Alternative Imaging Business Structures and Arrangements: What’s Legal?

Twitter icon
Facebook icon
LinkedIn icon
e-mail icon
Google icon
In recent years, the diagnostic imaging industry has served as a microcosm, of sorts, for the larger health care industry. Diagnostic imaging has seen rapid technological advances that have dramatically increased diagnostic capabilities and increased demand for services, as well as increases in both the number and types of providers offering imaging services. Such growth, however, has attracted both government’s and commercial payors’ attention, resulting in reimbursement cuts, increased payor management of imaging services, mandatory accreditation standards for imaging providers, and expanded state and federal regulation of imaging providers. It’s not surprising that such a dynamic marketplace has also created considerable innovation, controversy, and opportunity among providers of imaging services. In recent years, we have seen a variety of alternative business structures and arrangements in the imaging industry, including under-arrangement service providers, block leases, per-click leases, shared arrangements, and purchased-service arrangements. Some of these models proved short-lived. For instance, to the extent that so-called pod or condo laboratory arrangements survived the OIG’s negative advisory opinion,1 changes to the supplier standards for IDTFs and Medicare’s purchased-diagnostics rule have eviscerated this alternative business structure. Other models have suffered because of their perceived illegality, arising from widely reported prosecutions and government investigations of similar models. As the government’s claims in such prosecutions and investigations are analyzed, however, one finds that such guilt by association might be unwarranted, since the business models appear to have been mere shields for clearly illegal behavior. CMS has also issued a series of regulatory amendments (many at the urging of the ACR®) to address, at least in part, concerns about the risk of overutilization of diagnostic imaging in such alternative business structures. Given the piecemeal nature of such regulatory amendments and the fact that the regulatory process for amendments affecting the imaging industry has been marked by delayed effective dates, proposals never finalized, and unintended consequences, it is often difficult to determine which alternative business structures are still legal. Before implementing a particular business model, the reader is cautioned to confirm that such a model is legal in the state concerned. Further, compliance with federal law depends upon the details of the particular transaction; therefore, readers should seek guidance from qualified health care counsel before proceeding with a particular transaction. Under Arrangements Effective October 1, 2009, CMS expanded the definition of an entity furnishing designated health services, for purposes of the Stark law, to include both the person or entity that bills for the service and the person or entity that performs the designated health service. Both the professional and technical components of radiology and other imaging services constitute designated health services for purposes of the Stark law. As a result, under-arrangement imaging providers (that is, imaging providers that furnish such services to hospitals, which ultimately bill for those services) generally became subject to the Stark law on October 1, 2009. This means that physician ownership of such under-arrangement service providers now has to comply with an applicable ownership exception to the Stark law in order for the physician owners to continue to make referrals to such service providers. The same issue arises with respect to management arrangements whereby a physician-owned management company is providing turnkey management services. Such management agreements also create concerns under the OIG’s analysis of contractual joint ventures.1 Unless service providers primarily provide care to patients residing in a rural area, there are generally no exceptions to the Stark law available to protect physician ownership of such under-arrangement service providers.2 Nonetheless, because the Stark law defines referrals as excluding referrals from radiologists, to the extent that such referrals originate from a request for consultation from another physician (and otherwise comply with the so-called consultation exception),3 radiologists can continue to own an interest in an under-arrangement service provider without violating the Stark law. In addition to complying with the Stark law, such arrangements must also comply with the anti-kickback statute and Medicare’s under-arrangement billing requirements. Although compliance with the anti-kickback statute ultimately depends upon the parties’ subjective intent, the OIG has generally expressed less concern about financial relationships with radiologists (and other hospital-based physicians) than it has about relationships with other physicians. The rationale for such reduced scrutiny of radiologists is that the OIG has repeatedly called into question a radiologist’s ability to generate referrals. For instance, in a management advisory report issued in 1989, the OIG clearly indicated that its concern under the anti-kickback statute regarding financial relationships between hospitals and hospital-based physicians, including radiologists, is whether hospitals are extracting some type of payment from hospital-based physicians in return for allowing such physicians access to the hospital’s patients.4 This position was reasserted by the OIG in its supplemental compliance guidelines for hospitals, published in January 2005, and in several favorable advisory opinions concerning joint-venture arrangements between hospitals and radiologists.5 Because it is unlikely that such an arrangement will fit within any safe harbors from the anti-kickback statute, the parties will want to scrutinize such arrangements and build in sufficient safeguards to minimize the risk that the OIG could successfully characterize the arrangement as a violation of the anti-kickback statute. In our experience, one of the biggest anti-kickback concerns in radiology ventures is the radiologists’ provision of interventional procedures. The inclusion of radiologists who furnish interventional services results in such radiologists being treated as any other referring physicians, for purposes of the anti-kickback statute, which will raise the overall anti-kickback risk associated with participation in such a venture. Per-click Leases In addition to expanding the definition of an entity, the final Hospital Inpatient Prospective Payment System (IPPS) for 2009 also generally prohibited per-unit or per-click rental arrangements under the Stark law, in situations where such rental charges reflect services furnished to patients referred by either physician lessors or physician lessees. Hence, a hospital can no longer lease a 64-slice CT unit from a cardiology group on a per-click basis (at least for purposes of referrals from the cardiology group that would require using that CT equipment). CMS also excluded, from the rental exceptions to the Stark law, equipment- or space-rental arrangements whereby the rental charges are based on a percentage of revenue raised by, earned by, billed for, collected for, or otherwise attributed to the services performed or business generated in the space (or by use of the equipment). Although these changes, which went into effect on October 1, resulted in the restructuring of many per-click arrangements, they had minimal impact on radiologists because radiologists rarely make referrals, for Stark law purposes. Hence, per-click or percentage-of-revenue rental arrangements are still legal business structures for rental arrangements involving radiologists. If the imaging provider is enrolled in the Medicare program as an IDTF, however, the IDTF supplier standards would prohibit the IDTF from leasing its equipment to another person or entity enrolled in the Medicare program, regardless of the terms of the rental payment.6Block Leases In a block-lease arrangement, an imaging provider leases a block of time to another service provider, which will bill the service as its own. This business structure is often used by imaging providers to address the issue of excess capacity. In its commentary on the 2009 IPPS update, CMS made clear that its prohibition of per-click rental arrangements is not intended to prohibit block-lease arrangements, so long as the block of time is not so artificially small as to be, in effect, a per-click arrangement, or so excessive as to suggest that the lessor is paying for space and/or equipment that is not needed.7 CMS went on to suggest that a block of time consisting of four hours, one day per week, would be artificially short. A more reasonable approach, however, might be to consider the modality subject to the block lease in determining whether a particular block of time is artificially small. For instance, it would be reasonable to expect CMS to treat the lease of radiography equipment to a primary care physician for four hours per week differently than it would treat the lease of PET equipment to a neurologist for four hours per week. As with per-click arrangements, block leases of equipment and space are generally not allowed under the IDTF supplier standards. CMS, however, recognizes an exception to the IDTF supplier standard prohibiting sharing equipment or personnel so long as the IDTF is hospital based. Block-lease arrangements must also be structured to take into account the markup prohibition of the purchased-diagnostics rule, along with Medicare’s physician-supervision rules. CMS has made it clear that it believes that block-lease arrangements raise many of the same concerns about overutilization that are present for per-click leasing arrangements. Accordingly, CMS cautions that “parties entering into block leases should structure them carefully, taking into account the anti-kickback statute.”7 In advisory opinion 08-10, the OIG also raised the issue that turnkey block-lease arrangements, like turnkey management agreements, might result in a potentially impermissible contractual joint venture under the anti-kickback statute.8 Shared Arrangements Shared-equipment or shared-expense arrangements are popular in medical office buildings where two or more physician practices share imaging equipment that is housed in a centralized location within the building. From the perspective of the Stark law, such arrangements can be structured to fit within the in-office ancillary-services exception.9 Nevertheless, ensuring compliance with the requirements of the Stark law, the purchased-diagnostics rule, and the physician-supervision requirements for such arrangements presents complicated structural and operational issues. For instance, if the equipment owner provides personnel to operate the equipment, it risks becoming an entity furnishing designated health services under the Stark law, which would then require an ownership exception if there are any physician owners of the equipment. Similarly, if the arrangement is structured so that the physician practices enter a lease for the shared equipment, such leases are typically structured as block-lease arrangements because CMS has taken the position that on-demand leases constitute per-click leases (and the indirect-compensation exception prohibits per-click lease arrangements). As with any financial relationship with potential referral sources, shared-imaging arrangements pose risks under the anti-kickback statute. To the extent that there are any referrals among the various practices sharing the imaging equipment, it will be necessary to structure the arrangement to avoid even the appearance that any participant is underwriting another participant’s use of the shared equipment.10 Purchased Services Although state law may place restrictions on the ability of an imaging provider to sell the technical component of imaging services to another person or entity, such arrangements can generally be structured to comply with the Stark law and anti-kickback statute. Nonetheless, the popularity of such arrangements has declined, given the changes to the markup prohibition of the final purchased-diagnostics rule amendments, as set forth in the Medicare Physician Fee Schedule update for 2009, which went into effect on January 1. On October 8, the Medicare Payment Advisory Commission (MedPAC) held a session at its public meeting on the in-office ancillary-services exception to the Stark law.11 Although CMS has requested public comment on this exception for some time, the session represents MedPAC’s first attempt to delve into the issue. The presentation used imaging services as its example of the need to address the in-office ancillary-services exception, citing both the growth of imaging modalities in physician offices and the perception that utilization increases with physician ownership. The MedPAC staffer presenting to the commission offered three possibilities for modifying the exception, with regard to imaging services: exclude all imaging services from the in-office ancillary-services exception, exclude imaging services that are not generally performed the same day as the office visit from the scope of the exception, or exclude imaging from the scope of the exception unless the physician group is paid on a capitated basis for imaging services. The commission asked a number of questions about utilization of imaging services and the availability of imaging data after the effective date of the DRA. Although MedPAC’s recommendations to CMS might ultimately be very different from the suggestions offered at the meeting (and CMS has the ultimate authority to determine whether, and how, to amend the in-office ancillary-services exception), the mere fact that MedPAC is considering the issue suggests that a group practice’s ability to offer imaging services within its practice might be short-lived. Thomas E. Bartrum, JD, Esq, is a shareholder in the Nashville, Tennessee, office of Baker Donelson Bearman Caldwell & Berkowitz, PC, where he focuses his practice exclusively on federal health care regulatory issues affecting health care providers; tbartrum@bakerdonelson.com.