OIG Issues Unfavorable Advisory Opinion Regarding a Company’s Proposal to Create a Turnkey Physician-Owned Entity to Perform IONM Services — On August 18, 2023, OIG posted Advisory Opinion No. 23-05 regarding a proposed arrangement in which the requesting entity (Requestor) proposed to assist physicians who perform surgeries using intraoperative neuromonitoring (IONM) with the creation and operation of a turnkey physician-owned entity that would perform IONM services. OIG issued an unfavorable opinion, citing the possibility that the arrangement would generate prohibited remuneration under the Federal anti-kickback statute. OIG noted also that the proposed arrangement would exhibit many of the attributes of problematic contractual joint ventures as outlined in OIG’s 2003 Special Advisory Bulletin on Contractual Joint Ventures (2003 SAB).
IONM is used to observe a patient’s neurological functions during certain surgeries in which the patient’s neurological structures are at risk. IONM services have a technical component and a professional component. The technical component of IONM involves a neurophysiologist, located in the operating room of a hospital or ambulatory surgical center while a surgery takes place, setting up the IONM equipment and ensuring it works properly. The professional component of IONM involves a neurologist, typically located in a remote location, monitoring the test results and waveforms generated by the IONM equipment during the surgery in real time using a dedicated internet connection.
Requestor contracts with providers to perform or arrange for both the technical and professional components of IONM services. When a provider schedules an IONM service, Requestor schedules a neurophysiologist to perform the technical component and contracts with a physician practice to assign a neurologist to perform the professional component.
Under the arrangement proposed by Requestor, Requestor would assist physicians who perform IONM surgeries, who currently make referrals to Requestor for IONM services, with creating and operating a turnkey entity (Newco) that would perform IONM services. Newco would be owned by the referring physicians. Under the proposed arrangement, Requestor would furnish billing, collection and other administrative services in exchange for a fee, and would arrange for a physician practice to furnish the services of neurologists and neurophysiologists, which would be leased to the practice by Requestor. The services furnished by Requestor and the practice would constitute virtually all of the day-to-day requirements of the IONM business, and Newco would not need to hire any dedicated employees in order to run the business.
Under the proposed arrangement, Newco would receive substantial profits from the new business represented by reimbursement received from third-party payors less fees paid to Requestor and the practice. Requestor and the practice would receive substantially less profits under the proposed arrangement than under their current business model, because they would only receive discounted service fees instead of the full third-party payor reimbursement received under the current model.
OIG concluded that the proposed arrangement would present risks under the Federal anti-kickback statute of fraud and abuse, including patient steering, unfair competition, inappropriate utilization, and increased costs to Federal healthcare programs, in a classic example of a problematic contractual joint venture as described by the OIG in the 2003 SAB.
At the outset, OIG noted that the proposed arrangement would not qualify for safe harbor protection. Next, OIG explained that the proposed arrangement presented a risk that it could be used as a way to induce referrals of Federal healthcare program business from the physician owners to the proposed new company. This would create financial incentives inherent in the proposed arrangement that could influence the physician owners’ medical decision-making and lead to inappropriate utilization of IONM services and wrongful steering to the proposed new company. OIG also explained that the proposed arrangement could be used as a vehicle to induce referrals of Federal healthcare program business from the physician owners to the Requestor.
As a result of these possible risks, OIG determined that the proposed arrangement would generate prohibited remuneration under the Federal anti-kickback statute if the requisite intent were present.
The full text of the OIG Advisory Opinion is available here.
Reporter, Kasey Ashford, Washington D.C., +1 202 626 2906, firstname.lastname@example.org.