The advisory opinion was requested by three affiliated entities — a university, a non-profit academic health system and a non-profit physician group. The health system employs 600 physicians, and the physician group employs 800. The physician group has no corporate or individual shareholders and does not make any distributions to its employed physicians. Both the hospital’s and physician group’s employed physicians receive a base salary with some performance-based incentives, and the groups certify they meet fair-market-value requirements and do not take into account the volume or value of referrals.
The university operates a medical school; the physician group is the only faculty practice affiliated with the medical school; and over two-third’s of the health system’s flagship hospital’s admissions are attributed to the faculty. The health system has a 99-year affiliation agreement with the university, and the physicians group has numerous professional services agreements with the health system.
The groups wish to jointly develop a new comprehensive ambulatory care facility to consolidate services for a variety of outpatient services that are currently spread throughout the system’s facilities. The proposal is described in the opinion in the following manner:
“The new facility would have larger exam rooms to accommodate the presence of residents and other providers. The Affiliated Requestors assert that the ambulatory care center would provide a better experience for patients both by easing overcrowding and providing for more parking availability, while enhancing the research and educational opportunities for faculty and students of the University’s medical school. In addition, the Proposed Arrangement would reduce overall costs by eliminating duplicative technology, equipment, and supplies when the clinics and other facilities are consolidated in one building.”
In order to develop the new facility, the physician group and the health system have formed a non-profit organization, and both groups plan to contribute equal assets to the new organization and share governance equally. The groups certified that none of them could reasonably finance the project alone. The new organization has hired a valuation firm to assure both group’s contributed assets are of equal value. Specifically, each group will contribute the following assets:
“The Health System would contribute assets that include the following clinics: audiology and aural rehabilitation; blood and marrow transplant; breast center; ear, nose and throat; ophthalmology; orthopedics; physical therapy and hand; radiation therapy; surgery; and urology/prostate cancer. The Physician Organization would contribute an imaging center and assets associated with the cancer clinic that is located on the University Hospital’s campus.”
Following this, the joint venture organization would enter into ancillary agreements with both groups at fair-market-rates rates that do not reflect the volume or value of referrals. The organization would then bill third-party payors, including federal healthcare programs, for services. Initially the organization’s profits would be used to repay its debt, but eventually would be distributed in a way that is directly proportional to each party’s capital contribution. No profits would go directly to physicians as neither entity makes distributions to physicians.
According to the opinion, while the OIG has longstanding concerns about problematic joint venture arrangements between those in a position to refer business and those furnishing items or services to a beneficiary of a federal healthcare program, especially joint ventures with 100-percent interested investors, the OIG concluded it would not impose administrative sanctions under the anti-kickback statute in connection with the proposed agreement for the following four reasons:
1. The requestors have longstanding institutional relationships, which they certify complies with the physician self-referral law and the anti-kickback statute. The OIG stated that the new joint venture will extend this relationship and does so in a more efficient way. According to the report, “the Requestors are all components of an academic medical center with longstanding institutional relationships…The structure of the new joint venture will permit the investors to continue their clinical, research, and teaching missions in a more efficient way.”
2. The investors make equal contributions and proportional distributions, and other agreements would meet fair-market-value requirements. Here, the OIG said the joint venture structure mitigated concerns of improper referrals by 1) hiring a valuation firm to certify equal assets are contributed by both groups 2) each group would share equally any gains or losses and 3) there are no individual physician investors.
3. The physicians employed by the organization are not, and will not be, compensated in a way that reflects the volume or value of referrals and will not receive distributions. The OIG determined that the likelihood of payment for referrals under this structure was low due to the fact that neither the health system’s nor physician group’s employed physicians receive distributions or have an ownership interest in either group. The groups further stated that neither the physicians nor the health system would be required to make referrals to one another.
4. The proposal furthers the core mission of the medical center by jointly providing care rather than keeping it fragmented and will reduce costs. The opinion states that as reported the agreement will reduce costs by “eliminating duplicative technology, equipment, and supplies; better accommodating the academic medical center’s current patients; and permitting greater access to educational opportunities for the medical school students and residents at the university.”
Read the complete OIG advisory opinion.
