OIG Opinion Underlines AKS Concerns About Healthcare Joint Ventures

Late last year, the Department of Health and Human Services (HHS) Office of Inspector General (OIG) issued a significant Advisory Opinion regarding a proposed joint venture (JV) between a therapy services provider and an owner of various long-term care (LTC) facilities. OIG concluded that it viewed the Proposed Arrangement as presenting a significant risk of fraud and abuse and potentially designed to permit the therapy services provider to pay the LTC owner a share of the profits derived from referrals for therapy services made by the LTC owner’s facilities. The opinion reiterates OIG’s longstanding concern that joint ventures formed between healthcare providers or suppliers and referral sources can present risk under the Anti-Kickback Statute (AKS).

Under the Proposed Arrangement, a therapy services provider would form a JV with an owner of LTC facilities where the JV would provide therapy services to the LTC facilities. The JV would contract out the bulk of operations (all clinical and non-clinical employees, space, and equipment) to the therapy services provider in exchange for a fair market value fee. The LTC owner would hold a 40% interest in the JV and the therapy services provider would hold the remaining 60% interest. The LTC owner’s investment in the JV would be based, at least in part, on the JV’s expected business from the LTC owner’s facilities. The LTC owner’s facilities were not required to contract with the JV or otherwise make or direct referrals to the JV, although the therapy services provider certified that it expected the LTC owner’s facilities to do so, and during the initial phases of the JV all of the JV’s revenues would be generated by services provided to the LTC owner’s facilities.

OIG concluded that the Proposed Arrangement would not satisfy any AKS safe harbors, including the small entity investment safe harbor, because the Arrangement likely violates the investor test, the revenue test, and the investment offer test. Moreover, OIG referred to its landmark 2003 Special Advisory Bulletin on Contractual Joint Ventures, which includes a detailed list of characteristics that OIG considers suspect when present under a contractual JV. Since the JV described in the Proposed Arrangement included several of these previously outlined suspect characteristics, OIG further determined that the proposed JV presents significant risk of fraud and abuse. This Advisory Opinion serves as a useful reminder of the regulatory framework applicable to joint ventures between healthcare providers and entities in a position to refer or generate business for the joint venture. Providers considering joint ventures should ensure that they are structured to comply with AKS and OIG guidance.

For over 35 years, Wachler & Associates has represented healthcare providers and suppliers nationwide in a variety of health law matters. If you or your healthcare entity has any questions pertaining to structuring your practice, the Anti-Kickback Statute, or healthcare compliance, please contact an experienced healthcare attorney at 248-544-0888 or wapc@wachler.com.