is the ASC forcing the group to hand over fees or share fees with it? Is it allowing its top producers to “own” anesthesia, or is it paying stipends to pain management physicians or others in exchange for anesthesia services but that may be disguised as really a payment for pain management services? Professional liability issues also raise critical legal issues in the ASC anesthesia services context.

2. Trends and observations.

  • There are probably more exclusive agreements than nonexclusive agreements. However, some of the best centers/companies push hard for nonexclusive agreements. The exclusivity generally does not extend to pain management.
  • Stipends still remain less the rule for anesthesia groups in ASCs. However, where an ASC is in its early stages or where it is doing less than 120 cases per month, stipends are more common.
  • Many anesthesia contacts still have relatively short without cause termination provisions.
  • The profitability of anesthesiology remains heavily dependant upon the volume, case mix, payor mix and many of the same factors that impact whether the surgery center itself is profitable.
  • The surgeon partners often prefer local anesthesiologists, but an outside management company may be particularly needed if there is local shortage of anesthesiologists, the local anesthesia group is highly dysfunctional or the local anesthesiologists are not outpatient focused or have non-compete problems with the hospital.
  • Outside management firms will generally require exclusive and longer term agreements. They may or may not require a stipend or guarantee. • Medical director stipends tend to be rising.
  • Many of our clients prefer the anesthesiologist not be owners of the surgery center. The anesthesiologist generally won’t meet a safe harbor, there can be resentment of the profits being shared with such anesthesiologists and overall we estimate that more centers view it as negative than positive. In contrast, one company president states, “I feel strongly the medical director (anesthesiologists) ought be an owner.”
  • Managed care coordination between the anesthesiologists and the centers is becoming increasingly critical. This causes a great deal of tension where one party is handling patients out of network and the other is not.
  • Some parties see a definite trend towards ASC owners attempting to seek profit from anesthesiology. Here, one executive has termed it “rocket-like growth.”
  • Here is an example of the potential profitability of anesthesiology. Assuming 3,000 cases and costs, reimbursement of $300-$325 per case and CRNA and medical doctor anesthesiologist costs total $730,000 annually, this would represent a cost per patient of approximately $240-$250 and provides a profit of approximately $70-$80 per patient. In the costs, one needs to also account for vacation coverage, working capital, billing, collections, practice management, malpractice and other expenses. As a second example, assuming a daily cost of $2,000, an ASC would need approximately seven to eight cases to break even.

Contact Scott Becker at sbecker@mcguirewoods.com.

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