The Office of Inspector General issued Advisory Opinion No. 08-10 on August 19, 2008 regarding a proposal for a physician group practice to lease a facility owned by the practice on a part-time basis to other physician groups for the groups to provide certain radiation therapy treatments to their patients. The physician group practice that owns the facility had requested this advisory opinion from the OIG on whether the OIG considers the proposed part-time (i.e., block) leases of the facility to other physician groups would generate prohibited remuneration under the Federal anti-kickback statute.
Under the proposed block lease arrangements, the physician group that owns the facility would enter into a series of lease agreements with urologist groups under which the urologist groups would lease, on a part-time basis, the space, equipment and personnel services necessary to perform intensity-modulated radiation therapy (“IMRT”) for their patients. Each urologist group would lease examination and treatment rooms at the facility for fixed periods of at least eight hours per week, in the same space where the physician group owners of the facility currently provide IMRT. The urologist groups would also lease equipment and personnel necessary to provide their patients with IMRT at the facility. The physician group practice owners of the facility would provide the urologist groups with radiation supplies and billing services. Individual radiologists who currently perform services billed by the physician group owner of the facility would enter into contracts with the urologist groups to supervise the IMRT procedures, as independent contractors for the urologist groups.
In exchange for the space, equipment and services, the urologist groups would pay the physician group owner of the facility space rent, equipment rent, personnel expenses, and communication and administrative expenses. Compensation under the leases would be for fixed amounts set in advance and would not vary with the use of the premises, equipment or services. The physician group owner of the facility had certified to the OIG that the leases would be at fair market value pursuant to a fair market value study prepared by an independent third party.
Currently, the physician group owner of the facility bills the technical and professional components of IMRT services it provides to Medicare beneficiaries under its billing number. Under the proposed block lease arrangement, the professional and technical components of the IMRT would be billed to Medicare using billing numbers assigned to the urologist groups. The urologist groups would pay the amounts owed under the lease agreements to the physician group owner of the facility, regardless of the number of patients they referred to the facility and regardless of whether the urologist group collected fees for the procedure from Medicare or other payors.
In analyzing the proposed block lease agreements under the Federal anti-kickback statute, the OIG initially commented that the series of agreements that make up the proposed block lease arrangement are in effect a contractual joint venture between the physician group owner of the facility and the urologist groups. The OIG reiterated its concerns with contractual joint venture arrangements that were described in the OIG Special Advisory Bulletin on contractual joint ventures issued on April 30, 2003.
The OIG commented that the proposed block lease arrangement would have the same characteristics of the contractual joint venture described in the Special Advisory Bulletin. In the Special Advisory Bulletin, the OIG described a health care provider that contracted out substantially the entire operation of a line of business to a potential competitor in return for a the profits of the business as remuneration for the competitor’s federal program referrals.
Under the proposed block lease arrangement, the OIG commented that the urologist groups would be expanding into a related line of business, IMRT, which is dependent on referrals from the urologist groups. The urologist groups would not actually participate in performing the IMRT, but would contract out substantially all IMRT operations, including the professional services necessary to provide the IMRT. An important comment by the OIG was that the urologist group would effectively commit little in the way of financial, capital, or human resources to the IMRT and, accordingly, would assume very little business risk. However, the urologist groups would be in a position to insure the success of the business, not only by referring to the facility for IMRT, but by the choice of IMRT over other available therapies for prostate cancer.
The OIG also described the following elements of the proposed block lease arrangement that were also present in the suspect contractual joint venture described by the OIG in the Special Advisory Bulletin:
(1) The physician group owner of the facility is an established provider of the same services that a urologist group would provide under the proposed block lease arrangements;
(2) A urologist group would use the premises, equipment and staff of the physician group practice owner of the facility to provide the same services, IMRT, to its own patient base;
(3) The aggregate income to the urologist groups under the proposed arrangement would vary with referrals from the urologist groups to the facility;
(4) The physician group owner of the facility (and its radiologists) and the urologist groups would share in the economic benefit of the IMRT.
Based on the aspects of the proposed block lease arrangement, the OIG concluded that they were unable to exclude the possibility that the parties’ contractual relationship is designed to permit the physician group practice to do indirectly what it cannot do directly, which is to pay the urologist groups a share of the profits from the IMRT referrals. The OIG further commented that if the intent of the proposed block lease arrangement were to give the urologist groups remuneration through the IMRT to induce referrals to the physician group owner of the facility, the anti-kickback statute would be violated.
In summary, this advisory opinion is an example of the OIG concluding that an arrangement may generate illegal remuneration in violation of the anti-kickback statute even though all of the agreements (i.e., lease agreements) that make up the arrangement each individually meet a safe harbor to the anti-kickback statute. The illegal remuneration, in part, in this proposed arrangement is the opportunity to generate a fee and a profit that the physician group owner of the facility would be providing to each of the urologist groups under the proposed block lease arrangements.