Home

  • Home
    • » e-Newsletters

Joint ventures: A formula for successful arrangements

Radiology Administrator's Compliance and Reimbursement Insider, December 1, 2005

If your facility is involved in or considering entering into a joint venture agreement, you will likely face increasing legal risks in the current climate of increased scrutiny, said Bill Sarraille, Esq., a partner with the law firm of Sidley Austin Brown and Wood, LLP, in Washington, DC, during a recent audioconference.

As healthcare reimbursement has declined, utilization of imaging services has been on the rise. This has prompted increased suspicion by government enforcement officials that some of these imaging procedures may be more of a means to make money than a necessary step to help patients.

A series of cases highlighting illegal joint venture deals have made these imaging pacts a top priority for the Office of Inspector General (OIG).

But just because these agreements can be risky doesn't mean that successful joint venture partnerships cannot be formed, Sarraille said.

Michael Manthei, a partner at the law firm Holland & Knight, LLP, in Boston, also spoke during the audioconference. He used several legal tests to assess whether a proposed arrangement should move forward. His analysis focused on the federal anti-kickback and Stark regulations, but he advised that you also look at your individual state regulations and other federal guidelines to ensure that your agreement is legal.

Performing the analysis

Case study: An equity joint venture between a hospital and a physician practice to establish a freestanding PET facility.

Manthei said there are two questions you should answer before you proceed with any deal:

1. What constitutes a joint venture?

2. What are the types of arrangements that might result in scrutiny by enforcement authorities?

"There is a tendency among people to look at joint ventures and think only about equity arrangements wherein the joint venture [partners] each own an equity interest in the operation of the joint venture," Manthei said. "In reality the government has a much broader view of what constitutes a joint venture."

The government considers a joint venture one that also includes contractual arrangements. This refers to any type of contractual arrangement in which the physician or other party will own or operate a facility or other type of venture. It can also be an alternate arrangement, such as hiring a physician or group practice to provide medical directorship and other administrative services, or compensating physicians to serve on advisory boards or other bodies (e.g., the board of directors, etc.).

Anti-kickback statute

Once a joint venture structure is proposed, the first statute that should be considered is the federal anti-kickback statute. This statute prohibits the payment, receipt, solicitation, or offer of any type of remuneration in exchange for the referral of items or services that could be reimbursed by any federal healthcare program.

The statute covers so much ground that almost any joint venture agreement between a hospital and a group of doctors will implicate the anti-kickback statute, said Manthei.

The question therefore becomes whether you can structure the arrangement to meet a "safe harbor" to the anti-kickback statute or, failing that, whether the arrangement contains safeguards against the abuses the statute is supposed to prevent. These include overutilization and interference with the professional decision-making process through the use of financial incentives.

Ask yourself: Are the joint venture partners in a position to refer business to the joint venture entity? In the case study proposed above, both the physicians and the hospital are likely in a position to refer patients to the joint venture. The hospital might exercise sufficient control or influence over staff and nonstaff physicians with privileges to influence their choices of PET facilities. Depending on their specialties, the physician joint-venture partners may be in a position to make direct referrals.

This doesn't mean that the deal can't move forward. One positive aspect of the anti-kickback statute is that it includes a number of safe harbors that were developed by the government. Safe harbors are areas that the OIG has identified as presenting a "minimal risk of fraud and abuse" and are therefore permissible under the law. "If you follow the requirements of a safe harbor exactly, the arrangement is deemed to be immune from prosecution," said Manthei.

However, when it comes to this case study, there is no safe harbor that applies, said Manthei. At this point, the parties might want to consider an alternate structure (e.g., one that does not involve equity ownership by the physicians).

Safe harbors can protect several contractual relationships. For example, the safe harbor for personal services can protect an arrangement for the physician group to provide medical directorship and other administrative services. Similarly, the lease safe harbor can possibly be employed to protect an arrangement whereby the physicians own the land/building that houses the PET facility.

However, even if no safe harbor applies, it doesn't necessarily spell doom for the deal. "There is a misconception in the industry that if you don't meet a safe harbor, the arrangement automatically violates the anti-kickback statute or is otherwise illegal. That is really not the case," said Manthei.

What it does mean is that enforcement authorities are going to look at all of the circumstances involved in the deal to obtain a true picture of whether the arrangement is designed to induce referrals or if it presents a risk of fraud, said Manthei.

Keep in mind that the government will look beyond the documents. "You can't paper over an otherwise inappropriate arrangement," said Manthei. The government will follow the money regardless of how the documentation purports to structure the arrangement.

The litmus test

To determine the true intent of your deal, figure out what your goals are:

1. Are you trying to lock in referrals?

2. Are you trying to gain an economic advantage from the technical component of professional services that are rendered?

"If the answer to either of those questions is yes, then the arrangement likely will be viewed by the government as presenting a significant risk of fraud and abuse," Manthei said. In that case, you must seriously consider whether to go forward with the proposed structure. This is also the time when alternate structures should be considered that might mitigate the government's concerns.

Analyzing Stark

The anti-kickback law isn't the only regulation you need to worry about. The federal Stark law can also create problems for your agreements.

Stark prohibits self-referrals and prevents physicians from referring patients for a designated health service to an entity with which the physician or his or her close family member has a financial relationship. A financial relationship can range from ownership or investment interest to any other arrangement that provides compensation.

Currently, PET services, which are the focus of the joint venture in this case study, are not designated health services under Stark, but they are in the process of being added.

"No one really knows why [they were initially excluded]. I theorize that these services were really just emerging over the past several years as significant cost drivers in federal healthcare programs," said Manthei. When the OIG defined designated health services, PET services may not have been significant enough to be included. In any event, it is clear that the government is poised to expand the definition of a designated health service specifically to include diagnostic and therapeutic nuclear medicine, including PET.

Because PET will be added to the list of designated health services, the joint venture outlined above in the case study will implicate the Stark law. If an arrangement does fall under the Stark provisions, it cannot move forward unless it meets the criteria for a Stark exception. There are several exceptions under Stark, all of which are fairly complicated, said Manthei. Unfortunately, there is no applicable exception for the equity joint venture outlined in the case study, so once PET is officially added to Stark, "you can't do the deal," Manthei said.

The risks of going around the law

Recently, investors in existing imaging centers have attempted to circumvent the Stark law prohibition on equity joint ventures by entering into various lease arrangements. These arrangements now are subject to the most intense government scrutiny. Prosecutors in Florida have already filed a case against a physician for participating in certain lease arrangements. That case still is pending.

In one type of leasing agreement, an imaging center charges physicians a low, flat fee per scan. Under this deal, the referring physician turns around and seeks a higher reimbursement rate from a private payer or the federal government. The referring physician doesn't provide any real contribution to the delivery of the technical component service, other than his or her referral. The facility only leases the center to the physician when his or her patients are in the office, but not for a set block of time or on a weekly or monthly basis.

This type of deal raises serious legal questions, said Sarraille. But these deals are increasingly popular because they comply superficially with certain exceptions to the Stark law. This allows the referring physician to profit from his or her referral for a designated health service such as diagnostic imaging, which is already a designated health service, or PET, which will soon be a designated health service.

Attempting to circumvent Stark through these types of arrangements is particularly risky, given the current government scrutiny. Nevertheless, there are certain contractual joint ventures other than these lease arrangements that could pass muster under Stark.

Not all joint venture agreements pose the same degree of risk. If you perform a careful analysis of both the laws and your own motives, you can form successful and legal partnerships.

Editor's note: This story is based on HCPro's audioconference, "Risky Radiology Arrangements: How to Avoid Them and Create the Right Model for Success." To purchase a copy, go to www.hcmarketplace.com or call the Customer Service Department at 877/727-1728.

Insider sources

Bill Sarraille, Esq., partner, Sidley Austin Brown and Wood, LLP, Washington, DC.

Michael Manthei, partner, Holland & Knight, LLP, Boston.

 

Most Popular