OIG Advisory Opinion Nicks the Heels of “Company Model” Arrangements

A “company model” arrangement is reasonably popular in surgery centers these days. The model entails a legal entity owned by both anesthesiologists and referring surgeons, which performs anesthesia. Why not just have the surgery center contract with an anesthesia group to performs those services? Because the referring surgeons who are owners of the surgery center want to share some of the anesthesia fees. Does it raise fee splitting and fraud and abuse issues? You bet, but there is no real clear or direct legal guidance from any governmental body yet. A recent OIG Advisory Opinion will have physicians and healthcare lawyers alike buying new spectacles to keep a closer watch on how the legal issues unfold.

Advisory Opinion 11-03 describes a proposed arrangement between a long term care pharmacy that provides products and services to skilled nursing facilities and other long term care (“LTC”) facilities. Under the proposed arrangement, the pharmacy would form a new LTC pharmacy that is jointly own with one or more of the LTCs. Sound familiar? By becoming an owner, the LTC would enjoy a piece of the pharmacy profits, which heretofore had been obtained entirely by the pharmacy.

The OIG frowned on the proposal, citing possible violation of the so called “Contractual Joint Venture” prohibitions announced by the OIG back in 1994. Some of the characteristics the OIG especially found troublesome included:

1. The LTC owners would basically do nothing to operate the new venture. They would just get a piece of the profits from the pharmacy business because they would be a part owner. Remarkably similar to many company model arrangements;
2. The LTC owners would have little or no business risk in the new pharmacy arrangement; and
3. The payment to the pharmacy business would vary with the volume or value of referrals from the LTC to the new business.

Given how healthcare services volume and fees are being squeezed, we can expect to see more company models popping up. Though the Advisory Opinion is limited to the facts presented and is advisory, it is further cause to be concerned and underscores the need for clear regulatory guidance.

One thought on “OIG Advisory Opinion Nicks the Heels of “Company Model” Arrangements

  1. Pingback: Medical Staff Doctors: Your Bylaws Are Your Bond | Florida Healthcare Law Firm Blog

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