No. 05-11: Hospital's Proposed Charitable Donation
On August 9, 2005, the OIG issued an advisory opinion regarding a hospital's proposed charitable donation (Proposed Donation) of a medical office building to a state-affiliated medical school for use as a family medicine clinic. The OIG analyzed the Proposed Donation under the antikickback statute, 42 U.S.C. §1320a-7b(b).

The hospital (Hospital) at issue is owned and operated by a for-profit company (Hospital Owner). For over 30 years prior to the Hospital Owner's acquisition of the Hospital, the Hospital operated its own hospital-based residency programs. However, once the state university's (University) medical school (Medical School) was formed, the Hospital and other hospitals in the area (collectively Area Hospitals) ceased their programs in order to jointly operate nine residency programs with the Medical School.

In addition to inpatient residency programs, the Medical School operates an outpatient family medicine clinic (Clinic). The Clinic provides a significant amount of care to a medically underserved population. It is the largest provider of Medicaid and uncompensated care in the city and a significant percent of its patient population reside in a medically underserved area. Physicians (Faculty Physicians) employed by the Medical School as faculty members also provide services to Clinic patients. Part-time Faculty Physicians receive a fixed annual salary that includes compensation for clinical services; however, full-time Faculty Physicians receive an annual salary in addition to compensation for clinical services. When funds are available, Faculty Physicians are also eligible for bonuses; however, the Medical School does not take into account the Faculty Physicians' referrals to the Hospital or other institutions in determining bonuses.

The Clinic is housed at two different sites that are laden with shortcomings, such as: (a) the facilities are outdated, (b) patient populations are outgrowing the available space, (c) the delivery system between the two sites is fragmented, and (d) the distance from a hospital requires ambulance transport in emergencies and acts as a hindrance to the provision of obstetrical care.

For a number of years, the Hospital and its previous owner wanted to consolidate and relocate the Clinic into a more modern building located on the Hospital's campus in the hopes of addressing the Clinic's shortcomings. Now, the Hospital Owner has proposed donating a building on the Hospital's campus (Building), to the University for use as a family medicine clinic (New Clinic). Faculty Physicians, hospital residents, fellows and medical students would staff the New Clinic. The Hospital Owner would enter into a long-term, nominal value, ground lease of $1 per year. The University would assume full responsibility for the New Clinic's operational costs. The Hospital Owner would have no involvement in any decision-making related to the New Clinic, including decisions regarding the types of services to be offered at the Clinic. However, if the Building is not used for the agreed-upon purposes, i.e., use as the New Clinic, ownership of the Building would revert back to the Hospital Owner and the ground lease would terminate.

The Proposed Donation will not be subject to any explicit or implicit requirements as to referrals to the Hospital Owner. Furthermore, with respect to the Faculty Physicians and other affiliated physicians, the University has asserted that: (1) it will not require or encourage them to refer patients to the Hospital Owner; (2) it will not track referrals made by them to the Hospital Owner or other institution; (3) the physicians' compensation (including salaries and bonuses) will not relate to the volume or value of referrals to the Hospital Owner or any institution and will reflect fair market value; and (4) the University will provide written notice of these limitations to the physicians on an annual basis.

Finally, the Hospital Owner has certified that it has not, and will not, provide the University with any free or below-market-value goods or services that are directly or indirectly related to the Building, including utilities, expenses, and any applicable taxes.

In analyzing the Proposed Donations, the OIG recognized that charitable donations play an essential role in sustaining and strengthening the "health care safety net." The OIG further acknowledged that although donors and donees often have ongoing business relationships, support for charitable organizations is usually motivated by bona fide charitable purposes. Furthermore, the OIG stated that an ongoing business relationship between a donor and donee does not, by itself, make a charitable donation suspect under the antikickback statute.

On the other hand, the OIG noted that the Proposed Donation could implicate the antikickback statute simply because it is a substantial donation from a hospital to a referral source. Further, the OIG determined that the movement of the Clinic to the Hospital's campus would "cement" the parties' relationship and could disadvantage the Hospital's existing or potential competitors. However, for the following reasons, the OIG concluded it would not impose sanctions.

First, the Proposed Donation would provide a benefit to Medicaid or uninsured patients. The New Clinic will be able to serve a greater number of these patients and in a more efficient manner.

Second, the Proposed Donation continues the Hospital's and University's shared mission of educating physicians and providing quality care to their state's citizens. The OIG found this minimized the likelihood that the parties' motivation was to increase referrals. In addition, the OIG concluded that a significant increase in referrals was unlikely due to the entities' pre-existing relationship and any such increase may be offset by the New Clinic's commitment to providing care to underinsured or uninsured patients.

Third, the OIG found that the University's imposition of limitations on the physicians would restrict its ability to direct referrals of Faculty Physicians and other affiliated physicians.

Finally, the OIG looked favorably upon the fact that the University will own and operate the New Clinic and that the Hospital Owner will have no involvement in decisions related to the donated Building.

Though the OIG does not specifically identify the University and Hospital as being part of an academic medical center (AMC), this is almost certainly the case. As such, the OIG's treatment of this arrangement appears to follow the lead of Advisory Opinion 02-11 regarding charitable donations between components of an AMC. As in Advisory Opinion 02-11, the OIG, in the current opinion, looked favorably upon the entities' shared mission related to physician education and the provision of quality medical care. Advisory Opinion 05-11 is also consistent with the OIG's approval of arrangements reflecting bona fide charitable purposes (e.g., Advisory Opinions Nos. 00-11, 01-02, and 01-19).

No. 05-12: Joint Venture to Establish Day Treatment Facility
On October 31, 2005, the OIG issued an advisory opinion regarding a group of psychiatrists' proposal to enter into a joint venture to establish a day treatment facility to provide psychiatric services to pediatric patients. The OIG analyzed the proposed arrangement under the antikickback statute.

The psychiatrists at issue (Psychiatrists) each have an independent private practice with a pediatric focus. The Psychiatrists engage in similar types of psychiatric practice and rarely refer patients to each other. Under the proposed arrangement, the Psychiatrists would form a partnership to establish a pediatric psychiatric day treatment facility (Facility). The Facility would provide six hours of supervised care per day as appropriate for those patients who require intense therapy but not hospitalization. Under the proposed arrangement, each Psychiatrist would invest one-third of the capital necessary to establish the Facility, hold a one-third ownership interest, and receive returns proportionate to his investment. No part of any Psychiatrist's investment will involve a loan from the Facility. The Psychiatrists will be able to refer patients to the Facility but will not be required to do so. In addition, the Facility will not provide the Psychiatrists with information about the volume or value of their co-investors' business.

Approximately 95 percent of the Facility's revenues would be generated by clinicians not affiliated with the Facility. The only federal health care program beneficiaries who would be treated at the Facility would be Medicaid HMO enrollees; and these patients would constitute no more than five percent of the Facility's patients. Furthermore, revenue generated from the care of Medicaid HMO patients who are referred by the Psychiatrists is expected to account for no more than two percent of total Facility revenue.

Patients admitted to the Facility must first undergo an evaluation. Patients referred by a clinician other than one of the Psychiatrists may be evaluated by another qualified health care provider or one of the Psychiatrists. Patients who are referred by a Psychiatrist, however, must be evaluated by a health care provider without an ownership interesting the Facility. Evaluators (a Psychiatrist or other health care provider) are compensated for the evaluation from a third-party payor. Where such compensation is not available, the Facility will compensate the evaluator based on fair market value and will not take into account the volume or value of the evaluator's referrals.

After noting its "longstanding concerns about health care ventures among investors who are potential sources of Federal health care program business for the venture or for co-investors," and after concluding that the arrangement would not fit into the safe harbor for investments in small entities (because the "entire investment interest is held by investors who are in a position to refer patients to the entity"), the OIG nevertheless concluded that the proposed arrangement "includes several factors" — summarized below — "that, taken together, adequately mitigate the risk of Federal health care program fraud and abuse."

First, it is unlikely that the proposed arrangement is intended to serve as a vehicle for compensating the Psychiatrists for referring federal health care program beneficiaries to the Facility. Most notably, perhaps, "[o]nly a small part of the [F]acility's revenue (i.e., no more than two percent) is expected to derive from Medicaid HMO patients referred to the [F]acility" by Psychiatrists, and all of these patients "will undergo an independent evaluation by an evaluator whose compensation is not contingent on the results of the evaluation."

Second, because the Psychiatrists are competitors "with a corresponding incentive to retain patients rather than refer them to a co-investor," it also is unlikely that the proposed arrangement is intended to serve as a vehicle to "reward referrals of Federal heath care program beneficiaries by the investors to one another."

Third, given the limited number of program beneficiaries referred by the Psychiatrists, the fact that these patients will be Medicaid managed care plan enrollees, and the requirement for an independent, pre-admission clinical evaluation, there is minimal risk that the arrangement "will drive overutilization of items or services reimbursed by a Federal health care program or result in excessive Federal expenditures."

Fourth, although the OIG has a "longstanding concern" that "segregating Federal and non-Federal business into legally separate providers of services may result in (1) inflated charges for services provided to Federal beneficiaries or (2) payments for referrals to the entity serving Federal beneficiaries being channeled through the non-Federal entity," several features of the proposed arrangement mitigate the risks of such abuse. Most notably, perhaps, "[t]he [F]acility's line of business — pediatric psychiatric day treatment — inherently limits the universe of potential Federal health care program patients to children, a group primarily represented in the Medicaid population." In addition, "while Medicaid fee-for-service beneficiaries" (and other pediatric federal health care program beneficiaries) will be referred elsewhere, "the Psychiatrists have certified that they do not, and will not, directly or indirectly own or control any other Facility that provides comparable services."

While Advisory Opinion 05-12 is helpful in confirming that joint ventures that do not satisfy the small entity safe harbor may be permissible under the antikickback statute, the reach of the opinion is limited. The OIG is quick to caution that this was a very fact-specific inquiry. In fact, the OIG takes the unusual step of providing an example of changes to the proposed arrangement that might have led to an unfavorable advisory opinion. Specifically, the OIG cautions that a different result may have been reached if the Facility was established to treat "a higher percentage, or different type, of Federal health care beneficiary."