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A Special Advisory Bulletin recently issued by the Department of Health and Human Services Office of Inspector General ("OIG") cautions health care providers regarding the risks in entering into a variety of provider joint ventures. In particular, the OIG took a look at contractual joint ventures between those in a position to refer business, such as physicians, and those providing services paid for by Medicare and Medicaid. The bulletin does not fully address the level of risk associated with joint ventures that have some but not all of the suspect attributes outlined below. Therefore, it would be difficult to determine what level of provider involvement would be sufficient to avoid the characterization as suspect, without carefully reviewing the facts and circumstances of each case. Providers contemplating or participating in joint ventures should review the bulletin and consult with legal counsel to be fully informed of the regulatory risks.

Common Elements

Problematic arrangements typically exhibit certain common elements, the OIG said. The bulletin examined arrangements where a health care provider in one line of business (referred to in the bulletin as the "owner") expands into a related health care business by contracting with an existing provider of a related item or service (referred to in the bulletin as the "supplier") to provide the new items or services to the owner's existing patient population. The following characteristics, separately or together, potentially indicate a prohibited arrangement:

• New Line of Business. The owner of an existing business expands into a related business that is wholly dependent on referrals generated by the existing business
• Captive Referral Base. The newly created business predominantly or exclusively serves the owner's existing patient base and the owner typically has no intention of expanding the business to serve new customers
• Little or No Bona Fide Business Risk. The owner's primary contribution to the venture is referrals, and the owner neither operates the new business nor commits substantial financial resources to the new business. Operations of the new business are provided by the supplier, and billing of payors is done in the name of the owner
• Supplier is Competitor. The supplier is a would-be competitor and, absent the contractual arrangement, would have the capacity to provide virtually identical services in its own right and bill insurers and patients for them in its own name
• Scope of Services Provided by the Supplier. The supplier provides many of the key services such as day-to-day management, billing and personnel services, equipment, office space, training and health care items
• Remuneration. The owner has the opportunity to bill insurers and patients for business otherwise provided by the supplier and the profits of the venture take into account the value and volume of business the owner generates
• Exclusivity. The parties may agree to a noncompete clause that bars the owner from providing items or services to any patients other than those coming from the owner and barring the supplier from providing services in its own right to the owner's patients

According to the bulletin, safe harbor protection may be unavailable. To qualify for a safe harbor, an arrangement must fit "squarely" into one of the safe harbor provisions, the OIG said.

Safe Harbors

The discount safe harbor does not protect – and has never protected – prices offered by a seller to a buyer in connection with a common enterprise, the OIG said. To be protected under the discount safe harbor, a price reduction must be based on an "arm's-length" transaction and the provision of items or services to a joint venture by a participant in the venture is not an arm's-length transaction.

Even if the various contracts could fit in one or more safe harbors, they would only protect the payments flowing from the owner to the supplier for actual services rendered, the bulletin said. By agreeing to provide services it could otherwise provide in its own right for less than the available reimbursement, the supplier provides the owner with the opportunity to generate a fee, which is itself payment that may implicate the anti-kickback statute, and a profit.

The OIG emphasized that the presence or absence of any one of the factors does not determine whether a particular arrangement is suspect. The bulletin is available on the Web here.

The Special Advisory Bulletin is not the only guidance from the OIG on the subject of joint ventures. The Miller & Holguin website's Publications section includes an article recently published by a member of our firm that analyzes an OIG fraud alert on joint ventures, as well as applicable safe harbors and applicable OIG advisory opinions. The article provides helpful guidance regarding the regulatory risks and opportunities of engaging in provider joint ventures.

If you require our assistance or have any questions please contact Michael Dowell at mdowell@tocounsel.com or the lawyer in the firm who generally handles your health care legal matters.