OIG Provides Guidance On Problematic Joint Venture


On April 14, 2011, the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services posted an Advisory Opinion that provided insight into the OIG’s analysis of "problematic" joint ventures (JVs) under the federal Anti-Kickback Statute:  (http://oig.hhs.gov/fraud/docs/advisoryopinions/2011/AdvOpn11-03.pdf)

This Advisory Opinion is noteworthy because the proposed JV so closely resembled a “problematic” joint venture, according to previously published OIG guidance (a 1989 Special Fraud Alert (reissued in 1994) and a 2003 Special Advisory Bulletin), that requesting OIG approval seems almost to have been an exercise in futility.

The proposed JV was between an employee of a long-term care pharmacy (its director of business integration) and one or more long-term care facility owners.  The purpose of the JV was to provide long-term care pharmacy services to long-term care facilities.  From the OIG’s perspective, this arrangement was “problematic” for the following reasons:

  • The JV would be engaging in exactly the same business as the long-term care pharmacy (i.e., the provision of pharmacy services to long-term care facilities)
  • All of the personnel and other services necessary for the JV’s day-to-day operations would be provided by the long-term care pharmacy (the JV would have no employees of its own and would store all of its inventory either with its customers or the long-term care pharmacy)
  • All decisions associated with the operation of the JV would be made by the long-term care pharmacy
  • Although bills for the JV’s services would be issued in its name, the long-term care pharmacy would provide the necessary billing services for the JV
  • The long-term care facility owners who would be investing in the JV would be able to control, and profit from, referrals to the JV

Thus, the OIG concluded that the proposed JV “could potentially generate prohibited remuneration under the anti-kickback statute” and refused to rule out the imposition of sanctions on the participants in the JV. 

The OIG was unswayed by the parties’ efforts to ensure that at least some of the aspects of their proposed JV were in line with prior OIG guidance.  For example, the investors in the JV would receive ownership interests in proportion to their investments, and would receive distributions from the JV in proportion to their ownership interests; and the management fee payable to the long-term care pharmacy would be based on fair market value.

However, because the JV’s business would be so closely aligned with that of the long-term care pharmacy, and because the long-term care facility owner investors would be taking on “minimal” or “nonexistent” financial and business risk, there was a “significant” risk that this JV was a mere “vehicle to reward the LTC Facility owners for their referrals.”

This Advisory Opinion serves as a potent reminder that before beginning to negotiate a joint venture, providers should carefully review the OIG's guidance to ensure that their efforts will not be doomed from the start.

 
 
 
 
 

Duane Morris Health Law

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