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On August 18, the U.S. Department of Health and Human Services’ Office of Inspector General (OIG) published an Advisory Opinion warning that a common arrangement under which surgeons profit from referrals of their patients for intraoperative neuromonitoring (IONM) services can violate the federal Anti-Kickback Statute (AKS). The Advisory Opinion, the first significant public commentary on the IONM industry by any federal regulator since 2013, follows a recent Department of Justice investigation of certain industry players.

The use of IONM is considered “best practice” in high-risk brain and spine surgeries. IONM services generally include a specially trained neurophysiologist (technologist) who acts as part of the surgical team in the operating room and uses computerized equipment to observe the patient’s neurological functions, and a neurologist monitoring the surgical procedure and the test results remotely using a dedicated internet connection. In the arrangement described in the Advisory Opinion, a surgeon or surgical group would form and own a shell company to ostensibly provide IONM services for his or their own surgical cases, but the shell company would then contract with an established IONM company to perform the actual services (i.e., administrative, billing and collection services, providing the neurophysiologist, and arranging for the services of the neurologist). Several variations of these “surgeon deals” have proliferated over the past 8-10 years, and comprise the primary business model of a handful of IONM companies in certain parts of the country.

The Advisory Opinion stated that the arrangement described has many of the characteristics of “suspect contractual joint ventures,” about which the OIG has had longstanding concerns. The surgeon would not incur any expense other than the formation of the shell company, and would provide only a stream of patient referrals; the established IONM company, on the other hand, would “do all the work” and, in competition with its own usual business model, would allow the IONM services to be billed to third-party payors through the surgeon’s shell company so that profits would flow to the surgeon. To the extent that the patients referred to the shell company have their care reimbursed by federal healthcare programs (including Medicare, Medicaid and replacement plans), this arrangement will violate the AKS.[1] The Advisory Opinion noted that the opportunity to profit from their own referrals could “corrupt the surgeon owners’ medical decision-making and result in overutilization or inappropriate utilization of IONM services.”

In order not to violate the AKS, IONM companies that enter into “surgeon deals” must ensure that federal healthcare program patients are not referred to the surgeon-owned companies. However, some IONM companies that enter into these arrangements continue to accept referrals of federal program cases directly from the surgeon owners, bypassing the surgeons’ newly formed entities, but the Advisory Opinion confirms OIG’s prior view that this is also unlawful.  Because the financial arrangements between the established IONM company and the surgeon-owned company are all intertwined, even though the federal and non-federal cases are supposedly kept separate, the revenues from these cases can be viewed as mixed together in what some industry observers have called the “same soup.”

The OIG has long been aware of the “same soup” issue. In a 2012 Advisory Opinion, it said: “The OIG has a long-standing concern about arrangements under which parties ‘carve out’ Federal health care program beneficiaries or business generated by Federal health care programs from otherwise questionable financial arrangements. Such arrangements implicate, and may violate, the anti-kickback statute by disguising remuneration for Federal health care program business through the payment of amounts purportedly related to non-Federal health care program business.”

Surgeon-owned shell companies, and those established IONM companies that deal with them, are also often viewed as more likely to bill excessive amounts to third-party payors for the professional component of IONM – one of the now widely recognized abuses that the federal No Surprises Act was designed to remedy.  In short, all of these issues are now on the government’s radar, and the first warning has been issued.

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[1] The surgeon’s referral of federal program patients to his own separate entity most likely also violates the federal Stark Law, but the Stark Law is outside the subject matter scope of OIG Advisory Opinions.