Suspect Joint Ventures under Stark Law and the Anti-Kickback Statute

If it seems as though investment opportunities are flying from the woodwork these days, there's a reason. They are. Throughout most of the 20^th century, physicians earned and enjoyed the highest level of respect from both patients and members of the business community. Sadly, as reimbursements rates drop, investment and business brokers are becoming more unscrupulous in sales tactics which offer "risk-free" investments in ancillary services providers, such as compounding pharmacies, diagnostic laboratories, or more traditional passive investments in medical office buildings, real estate ventures, hospital ownership, and a whole host of other investments.

The trouble lies in the fact that a physician’s referral or signature is required for most any medical device, test, procedure, or service which is covered by governmental medical programs (Medicare, Medicaid, Tricare, Federal Employees Health Benefits, etc.) It would then make terrific business sense to involve in the joint venture a physician who is in a position to make referrals (thereby guaranteeing the success of the venture). While this makes sense, it is also potentially (but not always) highly illegal. Sometimes, safe harbors will protect a joint venture, depending upon the structure.

Because it is sometimes difficult to tell, the OIG originally published a Special Fraud Bulletin in 1994 titled "Suspect Joint Ventures: What To Look For," updated in 2003 in a publication titled, "Contractual Joint Ventures."

From the standpoint of the physician investor, the OIG warns physicians to be wary of the following:

• Investors are chosen because they are in a position to make referrals.

• Physicians who are expected to make a large number of referrals may be offered a greater investment opportunity in the joint venture than those anticipated to make fewer referrals.

• Physician investors may be actively encouraged to make referrals to the joint venture, and may be encouraged to divest their ownership interest if they fail to sustain an "acceptable'' level of referrals.  

• The joint venture tracks its sources of referrals, and distributes this information to the investors.

• Investors may be required to divest their ownership interest if they cease to practice in the service area, for example, if they move, become disabled, or retire.

After 25 years of helping physicians in health law transactions, I would like to add several other items to the list of suspicious sales pitches:

• Pitch: "This is an LLC (limited liability company) the most you can lose is your $10,000 investment. "

My Advice: This is simply not true. The penalties and fines are for making illegal referrals. The liability is determined by multiplying anywhere from $11,000 to $50,000 by the number of claims submitted to the government.

• Pitch: "Don’t worry, our legal department has looked at this and has given the deal the green light."

My Advice: Never trust a salesman who says, "Don’t worry." Get your own legal opinion from a health lawyer who only has your best interests in mind.

• Pitch: "We have been doing this deal for years and never had any trouble."

My Advice: This is exactly why the fines are so large. It is very easy to get away with Stark Law and Anti-Kickback Statute (AKS) violations, for many years. But if you are caught, the damages are catastrophic.

• Pitch: "We have "carved out" Medicare business, so you do not have to worry.

My Advice: Remember, it is the referral which triggers the liability. Many states have AKS statutes which apply to every kind of insurance, not just Medicare and Medicaid. The AMA Code of Ethics, particularly Opinion 8.0321 may also forbid physician self-referral. Also, as the OIG pointed out in Advisory Opinion 13-03, it is possible certain carve-outs do not provide protection from Medicare and Medicaid Fraud and Abuse laws.

In sum, be careful when approached by someone offering an investment opportunity. Always consult an experienced health lawyer if you have questions.