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OIG Issues Unfavorable Opinion on Proposed Joint Venture

The Office of the Inspector General (OIG) issued an unfavorable advisory opinion with respect to a joint venture between a pharmacy and long term care facilities.

The proposed arrangement would include a long term care pharmacy incorporated in the requestor’s market area. The owners of the long term care pharmacy would include an employee of the requestor and one or more long term care facility owners. The requestor provides services to long term care facilities and the employee is a pharmacist for the requestor and also serves as a consultant to long term care facilities.

Under the proposed arrangement, the long term care facilities and the employee would receive shares in this new company based on capital contributions and services provided. The newly incorporated pharmacy would enter into a contract with the requestor where it would pay the requestor a management fee for providing office space, day to day management of operations, inventory storage and billing services. The new corporation would not have any employees. Some of the products and services delivered to customers by the new corporation would be covered and reimbursed by federal healthcare programs.

The OIG highlighted certain elements that make this arraignment susceptible to Anti-Kickback violations. These elements include the fact that the long term care facility owners would be starting a business that was based on referrals from the long term care facilities and their income would be proportionate to the volume of referrals they provided; the long term care owners would have minimal financial risk because they controlled the amount of work being referred; requestor can provide all the services that the newly created company could provide and is in a position to do so; the management fee that the new company would pay to the requestor is contingent on the amount of referrals from the long term care facilities; and the requestor and the long term care facilities would share in the economic benefit of this new company.

The OIG concluded that this business arraignment could be a way to reward the long term care facility for providing referrals.

If you have any questions or concerns about any current or proposed business arrangements or Anti-Kickback related issues, please contact a Wachler & Associates Attorney at 248-544-0888 to discuss these issues.

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