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Lease agreements face fresh analysis

Radiology Administrator's Compliance and Reimbursement Insider, April 1, 2007

More than 11 imaging centers in Illinois face the financial implications and legal retributions of fraud charges.

Across the country, attorneys and healthcare administrators are taking a second look at contract language since the Illinois attorney general (AG) intervened in an illegal kickback lawsuit on January 17. The suit opens scrutiny on an oft-used anti-kickback escape clause-the lease agreement.

As many imaging insiders have long understood, however, the leasing agreement proves to be nothing more than a well-hidden mousetrap with plenty of bait to lure in both facilities and physicians, but with plenty of tension in its springs to snap in a split-second.

"Everyone knows there have been abuses," explains Leonard Berlin, MD, director of radiology at the Rush North Shore Medical Center in Skokie, IL. "Some say, 'Don't worry. [The lease agreement] won't be a problem. ' But it's never been tested in the courts. Now, it's about to be tested. " The crux of the Illinois case alleges that several magnetic resonance imaging (MRI) centers used lease agreements to hide numerous false claims, excessive payments, and physician kickbacks (see below for more information).

The complaint alleges that MRI centers in Cook County, IL, offered sham lease agreements to healthcare providers. Under the agreement, providers paid a reduced rate for MRI and CT scans, but billed patients' insurers a higher rate. They then split and pocketed the difference, according to a release from the AG's office.

Other agencies ask questions

The Illinois AG isn't the first to look at the use of leasing arrangements as a guise to hide illegal kickback payments. In June 2005, a Florida whistleblower action against University MRI in Boca Raton charged that leasing arrangements violated state anti-kickback statutes, AuntMinnie.com reported.

Also in 2005, the Louisiana State Board of Medical Examiners issued a position statement warning members against per-use payments in leasing agreements.

"A lot of people think the law doesn't mean anything to them until they get their hands burned," says Alice G. Gosfield, an attorney with Gosfield & Associates, PC, in Philadelphia.

Kickbacks count as fraud

So, you think you're going to catch a mouse (more reimbursement) and you set out to buy a trap. You hear about this great deal from the facility down the street and come to an agreement with it.

A lot of companies try to take in a little extra cash through a structured leasing arrangement, organizing it in a variety of ways, says Michael F. Schaff, Esq. , an attorney with Wilentz, Goldman & Spitzer in Woodbridge, NJ.

Let's say a physician wants to buy his or her own MRI machine. Those services normally fall under the Stark law in-office exception, says Berlin. However, if the physician can't afford his or her own machine, and there's an MRI machine down the street, he or she can rent or use it for certain amounts of time.

"There are many different ways to do this," Schaff says. "In some states, you don't need a license to own an MRI. You can simply purchase an MRI, open an office, and you're making money.

Such agreements become financial and legal traps, however, when providers steer captive clientele to a single supplier entity, he says. That's when all the extra money initially thought to be simply a good deal ends up as illegal kickbacks.

Potential kickbacks share common elements

The Illinois case epitomizes ongoing concerns identified in an Office of Inspector General (OIG) special advisory board bulletin in April 2003. That report focused on questionable contract arrangements with some potential to lead to kickback situations.

According to the OIG bulletin, problematic arrangements contain the following five common elements:

1. A healthcare provider expands services into a related line of business dependent on referrals.

2. A supplier or business affiliate completes all of the primary tasks related to this new business line, but the provider submits all of the bills.

3. Under other circumstances, and without an official contract, the provider and the supplier would compete for business.

4. Both the provider and the supplier share in the economic benefit of this new business by residual profit and overpayments.

5. Aggregate payments vary with the value and volume of the business. So, more referrals equal more money. Higher cost of service equals greater shares of the resulting profits.

In fact, Schaff points out, the OIG, as far back as February 2000, released an alert discussing suspect joint ventures and the issue of renting or leasing space in offices where physicians refer.

OIG outlines areas of scrutiny

The OIG found a "proliferation" of situations where suppliers (e. g. , MRI or other imaging centers) paid unnecessary or excessive "rents," either voluntarily or in response to provider requests, to gain access to the provider's potential referrals.

In its 2000 special alert, the OIG outlined the following areas of scrutiny when considering rental arrangements:

  • The appropriateness of the rental agreement. Don't simply take the inclusion of rent as part of the service package. If you represent an imaging facility, ask yourself if charging referring physicians rent for patients' MRI scans really works. If you represent a physician practice, question the inclusion of lease agreements in any legal or contractual agreement.

    If no intention of physically performing the tasks or being in the building exists, ask if payment of rent between one party and another is appropriate at all.

  • Rental amounts. It's fairly simple. In a trap, there's a spring attached to a lever. Step on that lever, and the trap's been sprung. It's a similar situation with rental agreements. If a legitimate case exists for one party to rent facility space from another, make sure the rent you pay equals fair market value.

    If, for example, a rental agreement shows payments of values higher than other similar-sized facilities in similar areas, expect scrutiny from the OIG, private payers, or, as in the Illinois case, other competitors.

    "Generally, physicians must have regularly scheduled rental times and must pay fair market value for the space, regardless of whether they actually use the machine or not," says Berlin. Similarly, subleases that cost more per square foot than the primary lease could also raise eyebrows. Rental rates need to reflect an advanced, fixed agreement, the OIG says.

    Both parties must understand the set, per-hour rate, and schedule of rental. "As needed" use agreements offer questionable opportunities for legitimate increases in patient and procedure volumes.

    Rentals that include referral fees, those that base rental amounts on the value of the referrals, or agreements that change more than annually also raise suspicion, the 2000 report says. In addition, expect scrutiny on any rentals conditioned on payments from federal healthcare programs.

  • Time/space considerations. Consider these when entering into lease agreements, according to the OIG special report.

    Watch for agreements where suppliers' rental time exceeds actual needs. Document any prorating and update the agreement as necessary. The apportionment of shared spaces must be proportional to the number of additional lessees and the amount of time each spends using the office.

    For example, if an ultrasound supplier's business requires only one exam room four hours per week, but it pays rent for eight hours per week, it may indicate kickbacks or fraud.

    Rent may consist of three portions: exclusive office space, interior office common space, and building common space.

    Use the following equation: Number of rooms multiplied by number of hours and number of uses per week, divided by the total number of rooms, hours, and times per week equals the supplier's total annual rent for exclusive space.

    Caution required when crafting agreements

    Many situations may make lease agreements necessary, but experts say exercise caution and careful analysis of the agreement prior to signing any papers.

    "I get referrals the old fashioned way by offering quality service rather than financial incentives," says Berlin. "If someone were to say that I'd get more money if I sent my patients down the street, I'd question that arrangement. Everyone should. It just doesn't pass the sniff test. "

    Gosfield agrees. "Ask yourself if you could defend the agreement on the front page of the local paper," she says. "If the answer is no, then you don't want to be involved in it."

    Insider sources

    Leonard Berlin, MD, director of radiology, Rush North Shore Medical Center, 9600 Gross Point Road, Skokie, IL 60076, 847/933-6111; Leonard_Berlin@rsh.net.

    Alice G. Gosfield, attorney, Gosfield & Associates, PC, 2309 Delancey Pl. , Philadelphia, PA 19103, 215/735-2384; Agosfield@gosfield.com.

    Michael F. Schaff, Esq. , attorney, Wilentz, Goldman & Spitzer, 90 Woodbridge Center Dr. , Suite 900, Box 10, Woodbridge, NJ 07095-095, 732/855-6047; mschaff@wilentz.com.

     

    Kickback repercussions

    Aside from the obvious ethical implications, kickbacks cause a number of problems. According to the federal anti-kickback statute, Section 1128B(b) of the Social Security Act, kickbacks

  • distort medical decision-making
  • lead to overutilization
  • increase costs to the federal healthcare programs
  • result in unfair competition by freezing out competitors unwilling to pay kickbacks

    The Social Security Act prohibits knowingly and willfully soliciting, receiving, offering, or paying anything of value to induce referrals of items or services payable by a federal healthcare program. Both parties to an impermissible kickback transaction are liable, according to the law.

    Violation of the statute constitutes a felony punishable by a maximum fine of $25,000, imprisonment up to five years, or both. The Office of Inspector General may also initiate administrative proceedings to exclude persons from federal healthcare programs or to impose civil money penalties for fraud, kickbacks, and other prohibited activities under Sections 1128(b)(7) and 1128A(a)(7).

    Illinois case alleges kickback scheme

    The Illinois attorney general (AG) in January joined a lawsuit against 11 imaging centers, charging filing of false claims, accepting illegal kickbacks, and bilking the government healthcare programs out of reimbursement dollars.

    The original plaintiff in the case, whistleblower John Donaldson, filed suit in February 2006, according to court documents.

    Donaldson and the AG's suit suggests that the MRI center operators submitted false claims at excessive rates to allow for the payment of an unlawful kickback to referring physicians who performed none of the billed services.

    The court documents state that physicians referred patients to one of the named defendants, and that the defendant rendered the MRI scan.

    The referring physicians then billed/invoiced the patient and the insurer under the physician's medical provider number for the defendant's work and collected the payment before dividing payment with the MRI center for the purported lease. "The purported lease agreement is a subterfuge utilized to cloak and hide the kickback for the referral," the suit states.

    The suit seeks

  • three times the amount of each false claim
  • an order enjoining defendants from ever conducting similar scams
  • civil penalty of not less than $5,000 and not more than $10,000 for each false claim
  • attorney's fees
  • prejudgment interest
  • all expenses and costs

    The AG sealed the suit for 11 months while it investigated the case, finally concluding that the lease agreements were designed to disguise their true nature, according to court documents.

    The case has not yet been heard.

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