Watch for risk factors in a joint venture

When helping to vet a proposed joint venture, watch for these red flags that government regulators have said will receive their attention, suggests Brandy L. Rea, JD, an attorney with the law firm of Lathrop & Gage in Overland Park, KS:

• The healthcare provider is seeking to expand into a new but related line of business. This new business will provide services to the provider's existing patients.

• The joint venture professes to benefit existing patients, but there is no bona fide attempt to expand the patient base. The new venture will be based almost entirely on referrals from the one provider.

• All or substantially all of the items or services are contracted out to a third party that is already established in this line of business.

• The contractor or third party that is going to provide the items or services normally would be a competitor to the new entity created by the joint venture, but instead is the recipient of referrals.

• The contractor could provide all the services or items to the patients directly rather than working through the subsidiary created by the joint venture.

• The compensation from the joint venture to the owner and/or the contractor takes into account the volume of referrals.

• There is an exclusivity or non-compete clause that prohibits the contractor from serving other patients in the area.