Department Of Justice Settles Whistleblower Lawsuit Involving Anesthesia “Company Model”

July 23, 2020


The U.S. Department of Justice (DOJ) recently announced a $72.3 million settlement with the Oklahoma Center for Orthopaedic and Multi-Specialty Surgery (ASC), as well as related entities and physicians, to resolve a whistleblower lawsuit that alleged kickbacks were paid to surgeons at Southwest Orthopaedic Specialists (SOS). SOS surgeons own and operate the ASC, an affiliate of Tenet Healthcare, and formed a separate anesthesia practice – Anesthesia Partners of Oklahoma (Anesthesia Group) – to be the exclusive anesthesia provider at the ASC. In pertinent part, the lawsuit alleged that anesthesia profits from the Anesthesia Group were distributed to its surgeon owners in a manner that was directly related to the volume and value of their referrals to the ASC, in violation of the federal Anti-Kickback Statute and federal False Claims Act, among other laws.

According to the DOJ, the settlement resolves allegations that between 2006 and 2018, the ASC and a related management entity provided improper remuneration to SOS and certain of its physicians in exchange for patient referrals to the ASC in the form of:

  • free or below-fair market value office space, employees and supplies;
  • compensation in excess of fair market value for the services provided by SOS and certain of its physicians;
  • equity buyback provisions and payments for certain SOS physicians that exceeded fair market value; and
  • preferential investment opportunities in connection with the provision of anesthesia services at the ASC.

This case is notable not only for the amount of the settlement, but because the legal structure used by the parties to provide anesthesia at the ASC – a form of contractual joint venture known as the anesthesia “company model” – has long been considered particularly suspect by the federal DHHS Office of Inspector General (OIG). In a 2003 Special Advisory Bulletin, the OIG indicated that problematic contractual joint ventures include those where a provider in one line of business (Owner) expands into a related health care business by contracting with an existing provider of the related service (Service Provider) to provide the new service to the Owner’s existing patient population. The Service Provider not only manages the new line of business, but may also supply it with inventory, employees, space, billing, and other services. In other words, the Owner contracts out substantially the entire operation of the related line of business to the Service Provider – otherwise a potential competitor – receiving in return the profits of the business as remuneration for its referrals. The OIG believes that these types of arrangements are often intended to allow physicians to do indirectly what they cannot do directly: profit from their own referrals.

In this case, it was alleged that SOS and its surgeon owners did exactly that – expanded into a new line of business, anesthesia, in order to profit from their own referrals to the ASC. In other words, by forming the Anesthesia Group, SOS physicians were able to profit from the provision of anesthesia at the ASC, which was dependent on their surgical referrals.

The DOJ press release can be accessed here:

The 2003 Special Advisory Bulletin can be accessed here:

Related OIG Advisory Opinions (12-06 and 13-15) can be accessed here:

and here:

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