How to Structure Healthcare Deals Without Becoming a Healthcare Criminal

All-Points Bulletin: Be on the lookout for the following suspect: No race. No sex. No height. No weight. Approximately zero to 6 years of age. Name unknown. Alias: Suspect Joint Venture. If seen, contact OIG or DOJ. Or, just blow the whistle and claim a bounty.

As healthcare moves from the hospital setting to an independent facility setting, we’re seeing an increase in instances triggering federal anti-kickback statute (AKS) concerns. Among the types of structures with a high likelihood of violating the AKS are those commonly known as Suspect Joint Ventures.

The AKS prohibits remuneration — that is, the transfer of anything of value — for referrals. Courts have interpreted the AKS to apply even if only one of many purposes is to obtain money for referrals. So-called “safe harbors” protect some conduct but the failure to qualify for one does not automatically mean a violation.

The Office of Inspector General of the U.S. Department of Health and Human Services, commonly known as the OIG, the agency charged with enforcing the AKS, issued two fraud alerts, one in 1989 (republished in 1994) and the other in 2003, on joint ventures, which are any arrangement, contractual or involving a new entity, between a party in a position to refer business and a second party that receives the referrals.

In the language of the 1989 alert: “Under these suspect joint ventures, physicians may become investors in a newly formed joint venture entity. The investors refer their patients to this new entity, and are paid by the entity in the form of ‘profit distributions.’ These subject joint ventures may be intended not so much to raise investment capital legitimately to start a business, but to lock up a stream of referrals from the physician investors and to compensate them indirectly for these referrals. Because physician investors can benefit financially from their referrals, unnecessary procedures and tests may be ordered or performed, resulting in unnecessary program expenditures.”

In describing questionable features of suspect joint ventures, the alert mentions:

1. Investors are chosen because they are in a position to make referrals
2. One of the parties may be an ongoing entity already engaged in a particular line of business; and
3. The referring physician’s investment may be disproportionately small and the returns on investment may be disproportionately large compared with a typical investment in a new business enterprise.

The 2003 alert, entitled an "Advisory Bulletin," focuses on questionable contractual arrangements in which a health care provider in an initial line of business expands into a related health care business by contracting with an existing provider of the related item or service. It lists some of the common elements of these problematic structures:

1. The owner expands into a related line of business that is dependent on direct or indirect referrals from, or on other business generated by, the owner’s existing business.
2. The owner does not operate the new business—the manager/supplier does—and does not commit substantial funds or human resources to it.
3. Absent participation in the joint venture, the manager/supplier would be a competitor in the new line of business, providing services, billing and collecting in its own name.
4. The owner and the manager/supplier share in the economic benefit of the owner’s new business.
5. The aggregate payments to the owner vary based on the owner’s referrals to the new business.

Do deals outside of the hospital: surgery centers, interventional centers, urgent care facilities, and, in those states permitting them, independent E.R.s. But make sure that in your dealings with other physicians and providers you stay within the bounds of the law.

When I was a kid, they posted “Wanted!” posters in the Post Office lobby. Today, the OIG posts the photos of their most wanted fugitives online. (Check it out here.)

You don’t want to see your picture there.