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Collaborative arrangements for ancillary ventures have been on the rise over the last several years. The economic pressures that have battered physicians’ incomes and expenses have caused them to seek out creative approaches to reducing overhead, pooling resources and tapping potential new revenue sources. However, such arrangements must be meticulously evaluated and structured in order to avoid running afoul of the federal and state laws that prohibit certain self-referral and payment patterns (e.g., kickbacks) and other regulatory requirements. This article examines several common arrangements and how they can be designed to reduce risks under the federal Medicare and Medicaid Anti-Kickback Statute (AKS) and the Stark Physician Self-Referral Law (the Stark Law). Collaborative ventures can allow practices to share facilities, equipment and/or staff to allow each practice to provide ancillary services to its patients in a cost-effective manner. Most deals fall into one of three models: shared facilities/equipment, shared personnel and indirect lease arrangements. An arrangement between two or more physician groups to either jointly own or “share” an ancillary facility and/or equipment can help both groups provide the desired services without bearing the entire cost. One approach is for a single physician group to establish and own the shared facility/equipment, and then lease blocks of time for one or more outside physician groups to use the shared facility/equipment for their ancillary service needs. Alternatively, multiple physician groups could create a new joint venture entity that would construct, develop or own the shared facility/equipment, and then the joint venture entity would separately “lease” the shared facility/equipment to each of the joint venture participants for their individual use. Sometimes, the collaborating physician groups may jointly operate the shared facility/equipment through the new joint venture entity. For instance, participating physician groups may function as the direct providers in connection with ancillary services furnished to their own referred patients, with the joint venture entity functioning as the direct provider in connection with any ancillary services furnished to “outside” patients. In any scenario, the participating physician groups would either utilize and maintain access rights to the shared facility/equipment on a nonexclusive and concurrent basis, or limit the access to the shared facility/equipment based on a predetermined schedule. Sharing employees Sometimes, physician groups also have a limited need for personnel, such as a medical specialist or a technician. When two physician groups each have a part-time need for the same personnel, they may choose to share such workers through either a “co-employment model” or a “leased employee model.” Under the co-employment model, specified personnel employed by “Practice A” effectively become contemporaneous, part-time W-2 employees of both Practice A and a second provider, “Practice B.” During periods when the specified personnel are expected to be furnishing services on behalf of Practice A, they are not permitted to perform services on behalf of Practice B, and vice versa. Under the leased employee model, the specified personnel remain full-time employees of Practice A at all times, and an employee leasing agreement is entered into between the practices to govern the scope of their services for Practice B. Indirect leasing and compensation arrangements, sometimes referred to as “under arrangements” models, are essentially contractual instruments that permit physicians to collaborate with “outside” physicians and third parties with regard to ancillary ventures, or otherwise to engage in certain payment activities that otherwise would be prohibited or subject to additional regulatory impediments under federal fraud and abuse laws, if pursued directly through shared investment. Indirect leasing arrangements frequently are utilized by medical practices and facility operators that seek to establish new ancillary services (e.g., diagnostic testing centers) with participation by outside physicians who may be referral sources. In these types of arrangements, the practice/facility operator typically bills and collects fees for the technical component of the ancillary services under its own separate provider number, and retains management control over the ancillary service operations and personnel. Often, a separate leasing or service company is established to serve as the vehicle through which outside physicians can participate indirectly (through receipt of lease or service payments) in certain aspects of the technical component derived from the ancillary services. The ownership of the leasing or service company may vary, and in some cases, separate leasing or service entities are formed to own the equipment and the real estate, and to provide the services, allowing investors to choose the level of their involvement. Each collaborative arrangement must be analyzed under both the Stark Law and the AKS. The scope of these statutes overlap, and their exceptions are distinct but deceptively similar. The Stark Law generally prohibits the “referral” of Medicare or Medicaid patients for certain “designated health services” to any health care facility or entity in or with which a referring physician or an immediate family member maintains a direct or indirect ownership or investment interest or compensation arrangement. Designated health services (DHS) include the following office-based services: clinical laboratory; physical therapy; occupational therapy; radiology and other diagnostic imaging; radiation therapy; durable medical equipment (DME), limited to ambulatory aids; parenteral and enteral nutrients; equipment and supplies; prosthetics, orthotics and prosthetic devices; and outpatient prescription drugs. Hospital services, home health services and other DME are also considered DHS but do not qualify for the in-office exception. “Referral” includes a physician’s order for a DHS that is provided in the physician’s practice as well as a referral to an entity with which the physician has a compensation or ownership arrangement. Many arrangements can be structured to qualify for protection under one of the Stark exceptions, which, unlike the AKS safe harbors, are mandatory. The Stark Law contains an exception for physicians’ services provided by, or under the supervision of, the referring physician or by another physician in the same qualifying group practice (QGP) as the referring physician. In order to qualify as a QGP, a physician group practice must meet several requirements, including, among others, the requirement that no physician may directly or indirectly receive compensation based on the volume or value of referrals by such a physician. The “technical component” of any such DHS must be divided in a manner consistent with the Stark rule. The “in-office ancillary services exception” permits a physician to refer patients for DHS provided by the QGP under certain supervision, location and billing requirements. The DHS must be furnished either in the “same building” in which a qualifying physician satisfies one of three alternative office-hours tests, or in a “centralized building” that is exclusively used by a QGP for the provision of the DHS. Since the centralized building test requires exclusive use by only one practice, shared facility/equipment arrangements must meet the same-building test. Under each alternative, the group must maintain and staff an office in the same building and provide its full range of physician services there for certain hours each week. Additional Stark Law exceptions provide broad latitude for a variety of payment arrangements involving bona fide employees, leased employees and independent contractors, as well as arrangements that are deemed to constitute “indirect compensation arrangements.” Thus, shared personnel and indirect lease arrangements generally can be structured to satisfy the Stark Law as well. The Anti-Kickback Statute The AKS prohibits any knowing and willful offer, payment, solicitation or receipt of any form of remuneration, either directly or indirectly, in return for, or to induce, the referral of an individual for a service for which payment may be made by Medicare, Medicaid or another government-sponsored health care program. It also prohibits the purchasing, leasing, ordering or arranging for, or recommending the purchase, lease, order or arrangement of, any service or item for which payment may be made in whole or in part by Medicare, Medicaid, etc. Parties who satisfy one or more optional “safe harbors” generally are protected from AKS liability. The “leasing safe harbor(s)” generally provides that impermissible remuneration does not include any payment made by a lessee to a lessor for the use of equipment or premises, as long as the lease meets several criteria. Of these criteria, the requirement that is often most challenging is that the lease set forth an aggregate rental charge, which must be set in advance, that is consistent with fair market value in arms’-length transactions, not determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties, and commercially reasonable in all other respects. It is advisable to obtain an outside valuation or appraisal firm to support the fair market value determination. The “employment safe harbor” protects remuneration paid by an employer to an employee who has a “bona fide employment relationship” with it, for employment in the furnishing of any items or services for which payment may be made in whole or in part under Medicare, Medicaid, etc. Another safe harbor protects payments to independent contractors, subject to many of the same limitations as are applicable to equipment and space leasing arrangements. The Office of Inspector General of the U.S. Department of Health and Human Services (OIG) shares responsibility for AKS interpretation and enforcement with the U.S. Department of Justice, and issues bulletins, advisory opinions and other guidance on its Web site, http://oig.hhs.gov/. The OIG has issued a number of alerts about “questionable” joint ventures and other contractual arrangements between potential referral sources, beginning with a 1989 special fraud alert that discusses features of suspect joint ventures (republished in 1994). 59 Fed. Reg. 65,372-65,377 (Dec. 19, 1994). More recently, the OIG issued further guidance through a 2003 special advisory bulletin relative to allegedly questionable contractual arrangements whereby an “owner”-a health care provider in one field or line of business-expands into a related health care field or line of business by contracting with a “manager/supplier”-an existing provider of a related item or service to provide the new item or service to the owner’s existing patient population. In many of these “questionable” arrangements, the owner holds itself out as the provider of the new service, and claims for payment are submitted under the name and group/ provider billing number of the owner, although the manager/supplier often serves in essentially a “turn-key” capacity, completely managing the new field or line of business for the owner, and supplying the owner with all or most necessary inventory, equipment, support personnel, office space, billing expertise and other items, supplies and services. In these situations, the OIG notes that the owner could be characterized as contracting out essentially the entire operation of the new field or line of business to a party that might otherwise be a competitor in exchange for receiving a portion of the profits derived from the referral of the owner’s patients to the new field or line of business, a characterization that could result in a violation of the AKS. The OIG is particularly skeptical of arrangements wherein the owner’s primary contribution to the venture is referrals, and the owner makes little or no investment in the new field or line of business, while retaining for itself profits generated from its captive referral base. In light of the special fraud alert and special advisory bulletin, depending on the particular facts and circumstances, it is possible that the OIG could challenge the bona fides of a given collaborative/ joint venture arrangement and assert a violation of the AKS (even when compliance with the Stark Law is achieved). In order to reduce the potential for future regulatory scrutiny, all arrangements discussed herein should be structured so that each party bears some financial risk and retains some meaningful responsibilities with regard to the ancillary venture. Moreover, recent government pronouncements suggest that indirect leasing/contractual arrangements may be coming under increasing scrutiny in the days ahead, so legal practitioners should remain vigilant in checking for future regulatory changes. See 68 Fed. Reg. 23,148-23,150 (April 30, 2003). Even if a collaborative arrangement is structured to satisfy federal laws, state laws may present additional obstacles. Various states may require certificates of need or licensing as well as impose other restrictions on physician ownership or compensation arrangements that mirror Stark and AKS in part, some of which may limit the viability of shared facilities/equipment or personnel and other collaborative arrangements that are acceptable under federal guidelines. Practitioners should be certain to consult with qualified counsel knowledgeable about the laws of the state in which the venture will operate before proceeding. David Sokolow is a partner in the Philadelphia and Princeton, N.J., offices of Fox Rothschild, where he is chairman of the interdisciplinary health law group and counsels and represents physicians, group practices, hospitals and other health care clients. William Maruca is a partner in the firm’s Pittsburgh office, where he has an extensive practice in health care law. Helen Oscislawski is an associate in the firm’s Princeton office, focusing on general corporate and health care law.

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