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August 26, 2008

Contractual joint ventures: the OIG hangs tough

The OIG released an advisory opinion today finding that a proposed block leasing arrangement between two physician group practices -- one a practice providing cancer treatment services, including IMRT, the other a urology group -- whereby the urology group would bring the IMRT services in-house through a series of contracts, would be barred as an impermissible contractual joint venture, assuming the requisite intent (to exchange payment for referrals) were present. 

There has been very little advisory opinion activity related to the contractual joint venture special advisory bulletin issued by the OIG in 2003.  Only three advisory opinions before today's even mention the special advisory bulletin.  One of those, however, trod the same ground as today's advisory opinion.  The 2004 advisory opinion regarding pathology lab contractual joint ventures is essentially identical to the most recent opinion. 

In the opinion, the OIG observes that

the Special Advisory Bulletin describes an arrangement very similar to the Proposed Arrangement:

[A] health care provider in one line of business (hereafter referred to as the “Owner”) expands into a related health care business by contracting with an existing provider of a related item or service (hereafter referred to as the “Manager/Supplier”) to provide the new item or service to the Owner’s existing patient population, including federal health care program patients. The Manager/Supplier not only manages the new line of business, but may also supply it with inventory, employees, space, billing and other services. In other words, the Owner contracts out substantially the entire operation of the related line of business to the Manager/Supplier – otherwise a potential competitor – receiving in return the profits of the business as remuneration for its federal program referrals.

In these circumstances, the OIG is unimpressed by claims that each element of the arrangement fits into a safe harbor.  Also, significantly, the OIG notes that the analysis of the proposed arrangement requires not only a review of each component of payment running from the urologists to the other physician group, but an analysis of the remuneration running from the cancer care group to the urologists, equal to the difference between the federal program payments to the urology group for services and the contract prices paid by the urology group.

For all of these reasons, the proposed arrangement failed to gain the approbation of the OIG

Providers with existing or proposed contractual arrangements anywhere the zip code of the arran
gements described in these advisories would be well advised to review them carefully in light of this most recent opinion, which seems to reinvigorate a somnolent area of enforcement.

-- David Harlow


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