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American Academy of Emergency Medicine

Inspector General Comments on PPMs Taking a Percentage of Revenues

All emergency physicians should be aware of the recently released Office of the Inspector General (OIG) Management Advisory Opinion 98-4. This opinion has significant implications for EPs who are currently under contract with a PPM or contract management group and for those independent, democratic groups whose contracts may be threatened by such groups. The legality of such contracts, if the physician is paid on a percentage basis, is suspect. In response to a query from a physician, the OIG wrote the (paraphrased) following:

We are writing in response to your request for an advisory opinion, in which you ask whether a proposed management services contract between a medical practice management company and a physician practice, which provides that the management company will be reimbursed for its costs and paid a percentage of the net practice revenues, would constitute illegal remuneration as defined in the anti-kickback statute of the Social Security Act.

Based on the information provided, we conclude that the proposed arrangement may constitute prohibited remuneration under the anti-kickback statute of the Social Security Act.

Essentially, when a contract management company is paid a percentage of the physician fees, the OIG has determined that such an arrangement may be in violation of the anti-kickback statute contained in the Social Security Act.

The importance of this opinion for Emergency Medicine cannot be understated. The contract you are working under may not be valid and this could free you of the entire contract including onerous clauses such as restrictive covenants. Legal counsel would be required to determine your individual situation. However, this may create an opportunity for you to restructure your professional arrangements and possibly open the door for the physicians to take control of the contract themselves.

The anti-kickback statute makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce the referral of business covered by a federal health care program (Medicare and Medicaid). According to the OIG in Opinion 98-4, such percentage-based EM contracts would only qualify for the personal services and management contracts "safe harbor" and would be suspect if it did not meet ALL six of the following "safe harbor" regulations:

  1. The agreement is set out in writing and signed by the parties involved.
  2. The agreement specifics the services to be performed.
  3. If the services are to performed on a part-time basis, the schedule for performance is specified in the contract.
  4. The agreement is for not less than one year.
  5. The aggregate amount of compensation is fixed in advance, based on fair market value in an arms-length transaction, and not determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties for which payment may be made by Medicare or a state health care program.
  6. The services performed under the agreement do not involve the promotion of business that violates any federal or state law.

How many EM contracts comply with all six of these regulations? Read number 5 again. The OIG has stated that any arrangement in which the compensation paid to a contract management company is not an aggregate amount, fixed in advance, does not qualify for the safe harbor provision and may therefore be in violation of federal law. An even bigger question is whether such EM contract arrangements meet the fair-market value standard. It is well known that there exist EM contracts where 30% or more of the net revenue is taken by the contract group for providing little more than a scheduling function.

In noting the limitations of its opinion, the OIG stated any definitive conclusion regarding the existence of an anti-kickback violation requires a determination of the parties' intent, which is beyond the scope of the process which led to their advisory opinion. However, the OIG also stated

that since the proposed arrangement contains no limitations, requirements, or controls to prevent the federal health care program from being abused, such anti-kickback violations may, in fact, exist.

It is AAEM's opinion that the problems with fee-splitting arrangements in EM go beyond the percentage issue discussed here. The issue of fair-market value applies to all EP contracts with PPMs and contract groups. We believe many EPs are having an excess amount of their professional fee taken, and we will continue to pursue this with the Office of the Inspector General.

It should be pointed out that Opinion 98-4 was generated by a request from one physician. The amazing part of this process is that we are all entitled to seek the OIG's opinion on our own arrangements. AAEM has already raised the fee-splitting issue with the OIG but you are entitled to do the same in a confidential manner. It certainly would be interesting if the OIG received a large number of queries from individual EPs on this topic.