United States: Recent Advisory Opinion Reflects Office of Inspector General´s Continuing Suspicion of Healthcare Joint Ventures

The Office of Inspector General of the Department of Health and Human Services (the "OIG") has had a long-standing concern that joint ventures (contractual or otherwise) among healthcare providers may involve payments for referrals in violation of the federal Anti-Kickback Statute.¹ The OIG has been suspicious of arrangements between a person or entity that is a potential source of Medicare² referrals and a person or entity that would furnish items or services reimbursable under the Medicare program.³ As reflected in its December 10, 2004 Advisory Opinion,⁴ the OIG continues to harbor such concerns. What makes this Advisory Opinion particularly noteworthy, however, is that it involves an arrangement in which the governing documents would potentially satisfy all applicable Anti-Kickback safe harbors.⁵

This Advisory Opinion was requested by an entity that wanted to provide "turn key" pathology laboratory services for various physician groups. Most of the services under the proposed arrangement would have been surgical pathology services having technical and professional components reimbursable under Medicare. The requestor would have provided management services, leased space and equipment, and provided personnel (including a pathologist) to house and operate a pathology lab for each of the physician groups. Each group could also have opted to have the requestor bill patients and insurers (including Medicare) on the group's behalf.

The requestor would have established as many as five independent, self-contained pathology labs in a single building. None of the labs would have shared space or equipment, and each would have had all of the equipment necessary for one medical group's pathology services. Pathologists and technical staff would have rotated among the pathology labs, but while assigned to a given group's pathology lab, such personnel would have only provided services on behalf of that group through use of space and equipment leased to that group.

The OIG declined to protect the proposed arrangement by issuing a favorable advisory opinion, even though the governing contracts may have satisfied all of the requirements of applicable safe harbors (i.e., the space and equipment rental safe harbor and the personal services and management safe harbor). These safe harbors could protect compensation paid by the physician groups to the requestor for rent and services. But the OIG indicated that any profits⁶ retained by the physician groups would be unprotected from prosecution under the Anti-Kickback Statute.

The OIG found troubling the fact that each of the medical groups would have been expanding into a related line of business that would have depended on its referrals. At the same time, the OIG believed that each group's commitment to a joint venture with the requestor, whether in the form of financing, capital, or HR, would have been nil. Thus the OIG believed that each of the medical groups would have assumed little if any business risk in participating in a venture with the requestor. This is a hallmark of a "suspect" joint venture, as the OIG described recently in a Special Advisory Bulletin⁷:

[A] health care provider in one line of business (hereafter referred to as the "Owner") expands into a related health care business by contracting with an existing provider of a related item or service (hereafter referred to as the "Manager/Supplier") to provide the new item or service to the Owner's existing patient population, including federal health care program patients. The Manager/Supplier 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 Manager/Supplier - otherwise a potential competitor - receiving in return the profits of the business as remuneration for its federal program referrals.

An unfavorable advisory opinion does not, in and of itself, indicate that an arrangement is necessarily illegal under the Anti-Kickback Statute, which, for example, requires a showing of intent to violate the statute. However, the OIG obviously feels that an arrangement such as that described above has the potential to generate prohibited remuneration for referrals. A finding that a provider has engaged in such activity can have dramatic consequences, including criminal penalties of up to $25,000.00, five years' imprisonment, or both; civil monetary penalties in the amount of $50,000.00 per violation plus treble damages; and exclusion from participation under Medicare and other federal health programs. Clearly, any physician group that is contemplating entering into an arrangement with another entity for ancillary services needs to be mindful of potential pitfalls under the Anti-Kickback Statute, as reflected by this OIG advisory opinion.⁸

1 The Social Security Act § 11128B(b), 42 U.S.C.A. § 1320a-7b (as amended), sets forth the following:

[W]hoever knowingly and willfully solicits or receives any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind . . . in return for referring an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a Federal health care program, or . . . in return for the purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program, shall be guilty of a felony. . . .