ADVISORY e-ALERT     January 31, 2011 
Advisory Law Group, a Professional Corporation




Background:  The "company model" is the name given to a type of suspect anesthesia joint venture likely violative of the federal antikickback law. In its simplest form, it involves the creation of a business structure by the surgeons controlling the flow of referrals to an ASC in order to profit from the provision of anesthesia services at the facility. Read my article The Company Model: Is Making Less Money To Work at a Surgicenter Worth Jail Time? appearing in the January 2011 issue of Anesthesiology News and available on our website at



It's one thing to make a profit from medical practice - in fact, I'm more than all for it.


It's quite another to extort a kickback for the referral of patients. That's a crime.  In connection with Medicare and Medicaid patients it's a violation of the federal antikickback statute (the "AKS"). In fact, simply offering or soliciting remuneration for referrals is a crime under that statute.


Over the past several years, the so-called "company model" of anesthesia services has taken form, through which ASC owner surgeons have extracted a share of fees from the anesthesiologists working at the facility.


But the company model is not simply an anesthesiologist's issue. No matter your medical specialty, it takes only a short leap of imagination to see those in a position to control referrals of your patients leveraging that power into the formation of an entity to provide those services.




The AKS prohibits remuneration, that is, the transfer of anything of value, for referrals. It also prohibits offering or soliciting that remuneration.


Certain exceptions, known as safe harbors, define permissible practices not subject to the antikickback statute because they are unlikely to result in fraud or abuse. The failure to fit within a safe harbor does not mean that an arrangement violates the law; there's just no free pass.


Joint Ventures


HHS's Office of Inspector General (the "OIG") coordinates enforcement of the AKS.


The OIG uses the term "joint venture" to mean any arrangement, whether contractual or involving a new legal entity, between parties in a position to refer business and those providing items or services for which Medicare or Medicaid pays. Some joint ventures are legal - others are simply disguised violations of the AKS.


The OIG issued two important alerts on joint ventures, its 1989 Special Fraud Alert on Joint Venture Arrangements, republished in 1994, and a 2003 Special Advisory Bulletin on Contractual Joint Ventures, describing the features of suspect arrangements. 


In essence, suspect ventures involve an owner in one line of health care business which expands into another related health care business line to serve the owner's federal health care program patients. The expansion is accomplished by contracting with an existing provider of the second business line - that is, a potential competitor as to the second business line. The owner essentially arranges for the existing provider to run the new business line for the new venture, with the owner participating in the profits from what are essentially its own referrals.


Case law makes clear that even when a venture has many legitimate purposes - for example, the simple expansion of business to generate more profits -- the fact that even one purpose is to profit from referrals of services is a violation of the law.


Safe Harbors Are Not So Safe


Both the AKS and the OIG's regulations set forth "safe harbors," i.e., requirements, which if complied with, provide assurance that the payment practice will not be considered a violation of the AKS.


The OIG's position is that good faith is required for protection within a safe harbor. Additionally, as the OIG made clear in the 2003 Special Advisory Bulletin, although a safe harbor may protect the payments in one direction, the discount given in the other direction may not be protected and therefore may trigger prosecution.


The Tighter the Economy the Stickier the Fingers


As the general, and the healthcare, economies become tighter, more individuals and entities in a position to generate referrals will consider the profitability of joint ventures. A subset will disregard the issue of legality.


It does not take much of a leap to see anesthesia company model thinking permeating into other areas: Orthopedic surgeons forming entities to capture a portion of the cash flow to pain management specialists, or, in an almost full circle, internists setting up entities to capture the profit of referrals to gastroenterologists. Of course, these situations are rife with compliance concerns.


But other seemingly benign relationships are just as potentially problematic: For example, a situation in which a hospital, through its affiliated foundation, controls enough referrals to pressure other physicians into a relationship with its new accountable care organization.


Unfortunately, there's no bright line test and the facts and circumstances of each situation must be fully analyzed to achieve an understanding of the potential risk. But in terms of potential penalties, fines, exclusion from Medicare and Medicaid, and even jail time, understanding the risk is worth substantially more than just a good night's sleep.


When you're ready, let's talk.






All Things Personal


[This new monthly column addresses a personal observation or experience.]


Remember the game "telephone" - a group of kids arranged in a chain who each pass on the message whispered by the first player to the second and so on. An original message such as "Dogs have 4 feet" comes out 18 ears and 9 mouths later as something like "Hogs love cold beets."


I recently witnessed a similar situation. A request that I emailed multiple times to a consultant for a list of projects resurfaced at least three hospital administrators up the chain with the COO whining that I had demanded to see a huge number of confidential files.

Note that advances in technology (my multiple emails, his iPad) didn't help, the message still got screwed up. It's not how smart the technology is, it's how smart and how aware the person is. And even more important, it's the nature of the filter carried in the mind of the listener. When the COO believes he is always under attack, a pat on the back becomes the thrust of a dagger.

We must be aware that no matter how clear we are in our messages, even those sent in writing, the message may become garbled in transmission or altered in the mind of the immediate or subsequent listener, even if the message were never intended for his ears.




The Company Model:  Is Making Less Money To Work at a Surgery Center Worth Jail Time?, published in the January 2011 issue of Anesthesiology News.



Want to read past issues?

Did you delete (by mistake, of course!) a past issue of Advisory e-Alert and want another copy?

No matter the reason why, back issues of Advisory e-Alert are available from the archive.  Click here.


ADVISORY LAW GROUP, a Professional Corporation

Tel:  800-488-8014 or 310-843-2800
Fax:  877-883-0099

10940 Wilshire Blvd, 16th FL
Los Angeles, CA  90024

1227 De La Vina St
Santa Barbara, CA  93101

The materials presented in this Advisory e-Alert are educational only and are neither legal advice nor a substitute for it. Advisory e-Alert presents a general discussion which may or may not apply to your particular legal or factual circumstances. The distribution of Advisory e-Alert is not intended to create, nor does it create, an attorney-client relationship. Please do not send us confidential information without receiving explicit authorization from Advisory Law Group to do so. Do not take or avoid taking any action as a result of the materials presented in this e-Alert without first obtaining legal counsel.   
2011 Advisory Law Group, All Rights Reserved
Let Us Know What Business/Legal Issues You'd Like to See Addressed in A Future Issue
Warning Sign
In This Issue
The Company Model and Beyond
Videocast: Extract More Than FMV
All Things Personal
Recently Published Articles
The e-Alert Archive
Teleseminar: Extract Strategic Value
The Immediate Leader Experience
Mentor Program
The Wisdom. Applied. Blog

 Follow Us On Twitter -

March 15, 2011
Healthcare compliance demands fair market valuation -- but the concept of FMV leaves significant dollars on the table because it does not address the value inherent in the specific deal, it's strategic value.

Valuation consultants will tell you that strategic value can't legally be considered. 

Stop asking the wrong people the wrong question.

Join Mark as he discusses the concept of strategic value, how it differs from fair market value, how it exists in the context of healthcare deals, and how you can profit from it.
Attendance is limited as individual questions will be addressed.

Date:  March 15, 2011
Time:  4:00 PST
Approximately 1 hour in length
Cost:  $197 per person
The deadline for registration is March 10, 2011.
Contact to register.



In addition to the Wisdom. Applied. videocasts on the ALG website, we've begun to post a series of short "Q & A videos."
Our plan is to provide you with Mark's responses to questions of general interest asked at The Immediate Leader Program (when it doesn't disclose particular participant matters discussed) and at other sessions.

The first two Q & A videos concern how medical groups can increase their income and a brief response to a question about ASC deals and anesthesiologists.
Follow this link to the Q & A video page.


You're a physician who wants to form a medical group and, among other things, subcontract with or employ other physicians, enter into exclusive contacts, obtain significant stipend support money, create related entities to increase protection and the like. And you want to come up to speed on all of this immediately.

Or, you're the new leader of an existing group with complex practice and business operations -- you need to understand how to master the group's organizational, operational and leadership issues -- and you need to be brought up to speed immediately.
After having regularly dealt for many years with physicians in both of these contexts, we've designed a process to deliver immediate results: The Immediate Leader Experience™.
The Immediate Leader Experience™ takes place over a weekend in Santa Barbara, California and includes two nights accommodation at the Four Seasons Santa Barbara Biltmore Hotel. 
In two short days, you'll be entirely up to speed, totally prepared and confident.  You'll be armed with tools and sample documents.
Due to the nature of this program, admission is upon interview only -- there is extremely limited availability.
For further information on The Immediate Leader Experience™ follow this link.  
For information on Mark's mentor program, click on the following link:  The Advisor Program.
Follow this link to Mark's blog, Wisdom. Applied.
Join Our Mailing List