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

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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