Hospitals and other healthcare organizations partnering in joint ventures that reward patient referrals are on notice: The feds are watching.
Last week, HHS' inspector general's office issued a seven-page special advisory bulletin alerting providers to the office's heightened concern that certain joint venture arrangements are proliferating and may trigger the federal antikickback statute.The bulletin, which was posted on the inspector general's Web site last week, cites examples of potentially problematic arrangements that could attract the office's scrutiny. The warning focused on deals in which healthcare organizations seeking to expand business lines contract out products and services such as durable medical equipment, home dialysis or mail-order pharmacies to existing "would-be" competitors through shell organizations to disguise illegal kickbacks. The antikickback law prohibits the paying of remuneration for patient referrals. The joint ventures described primarily serve the owner's existing patient base and call for little or no financial risk or other investment in the business on the part of the hospital or healthcare organization, the inspector general observed.
"The owner's primary contribution to the venture is referrals," the bulletin explained. "The practical effect of the arrangement, viewed in its entirety, is to provide the owner the opportunity to bill insurers and patients for business otherwise provided by the manager/supplier (joint venture partners)."
Mac Thornton, former chief counsel to the inspector general, said the special bulletin addresses joint venture contracts in which a source of federal program referrals, such as a hospital, receives part of the profits when it refers patients to the new joint venture.
Thornton, now in private practice with the Washington law firm Sonnenschein, Nath & Rosenthal, said the bulletin offers greater specificity of advice for a new generation of joint ventures that have mushroomed in recent years. In 1989, the inspector general issued a special fraud alert warning providers against creating similar joint ventures that could trigger the antikickback law.
"Now a new generation of joint ventures has arisen that the inspector general feels raise the same traditional concerns of joint ventures of old," Thornton said. "This is a pretty strong warning shot across the bow about these types of contracts."
Paul Danello, a former lawyer with the inspector general's office, said providers have sought special advisory opinions from the agency on this topic for several years, but the providers withdrew most of those requests because they learned the advice was likely to be unfavorable to the providers. "There were questions whether these deals were real business ventures or just shams," said Danello.
Chicago healthcare lawyer Scott Becker of Ross & Hardies said the kinds of joint ventures described in the bulletin are growing more common. "We had a large physician clinic client just last week tell us they were approached by a durable medical equipment company offering to set up a business in their office," Becker said. "In most real joint ventures, both parties contribute real cash and real equity to develop something. This ... company offered to do everything and pay physicians what amounted to a kickback. If it were just managing the program, the company would have sought a 6% to 7% management fee. These guys wanted 50% to 60% of the profits. I'd call that a sham joint venture."
Becker said the sham joint ventures are becoming more prevalent in certain niche businesses such as durable medical equipment and clinical labs. "I'm not comfortable with them," he said. "When these kinds of arrangements proliferate without comment from the inspector general, these suspect operators get more brazen.