Under Arrangements Model Joint Ventures – The End May Be Near

From www.beckerasc.com:

This past week the Center for Medicare and Medicaid Services, took a direct shot at "under arrangements" joint venture structures.  Here, CMS asserted that these arrangements may be abusive and can be used to reward referrals and to game the reimbursement system.

CMS made several core points relating to "under arrangements" structures in its issuance dated July 2nd.  These points are as follows:

1.    It reminds people that a physician can have an incentive to overutilize services if she or he has a financial relationship with the entity that directly furnishes Designated Health Services ('DHS"), even if the physician's entity is not the entity ultimately billing for the services.


2.    CMS states that the physician can potentially recognize a profit from each referral based on the fact that DHS will, in essence, be sold to the entity that bills.


3.    It states "we continue to have concerns with services provided under arrangements to hospitals and other providers.  We believe that the risk of overutilization viewed that we identified in the 1998 proposed rule has continued, particularly with hospital out patient services for which Medicare pays on a per service basis.


4.    It states as to some under arrangements transactions, "there appears to be no legitimate reason for these arrangements for services other than to allow referring physicians an opportunity to make money on referrals for separately payable services".


5.    CMS recognizes and voices concern that many of the services provided by joint ventures were previously furnished directly by the hospital, and in most cases, could continue to be furnished by the hospitals.


6.    It also notes that it is concerned that the services furnished under arrangements are often furnished in a less medically intensive setting than a hospital but bill at out patient hospital PPS rates.  It notes that this costs the Medicare program more and also costs Medicare beneficiaries more.


7.    It notes that physician specialists often set up the underlying joint ventures and include a hospital as an owner in the underlying joint venture.


8.    CMS states that the joint venture then owns an entity that furnishes medically less intensive services than a hospital such as an ASC, an IDTF or a physician office.


9.    It states that it appears that the use of these arrangement can be little more than a method to share hospital revenues with some referring physicians in spite of unnecessary costs to the program and to beneficiaries.


10.  CMS notes that it believes that more and more procedures are being furnished as arranged for hospital services.  It also speaks specially to ASCs. "The provider community is well aware that, effective for services furnished on or after January 1, 2008, Medicare may pay more for hospital out patient surgical procedures than for the same procedures billed by ASCs under the revised ASC payment system."


11.  It also notes that arrangement structures where the referring physicians own leasing, staffing, and other entities that furnish items and services to entities furnishing DHS but do not submit claims, raise significant concerns under the Fraud and Abuse Laws.


12.  CMS notes that we believe such arrangements to be contrary to the plain intent of the physician referral law. CMS, in this overall condemnation of these arrangements states very clearly its concerns that these can be simply a method to provide profits to physicians and to utilize payment differentials for profits. We expect two things to occur. First, in relatively short order, we expect a vast restructuring of theses types of arrangements. Second, we expect there to be a significant chilling on the further development of these types of relationships. Notwithstanding the fact that many people understood the risky nature of these, they continued to develop or try and sell these types of arrangements. It is now likely time, with the government's clear direction, to stop developing such "under arrangements" ventures.

The government in the same issuance, noted significant concerns with per click leasing arrangements as well certain abuses of the in office ancillary services exception under Stark.

Here, CMS stated that it intends to reverse its earlier position that allowed a certain amount of per-click leasing. It states, "we are proposing that space and equipment leases may not include unit of service based payments to a physician lessor for services rendered by an entity lessee to patients who were referred by a physician lessor to the entity. We believe that such arrangements are inherently susceptible to abuse because the physician lessor has an incentive to profit from referring a high volume of patients to the lessee and we would disallow such per click payments."

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