MRI investment guidelines stress value of arm's length

Contract Language. By Steven M. Harris, amednews contributor. Aug. 4, 2003.

CONTRACT LANGUAGE

A column examining the ins and outs of contract issues

SEE ARCHIVES

The Office of Inspector General recently issued two advisory opinions regarding physician-hospital joint venture ownership of freestanding MRI facilities.

In both cases, the OIG stated that while both proposed joint ventures potentially could generate prohibited remuneration under the federal anti-kickback statute, it will not impose administrative sanctions in connection with the proposed arrangements if certain factors are addressed within applicable contracts.

While both opinions are not intended by the OIG to be relied upon by any person other than the requestors of these opinions, the following contract issues should be used as guidelines:

Physician investors are not referral sources for the MRI or hospital.
A small percentage of the MRI's referrals, less than 10%, will come from the hospital or physicians who are employed by the hospital, and the hospital will continue to own and operate its own radiology department.
The hospital demonstrates that it will take the following steps to limit its ability to direct or influence referrals: refrain from taking any action to require or encourage affiliated physicians to refer patients to the facility; not track referrals made by affiliated physicians to the MRI; pay affiliated physicians compensation, whether pursuant to employment or personal services contracts, that will not be related directly or indirectly to the volume or value of referrals or other business generated by such physicians to or for the MRI; and pay such compensation with fair market value in arms' length transactions.
Any return on the hospital's or the physician's investment in the MRI will be proportional to its respective capital investments. It will not be based on the previous or expected volume of referrals, services furnished, or the amount of business that might otherwise be generated from either investor to the MRI.
The ancillary contracts do not increase the risk of fraud and abuse. For example, under a professional services contract between the MRI and the radiology group, the radiology group will be the exclusive provider of professional radiology services and the MRI and will accept, as payment in full for such services, reimbursement from patients and their third-party payers and no payment will flow from the MRI to the radiology group or the investing radiologists for such services.
The staffing, equipment and lease assignment contracts will be pass-through contracts. The payments that the MRI will be required to make under each contract will be equal to the expenses incurred and should be consistent with fair market value in arm's length transactions.
The arrangement should be a legitimate, bona fide business venture with the following revenue characteristics: All potential investors were offered the opportunity to purchase investment interests on the same terms and conditions; returns on the investment interest are, have been, and will continue to be proportional to the investor's capital contribution; and less than 40% of revenue of the MRI center is derived from business generated by interested investors.
The joint venture has none of the suspect characteristics identified in the OIG's 1989 Special Fraud Alert on Joint Ventures such as nominal capital contributions, disproportionate return on investment, or selective investment opportunities based on referral volumes.
For rural communities, the joint venture was developed as a community-oriented effort to provide access to MRI services in a rural area and shall provide a substantial benefit to the community.

Harris, a partner at McDonald Hopkins in Chicago, concentrates on health care law and has counseled physicians, physician networks and health care groups nationally. The author and publisher are not rendering professional advice and assume no liability in connection with its use. He can be reached at 312-280-0111, or by email (sharris@mcdonaldhopkins.com).