Two recent advisories from the Office of Inspector General (OIG) of the Department of Health and Human Services can help physicians determine whether such ventures would constitute improper patient referrals in violation of the federal antikickback statute.
 
In April, the OIG issued the Special Advisory Bulletin on Contractual Joint Ventures, addressing arrangements between referring physicians and other physicians or suppliers. In late May, it released Advisory Opinion No. 03-12, addressing a proposed joint venture imaging center between a radiology group and a hospital.
 
Suspect Joint Venture
 
The advisory bulletin issued in April focuses on arrangements between two physician groups that involve lease and service agreements but no investment or other risk-taking by the referring party. The agency offers examples of suspect contractual arrangements that it maintains "could provide the basis for law enforcement action." One example is a referral source that expands into a related "new" business that depends on patient referrals or other business generated by the existing business but neither operates nor commits substantial resources to the new business.
 
Special characteristics listed below potentially indicate a prohibited arrangement. To see the impact of the OIG's criteria on potential radiology
 ventures, substitute orthopedic surgery group for "owner" and radiologists for "manager/supplier."

• New line of business. The owner seeks to expand into a healthcare service that can be provided to its existing patients.
• Captive referral base. The new business predominantly or exclusively serves the owner's existing patients or patients under the control or influence of the owner. The owner does not intend to expand the business to serve new customers.
• Little or no bona fide business risk. The owner's primary contribution to the venture is referrals, rather than financial or other investment. The owner delegates the operation of the venture to the manager/supplier while retaining profits generated from its referral base. Residual business risks (for example, nonpayment for services) may be determined based on historical activity.
• Status of the manager/supplier. The manager normally would compete with the owner for the captive referrals. It has the ability to provide virtually identical services in its own right and bill insurers and patients under its own name.
• Scope of services provided by the manager/supplier. The manager/supplier provides all, or many, of the following services: day-to-day management, billing, equipment, personnel and related services, office space, training, and healthcare items, and supplies. The greater the scope of services provided by the manager/supplier, generally the greater the likelihood that the arrangement is a contractual joint venture as defined by the OIG.
• Remuneration. The practical effect of the arrangement is to provide the owner with the opportunity to bill for business otherwise provided by the manager/supplier. The owner's profits from the venture take into account the value and volume of business the owner generates.
• Exclusivity. The parties may adopt a noncompete clause prohibiting the owner from providing items or services to patients other than those referred by the owner and/or barring the manager/supplier from providing services in its own right to the owner's patients.

The OIG also notes that these ventures typically involve some component of payment to the manager/supplier that varies with the volume or value of the referrals to the new business, and that this payment methodology allows both parties to share in the profits of the venture. While the term "per click" was not used in the bulletin, OIG officials have used this term in speeches and other advisories to describe ventures that are on their radar screen.
 
The antikickback statute requires proof of intent and must be analyzed based on the individual facts and circumstances. The OIG and the courts have also taken the position that the antikickback law may be violated if just one purpose of an arrangement is to encourage the referral of Medicare and Medicaid patients. Radiologists should take care to focus on the legitimate business purposes of the joint venture.
 
In the most controversial aspect of this bulletin, the OIG says that a contractual joint venture arrangement may be noncompliant even if subagreements fit within various safe harbors. Credible arguments can be made, for example, that lease arrangements that involve "per procedure" leases of technical component services at a fair market value basis fit within the lease arrangement safe harbor. But these payment agreements may still come under OIG scrutiny, making alternatives such as "block" or "bulk" purchases of technical component services important to consider.
 
It is interesting to note that the Centers for Medicare and Medicaid Services takes a view contrary to the bulletin and states that a "per-use" payment arrangement may, in fact, be considered "fair market value." The CMS notes in the final Stark rules that the agency, in determining fair market value of a per-use payment, generally looks to the price a provider would pay to rent the equipment from a company that did not have any physician ownership or investment (and thus was not in a position to generate referrals or other business for the provider) in an arm's-length transaction. So long as the payment is fixed in advance for the term of the agreement and is consistent with fair market value for the services performed (i.e., the payment does not take into account the volume or value of the anticipated or required referrals), the CMS is comfortable with the per-unit payment scheme.
 
To see the impact of the OIG's position, consider the radiology group that contracts with a group of orthopedic surgeons who lease technical component MRI services from the radiology group. The orthopedic physicians serve as the supplier and bill Medicare and other payers. In this instance, the orthopods may be expanding into a healthcare service that can be provided to their existing patients. Further, the orthopods may profit from the "money left on the table" after the lease payment is subtracted from the overall reimbursement they receive for the MRI services. Both factors could make the venture subject to OIG scrutiny under the April bulletin.
 
Thus, when radiologists enter into arrangements such as this orthopedic group's lease of MRI services, which are factually similar to the "suspect" ventures described in the OIG bulletin, they should consider structuring lease arrangements to impose genuine and significant business risk on the orthopedic group and take other steps to minimize their exposure to fraud and abuse scrutiny.
 
Hospital-Radiology Group Venture
 
Advisory Opinion 03-12 addresses a proposed joint venture between a medical center and a radiology group to operate an outpatient open MRI facility. The venture involves several ancillary arrangements, including the ownership interests of the hospital and the radiology group in the joint venture and the professional services agreement with the radiology group.
 
The OIG cited a number of mitigating factors in concluding that it would view the arrangement favorably. Unlike most hospital-physician joint ventures, these investing radiologists were not referral sources for the imaging venture or the hospital.
 
An earlier OIG advisory opinion (Advisory Opinion 97-5, issued in 1997) addressed a query by a radiology group-hospital joint venture imaging center. In that opinion, the OIG identified safeguards against the hospital being a referral source, several of which are more stringent than the joint venture arrangement blessed in this year's opinion:

• Referrals from physicians employed by the hospital to the imaging center would not be made, nor would the center accept such referrals (this restriction is not present in the arrangement in this year's opinion).
• The hospital would not induce staff or admitting physicians to refer patients to the center.
• Physicians would be informed of such restrictions and lack of encouragement.
• Any referrals that were made by hospital physicians to the center would not be tracked.
• The hospital would continue to operate all of its own radiology departments.

On the basis of these representations in the 1997 advisory, the OIG concluded that neither the hospital nor the radiology group would be a source of referrals, and profit distributions from the center would not constitute prohibited remuneration.
 
This year's advisory opinion addresses a joint venture imaging center involving a group of radiologists and a medical center. Of significance in this opinion, the radiology group is not considered a referral source, given its limited test ordering authority. The OIG noted that radiologists typically do not order the tests they perform and, except for limited circumstances, the patient's treating physician must approve any additional tests recommended by the radiologist for a Medicare beneficiary. The OIG notes circumstances in the Medicare Carriers Manual 15021 in which a certain radiologist may order and perform additional diagnostic tests in a nonhospital setting without the treating physician's approval. But even with this limited ordering authority, the OIG did not view radiologists as referral sources for kickback purposes.
 
The imaging center likewise is not a referral source. Therefore, any risk of prohibited remuneration would most likely not arise from the flow of direct or indirect remuneration to either the radiology group or the imaging center.
 
As for the hospital, the OIG concludes that it is properly considered a referral source for an imaging center and/or the radiology group. Hospitals can limit their influence on referrals without banning them if they refrain from requiring affiliated physicians to refer to the joint venture center, if they do not track referrals made by affiliated physicians, and if they compensate its affiliated physicians at fair market value in arm's-length transactions unrelated to the volume or value of referrals or other business. It is significant that the hospital did not pledge to ban referrals from physicians employed by the hospital.
 
Payment levels for the various service agreements were deemed to be arm's-length transactions because they did not exceed the expenses incurred by the radiology group or the hospital; the radiologists would not be providing equipment or space to the imaging center at less than fair market value, and the hospital would not be compensated at greater than fair market value for the provision of clerical, technical, and administrative personnel.
 
The OIG held that profit distributions from the imaging center to the hospital that exceed the hospital's capital contribution to the imaging center
 could constitute illegal remuneration from the radiology group or from the imaging center. Likewise, the provision of services from the radiology group or the imaging center to the hospital at less than fair market value, or the provision of services to the imaging center or the radiology group by the hospital at greater than fair market value, could constitute illegal remuneration. Relationships ancillary to the joint venture that could serve as conduits for prohibited remuneration, especially those in which the hospital is compensated by the imaging center, should be very carefully negotiated and constructed. The goal is to minimize the perception that such relationships are designed for the radiology group to reward the hospital for its referrals.
 
Any joint venture with a referring physician group must be structured carefully to avoid undue scrutiny or sanction. The advisory opinion on radiology-hospital joint venture offers radiologists and hospitals more flexibility to structure viable joint ventures than did the 1997 opinion.