Referrals are obstacle in joint venture plans

The Office of Inspector General (OIG) stated in its recent opinion that it has "longstanding concerns" about joint venture arrangements between a party that is in a position to refer patients to receive certain items or services and a party that is already in the business of providing such items or services, explains Brandy L. Rea, JD, an attorney with the law firm of Lathrop & Gage in Overland Park, KS.

Those concerns are especially important when the party in a position to make such referrals is anticipated to be a significant source of patients for the joint venture, she says.

"The OIG has expressed its concern about these particular types of joint venture arrangements since 2003," Rea says. "When one party is in a position to refer the business, and another party is responsible for furnishing items or services that are reimbursable by a federal program, the OIG is going to be skeptical."

In the recent opinion involving a new long term care pharmacy (NewCo) owned by a company providing long term care (LTC Facilities) that planned to enter a joint venture with an established long term care pharmacy (OldCo) that provided services for a long term care provider, the OIG discussed the elements of the proposed arrangement that create a possible violation of the anti-kickback statute:

• The LTC Facilities are expanding into a related line of business (long term care pharmaceuticals) that would be dependent on referrals from the LTC Facilities.

• The LTC Facility owners would not participate in the operation of NewCo but would contract out substantially all of the NewCo operations to OldCo.

• The LTC Facility owners would not be exposed to any business or financial risk because they would control the business that would be referred to NewCo.

• OldCo provides the exact same services as NewCo and is in the position to provide all of the services that it would provide as a manager of NewCo to its own clients.

• Payment to OldCo would vary with the volume of referrals from the LTC Facilities.

• The LTC Facility owners' income would vary with the volume of referrals from the LTC Facilities.

• OldCo and the LTC Facility owners would benefit from the formation of NewCo.

Based upon these factors, the OIG concluded that the proposed arrangement might be in violation of the anti-kickback statute because it permitted the parties to be paid based upon the volume or value of referrals to items and services that might be reimbursed by federal healthcare programs, Rea explains. In particular, OldCo would be indirectly paying the LTC Facility owners a share of the profits from their referrals.