In April of 2003 the HHS Office of Inspector General ("OIG") issued a special advisory opinion regarding what it describes as questionable contractual joint venture arrangements under the federal anti-kickback statute, section 1128 (b) of the Social Security Act. The principal concerns of the statute are the inducement of referrals that can (1) distort medical decision making; (2) cause over-utilization; (3) increase costs to federal healthcare programs; and (4)result in unfair competition by freezing and competitors who are un-willing to pay kickbacks.
The OIG bulletin warns of certain joint ventures where a hospital or physician group ("1st Party") enters into a joint venture with another healthcare provider (i.e., a DME supplier) ("2nd Party") and the deal encompasses the 1st party entering a new but related line of business (i.e., oxygen supplies or home dialysis). The 2nd party is already in the business and the 1st party's contribution is largely the flow of captive patient referrals, the benefits of which are shared by splitting the fees between the 1st party and the 2nd party. The 2nd party provides a "turn key" opportunity to the 1st party by contributing management services, hired employees, supplies an expertise on an as needed or "per click" basis. The 2nd party almost always competes separately in the subject industry on its own account or on behalf of other ventures. This is frequently a situation where there is virtually no business risk to the 1st party either because the structure of the deal rewards the 1st party on a unit delivered basis and control of volume is virtually in the hands of the 1st party. This profile is what the federal fraud hunters consider to be a "duck."
The argument against the 1st party is that it is marketing it's referrals for a cut in the action from the 2nd party and that the 2nd party is in effect gaining substantive kickbacks to the provider 1st party in exchange for referrals that it otherwise would not be recurring.
Yet, things get murky when the business is closely related to the traditional service provided by the 1st party. If a physicians group develops a joint venture with a second party to provide "ancillary services" which it could itself provide in house pursuant to the "group practice" exception to the stark self-referral prescriptions, are they violating the anti-kickback statute? From a practical perspective a lot depends upon whether or not it "looks like a duck". What if an orthopedic group decides to set up a physical therapy subsidiary in a turnkey operation with a therapist who provides management, employees, supplies (everything but referrals) on the basis of what amounts to a fee split with the ortho group? Do you hear a loud quacking in the background?
If a medical group enters ancillary services arrangements, it must do everything it can to avoid looking like a duck to avoid regulatory trouble. It can and should affirmatively manage the venture and run it as integral part of its group practice. It can accept business risk by fixing and paying reasonable compensation based on time for the services provided by the 2nd party, rather than a risk free per unit delivered basis. A "turn key" opportunity can provide ease, convenience and no risk ancillary service income. That is seductive. The problem is that, if structured the wrong way, it looks like a duck and can reasonably be expected to precipitate a fusillade of hard lead from the federal "duck" hunters.
See OIG "Special Advisory Bulletin, Contractual Joint Ventures" (April, 2003).
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