​The HHS Office of Inspector General issued an ‘unfavorable’ advisory opinion in August with respect to a proposed joint venture relating to interoperative neuro monitoring. Parties considering joint ventures and those in joint ventures should review the OIG analysis to assess compliance with respect to their own situation. 

What You Need to Know:

• Health care joint ventures continue to be an area of interest for the HHS OIG.
• The OIG’s 2003 special advisory bulletin on contractual joint ventures continues to be relevant.
• The facts and the parties’ motivations are critical in performing a fraud and abuse analysis.

In mid-August, the HHS Office of Inspector General (“OIG”) issued Advisory Opinion 23-05  and concluded that a proposed interoperative neuro monitoring (“IONM”) joint venture would generate prohibited renumeration under the Federal anti-kickback statute (the “AKS”). It is not often that the OIG issues an unfavorable Advisory Opinion. Contractual joint ventures – which was the subject of a 2003 Special Advisory Bulletin – remain subject to OIG scrutiny, particularly in this circumstance where the requestor admitted one of its purposes for the proposed arrangement was not to lose business opportunities from competing companies. 

IONM is used to observe a patient’s neurological functions during certain surgeries. IONM has a technical component which involves a neurophysiologist and a professional component which involves a neurologist.

The requestor of the OIG advisory opinion currently contracts with facilities to: (i) perform the technical component of IONM services; and (ii) arrange for the professional component of IONM services with a separate neurology physician practice. The requestor has proposed to “assist physicians who perform surgeries for which IONM is used, and who currently make referrals” to the requester for IONM services with forming a ‘turnkey’ entity to perform IONM services and be owned by those same surgeons. These surgeon owners would have limited participation in the new entity’s day-to-day operations. Rather, the owners would contract with the existing IONM company to perform the billing, collection, and other administrative services and a neurology medical practice to perform the professional component through a billing services agreement and a personal services agreement, respectively.

Importantly, the OIG noted that the existing IONM company wanted to enter the proposed arrangement “for competitive reasons because existing surgeon clients of [the requestor] are continually approached by other IONM companies that are encouraging the surgeons to enter into similar arrangements, and [the requestor] seeks to retain business from its existing surgeon clients that otherwise would be lost to these competing IONM companies.” In addition, the advisory opinion requestor noted it would attempt to ensure the surgeon owners of the new entity not refer their Federal health care program surgical patients to the new entity for IONM services but as a practical matter it would not be able to enforce such restrictions. The requestor anticipated that the new entity would achieve “substantial profits” from the arrangement.

The OIG concluded that the proposed joint venture arrangement has “many” of the factors that are indicators of suspect joint ventures, including:

• There is no AKS safe harbor that can be completely satisfied, which in and of itself does not make a proposed arrangement illegal and the entire set of facts and circumstances need to be evaluated; and
• There is a significant risk of fraud and abuse because the proposed arrangement could be used to induce referrals of Federal health care program business from the surgeon owners to the new entity. 

While each OIG advisory opinion is unique and the OIG’s decision is limited to the actual parties involved, there are several important take-aways that all participants in the health care delivery system should carefully consider with respect to their own business arrangements and dealings:

• Contractual joint ventures remain suspect in the OIG’s judgement. Ventures that include referring investors should strive to construct the proposed arrangement to meet each element of the applicable AKS safe harbor;
• The explicit profit motive/protection of a business interest as a motivator to create the proposed business arrangement that included Federal health care program beneficiaries was cause for concern for the OIG; and
• Creating a joint venture to enable the involved parties to do ‘indirectly’ what they cannot do directly – e.g. a payment for a referral, will likely not be viewed favorably by the OIG.