Under a Microscope

As costs continue to rise and overall profit margins shrink for physician practices, many groups are forming partnerships and looking to other forms of consolidation and collaboration to bring in additional revenue, expand market share, and generally make it easier to navigate the healthcare minefield.

However, these financial arrangements are under a lot of scrutiny, and setting them up can be a major headache. A physician can barely sneeze these days without implicating the Stark self-referral law, the anti-kickback statute, or a host of other federal regulations. I'm being a little hyperbolic, but if other physicians are in the room during the sneeze, it might be a good idea to document their reactions.

Just this week, for instance, the OIG took another hard stance against certain joint ventures between physicians. The advisory opinion related to a contractual joint venture between two practices—one providing cancer treatment services in a free-standing facility and the other a urology group.

The cancer center offers intensity-modulated radiation therapy (IMRT) to treat prostate cancer, and the urologists who refer patients for IMRT wanted to bring the service in-house through a series of written agreements allowing the urologists to lease the space, equipment, and personnel services necessary to perform the procedure.

It would have been a mutually beneficial arrangement: The urologists would get access to the equipment they need, and the cancer center would bring in some additional revenue from the equipment rent and reimbursement for other administrative expenses.

But the OIG argued that the arrangement could potentially violate the anti-kickback statute. As healthcare lawyer David Harlow points out, this isn't a drastically new direction for the OIG; it has issued three other advisory opinions taking a similarly tough stance against this type of contractual joint venture. This case is a reminder, however, that you must carefully plan these partnerships and never assume that an arrangement is permissible unless you have solid evidence to back it up. Federal and state governments certainly aren't afraid to prosecute for fraud or improper self-referral.

That doesn't necessarily mean the partnerships aren't worthwhile. But the legal and administrative costs can be a burden, particularly for small practices. That's part of the reason we're seeing a lot of mergers and growth in group size—bigger organizations more often have the business and legal experts to deal with requirements like assessing fair market value and scrutinizing contracts.