Earlier this month, the U.S. Dept. of Justice (DOJ) announced that federal False Claims Act (FCA) settlements and judgments exceeded $5.6 Billion in Fiscal Year 2021. This is the second largest amount recorded in FCA history and is largely attributable to health care matters. While Covid related fraud represents a growing component of recent DOJ enforcement, its mainstay enforcement activity continues to focus on unlawful kickbacks and unnecessary medical services.
In particular we highlight a recent advisory opinion, OIG Advisory Opinion No. 21-18, regarding a long term care provider’s proposed arrangement with a therapy services vendor. The facts presented in the Opinion are straightforward and include elements not unlike many typical joint venture (JV) and management service organization (MSO) arrangements in the health care space.
A contract therapy provider that provides therapy services, staffing and operations management for rehab programs in, e.g., nursing home and assisted living facilities would establish a JV with an Operator of such facilities (under a 60%-40% split). Profits would be paid to the JV partners on a proportional basis and the Operator would not be directly involved in day-to-day operations of the JV. The therapy provider would enter into a management services agreement to provide clinical and management services to the JV for fair market value (FMV). While referrals from the Operator to the JV were expected, they were not required, although it was likely that the Operator would shift its current therapy business away from its current therapy providers to the JV. The JV would initially become the exclusive therapy provider for the Operator and would not bill federal health care programs directly for its therapy services, instead billing the Operator’s facilities that would pay the JV at FMV. The facilities would, in turn, bill federal health care programs for the JV therapy services.
Initially, the OIG concluded that no safe harbor protection would be available for the arrangement, such as under the Small Entity Investment safe harbor, because more than 40% of the JV would be owned by investors who are in a position to make or influence referrals or who would otherwise generate business for the JV.
However, the OIG goes even further and indicates that even if the arrangement fit the Small Entity Investment safe harbor, it would still be implicated as a suspect joint venture. Suspect joint ventures are not immunized by safe harbor compliance. First described by the OIG in its 2003 Special Advisory Bulletin on Contractual Joint Ventures, OIG deems problematic, a joint venture with certain attributes such as “patient steering, unfair competition, inappropriate utilization, and increased costs to Federal health care programs.”
The OIG concluded that the facts presented may be designed to permit the therapy provider to “do indirectly what it cannot do directly,” namely pay the Operator a share of the profits from the Operator’s referrals, either directly or through its facilities, for therapy services reimbursable by a federal health care program.
While certain facts could presumably be adjusted in similar proposed arrangements that might mitigate some of the OIG’s concerns, such as limiting JV percentages to below 40%, and limiting referrals from JV partners, the overall takeaway is this: the OIG’s 2003 JV guidance remains alive and well as the OIG continues to look upon JV arrangements skeptically and will closely scrutinize such arrangements. Providers are urged to carefully review all JV arrangements in light of the OIG’s 2003 JV guidance, as more recently articulated in OIG Advisory Opinion No. 21-18.
We are available to review and advise on any such arrangements, whether proposed or existing, to assure compliance with current OIG policy interpreting federal and state laws.