As commercial and government health program administrators continue to ratchet down reimbursement to physicians, opportunities to invest in health care joint ventures offer an attractive means of augmenting a professional’s income. These ventures involve a number of health care arrangements and popular models are available such as management service organizations (“MSOs”), physician owned distributorships (“PODs”) and ambulatory surgery centers (“ASCs”). The manner in which these ventures are structured and implemented do come with varying degrees of legal risk ranging from the safe to the scary. This article presents a concise summary of risks inherent in the popular models noted above.
Perhaps the riskiest of these three models is the MSO. The entity is frequently structured to have one or more physician investors whose medical practices are managed by an organization that provides services to improve efficiency of the delivery of care and services. The source of revenue to the MSO often comes from the vendors of services ordered by the physician practices. The cost for the physician investor to purchase an investment interest in the MSO is typically small and projected returns are often handsome. Promoters of these arrangements rely on limiting their efficiency efforts to non-federal payment programs to avoid enforcement of Federal anti-kickback and Stark laws by the Office of Inspector General (“OIG”). While this offers some degree of risk avoidance, Texas has a Patient Anti-Solicitation Statute that applies to all payment programs. A violation could subject a physician to sanctions against his or her license. Promotional materials for these ventures often cite safe harbors to demonstrate risk assessment for personal services and management agreements and small entity joint venture investments. The cautious investor should employ due diligence in determining the extent to which the elements of the safe harbor are reflected in the business practices of the enterprise.
Another common health care investment is the POD. These entities typically deal in medical devices and implants that are developed or purchased for sale and distribution to facilities such as surgery centers and hospitals. This type of business arrangement has not been the subject of a safe harbor by the OIG. The OIG has offered some “guidance” in this area and cites the following practices or characteristics as “problematic” and worthy of investigation: (1) utilization of facilities conditioned on the purchase of items from the POD; (2) POD owners required or pressured to use facilities that have purchase arrangements with the POD; (3) POD repurchase rights if a POD owner does not adhere to referral or utilization requirements and (4) PODs that do not monitor product safety and quality and do not employ sufficient staff to conduct such operations. In addition to these risk areas, physician owners are required under both Texas and Federal law to disclose to patients their specific ownership interests and risk sanctions on their licenses for failing to disclose. In the absence of a specific POD safe harbor, a prudent physician investor could gauge the level of risk by assessing the entity’s compliance with the elements of the small entity joint venture investment safe harbor since it most closely tracks the guidance provided by the OIG.
The ASC investment poses the most reliable means of legal compliance. A safe harbor was issued by the OIG in 1999 and since that time, more than a dozen advisory opinions have been issued that address unique characteristics of various proposed business arrangements. The safe harbor describes various ASC types including single specialty ASCs, multi-specialty ASCs, Surgical ASCs and physician-hospital owned ASCs. Regardless of the type, all forms require that the physician owner-investor be an active utilizer of the facility. Further, the safe harbors require minimum levels of utilization and professional medical income earned from the facility. An area of risk unique to ASCs, is the inability of a physician owner-investor to meet the use and income requirements. Many centers require their physicians to certify that the requirements have been met.
There is some recognition from an advisory opinion that substantial compliance could be acceptable if that occurred only occasionally and if the physician could demonstrate that the activities at the center represent an extension of the physician’s clinic practice. A notable limitation of the ASC investment vehicle is that it is not available to physicians who do not use the facility such as primary care physicians. There has been development of ASC support organizations such as MSOs owned by physicians who cannot directly invest in the ASC such as primary care physicians and those investment arrangements would be subject to the same safe harbor compliance requirements discussed above.
Another recent approach that involves greater risk is the ASC that segregates the ownership interests based upon the type of service the physician provides. For example, general surgeons are placed in one group while pain management physicians are placed in a different group. While this is possible from a state law business organizational perspective, the distribution of profits from each group does not squarely meet the safe harbor requirement that returns on investment can only be based upon the investor’s ownership interest.
The abbreviated analysis of these three types of investment alternatives represents a view from 30,000 feet. To assure compliance, the prospective investor would be wise to have his or her advisor get into the weeds on health care investment opportunities. If you are considering an investment in a joint health care venture, you will want personal advice from a health care law expert. Contact Larry “Max” Maxwell for a consultation before making a decision.