OIG approves physician plan to invest in HMO

Physicians with spare cash and an itch to invest should pay attention to this one. The latest OIG advisory opinion gives a thumbs-up to doctors who wanted to invest in a managed care organization.

The ruling’s important because such partnerships between provider and managed care will become more common as health care reform progresses, says Neil Caesar, a Greenville, SC, attorney. Yet the elaborate analysis underlying Opinion No. 98-19 suggests that providers need to move cautiously before investing in joint ventures. "This is a great idea," says attorney Randi Kopf, in Bethesda, MD. "But the opinion shows it has to be structured very carefully."

Indeed, OIG makes plain what its real concern is regarding such a venture. "Our initial inquiry is whether the distributions from the joint venture may be 'disguised' remuneration to the IPA physician-shareholders for referrals of their patients to the joint venture," says the opinion. Yet the agency also concedes that Congress doesn't mind doctors investing in managed care, because, for example, it allows provider-sponsored organizations to enter Medicare+Choice contracts.

In this case, a company with an HMO and a preferred provider subsidiary will sell an interest — described only as less than 15% — to a big Independent Physician Association (IPA) with 2,200 shareholder-physicians. In return, the IPA will become the exclusive physician provider panel for all of the company's managed care business, and it will sign physician service agreements with its doctors to service the HMO. In addition, the IPA will sign 10-year contracts to handle management and administration for the HMO.

Despite its concerns, OIG concluded the deal poses a minimal risk of kickbacks. First, much of the HMO's business is with group insurance, so doctors can't influence referrals unless they actively market the HMO. Second, profits from the venture will flow through the IPA, not the physicians. Most importantly, distribution will be based on ownership in the IPA and not the value of referrals.

Because the HMO's parent company is owned by hospitals, OIG also considered whether this created a potential kickback relationship between the IPA's doctors and the hospitals they deal with. Yet regulators were reassured because, again, profit distribution will be based on the IPA's investments and not on its referrals to hospitals.

While complex, this kind of joint venture might hold promise for some IPAs, says Kopf. "It's a way for IPAs to breathe life into their organizations," she says. Remember, however, that the advisory opinion only examines the venture in light of the anti-kickback statute. It doesn’t address whether there are potential problems with the Stark self-referral laws, which are administered by HCFA rather than OIG. Getting the regulators' blessing on Stark would mean getting a separate advisory opinion from HCFA.

Anyone considering a provider-HMO venture also should have controls against physician-investors underutilizing services when referring patients to an HMO, warns Caesar. This would boost the HMO's bottom line and thus the physician's eventual profit.

Some Justice Department attorneys, such as Jim Sheehan in Philadelphia, are aggressively campaigning to prove that underutilization is another form of health care fraud.