New OIG Advisory Opinion Reinforces OIG’s Stance Against Turnkey Contractual Joint Ventures

By: Jessie Bekker, Burr & Forman LLP

The Office of Inspector General (“OIG”) has issued a new opinion with a familiar message cautioning providers against entering into suspect contractual joint ventures.

The OIG’s latest Advisory Opinion examined the Anti-Kickback Statute’s application to an arrangement related to the provision of intraoperative neuromonitoring (“IONM”) services (the “Proposed Arrangement”). As of the date of the Opinion, the requesting entity, an IONM provider, contracted with hospitals and surgery centers to provide the technical component of IONM services, which consisted of one of its neurophysiologists assisting during a surgery with the placement and operation of the IONM equipment. The IONM provider would arrange with a physician practice (“Practice”) to perform the personal component: remote monitoring by a neurologist of the IONM test results. The IONM provider billed its technical component services to the hospital or surgery center; the Practice billed the professional component to patients and their insurers. However, as competition grew fiercer, the IONM provider found itself at risk of falling behind its competitors who offered surgeons more lucrative opportunities, precipitating the Proposed Arrangement.

The Proposed Arrangement

Under the Proposed Arrangement, the IONM provider would assist a group of surgeons working for the hospitals and surgery centers with which the IONM provider contracted in creating a new IONM company (“NewCo”). The surgeon owners would own all of the interests in NewCo, which would contract with the existing IONM provider to provide all billing and collection services. NewCo would then contract with the Practice to provide the professional component of IONM services to NewCo’s clients. Under an agreement with the existing IONM provider, the IONM provider would supply NewCo with all of the day-to-day services, such that NewCo likely would not need to hire any of its own employees. NewCo – not the IONM provider – would contract with hospitals and surgery centers, receiving referrals for services from the surgeon owners, and would bill both the professional and technical components of the services. NewCo would compensate the IONM provider and Practice for their services through a fee, but the IONM provider anticipated NewCo’s profits would be substantial. In essence, NewCo would act as a competitor to the IONM provider with which it contracted, disrupting the IONM provider’s anticipated profits.

Analysis

Generally speaking, the Anti-Kickback Statute (the “AKS”) prohibits the knowing and willful offering, payment or receipt of remuneration to induce, or in return for, the referral of an individual to a person for any item or service reimbursable by a federal health care program, like Medicare or Medicaid. The statute is intent-based and prosecutes a violation criminally. Violations constitute felonies punishable by fines and imprisonment.

OIG has long expressed its disfavor toward contractual joint ventures that exhibit certain factors pointing to their suspect nature. A contractual joint venture exists where a health care provider in one line of business (e.g., Practice) expands into a related line of business (e.g., IONM) by contracting with an existing provider of the related line of business (e.g., IONM provider) in order to provide the new related line of business to the health care provider’s patients without any substantial risk to the health care provider. The Proposed Arrangement, according to OIG, would “present a host of risks of fraud and abuse under the [AKS], including patient steering, unfair competition, inappropriate utilization, and increased costs to Federal healthcare programs.” OIG pointed to several risks raised by the Proposed Arrangement, specifically, that it could result in inappropriate steering of referrals from the surgeon owners to NewCo, the IONM provider, and the Practice of federal health care program business. Certain specific factors led OIG to its conclusion, including that the surgeon owners, as a result of contracting out its day-to-day operations to the IOMN provider, would have no real financial risk while reaping the benefits of the IOMN services provided. Additionally, both the Practice and IOMN provider are established entities that would effectively be forced to compete with themselves as a result of the Proposed Arrangement. Moreover, because the surgeon owners would have a vested interest in NewCo’s success, the OIG concluded that there would be a risk that the surgeon owners would only refer business to NewCo, the IOMN provider and the Practice in order to benefit from the billing opportunity for those services. Accordingly, OIG concluded that the Proposed Arrangement would risk violating the AKS.

Takeaways

The OIG Advisory Opinion highlights its longstanding concern with suspect contractual joint ventures and acts as a reminder to physicians venturing into new business lines of the risk factors that may implicate the AKS. The Advisory Opinion, just like all Advisory Opinions, is applicable only to its specific facts and should not be relied upon as definitive authority in determining the risk under the AKS of any other arrangement.