In an opinion limited to a single case but likely to reverberate through
the entire pathology community, federal investigators have told an anatomic
pathology provider that joint ventures with physician groups could violate
federal anti-kickback laws.
The Dec. 17 advisory opinion from the Department of Health and Human
Services Office of Inspector General reinforces the CAP’s efforts to challenge
the proliferation of contractual joint ventures in which a clinical practice
shares in revenue generated by pathology services for its patients.
The advisory opinion’s release is timely—it came only days after
a Dec. 14 meeting between the CAP and OIG in which contractual joint ventures
were discussed. The College team included Thomas M. Sodeman, MD, CAP president-elect;
Jack R. Bierig, the College’s general counsel; James C. Dechene, a partner
with Bierig at Sidley Austin Brown & Wood; John Scott, CAP vice president
for government affairs; and George Roman, CAP assistant director for professional
The CAP team presented information gathered about suspect joint ventures
College members have encountered and described how contractual joint ventures
unfairly compete with traditional pathology practices. The College was
scheduled to hold additional meetings with CMS officials and key members
of Congress in January to discuss concerns about these joint ventures.
Contractual joint ventures have been the focus of scrutiny by the College,
other pathology organizations, and the federal government during the past
year. The CAP believes they raise troubling legal and ethical issues and
could negatively affect patient care.
The OIG issued its advisory opinion in response to a request from the
operator of what are commonly called "pod" or "condominium" laboratories.
Under this model—one of several types employed under contractual
joint ventures—a third party establishes a centralized collection
of cubicle laboratories, each for the exclusive use of a different group
practice. A single pathologist rotates among all, working as an independent
contractor for each group. The group typically pays a management fee to
the third party and a per-slide fee to the pathologist, and retains any
profit from global billing for the pathology services.
Under the arrangement described in the advisory opinion, the opinion’s
requester offers services exclusively to physician groups specializing
in urology, gastroenterology, or dermatology. The physician groups pay
a flat monthly fee, including a fee for the pathologist’s services; a
per-specimen fee; and, if applicable, a fee for billing and collection
services equal to five percent of the pod laboratory’s total revenue.
In its analysis, the OIG describes the arrangement as "very similar"
to one presented as an example in an April 2003 special advisory bulletin
on contractual joint ventures, which lists seven "indicia" of suspect
contractual joint ventures.
The OIG, in its advisory opinion, said the requester’s joint venture
appears to meet several of the criteria. The government rejects the requester’s
assertion that the arrangement fails to meet the "little or no bona fide
business risk" standard because the client physician groups are responsible
for a monthly fee regardless of their use of the laboratory.
Like the fictional client in the special advisory bulletin example, "the
Physician Group’s actual financial and business risk would be nonexistent
or minimal, because it would have complete control over the amount of
business it would send to the Path Lab and could make substantial referrals
to the Path Lab," the OIG says. "In fact, while our conclusion would be
the same even absent the historical correlation, by basing the Monthly
Fee for each Physician Group on historical utilization data for that Physician
Group, the parties can easily ensure that the business generated by the
Physician Group would be sufficient to meet or exceed the Monthly Fee.
"Similarly," the OIG added, "the Management Agreement’s Per Specimen
Fee and the percentage billing fee (based on net revenues) create virtually
no financial risk for the Physician Group, because the fees would be based
on actual utilization and billing of services."
Following are other elements of the special advisory bulletin that are
present in the arrangement proposed in the advisory opinion:
- The requester, through a conventional anatomic pathology practice
with which it is affiliated, could directly provide pathology services
in its own right, billing insurers and patients in its name and retaining
all available reimbursements.
- Payments to both the requester and the physician groups would vary
based on the volume of referrals to the laboratory.
- The requester and physician groups would share in the economic benefit
of the physician group’s pod laboratory.
"Accordingly, based on the facts presented here," the OIG said, "we are
unable to exclude the possibility that the parties’ contractual relationship
is designed to permit the Requestor to do indirectly what it cannot do
directly; that is, pay the Physician Groups a share of the profits from
their laboratory referrals." The OIG described such profit-sharing as
If the intent of the proposed arrangements was to give physician groups
remuneration through the pod laboratories in exchange for referrals to
those laboratories or the requester’s affiliated anatomic pathology practice,
"the anti-kickback statute would be violated," the OIG wrote. It added,
"Indeed, there is a significant risk that the Proposed Arrangement would
be an improper contractual joint venture that would be used as a vehicle
to reward the Physician Groups for their referrals."
Further, the OIG said, "Where remuneration is paid purposefully to induce
or reward referrals for items or services payable by a Federal health
care program, the anti-kickback statute is violated. By its terms, the
statute ascribes criminal liability to parties on both sides of an impermissible
Responding to the requester’s claim that the proposed contractual joint
venture would conform to the "in-office ancillary services" exception
under "Stark" self-referral prohibitions, the OIG dismissed the link as
irrelevant. "Even if some features of the Proposed Arrangement were to
comply with the Stark Law, such compliance would not affect our analysis
under the anti-kickback statute," the OIG said. "The Stark Law and the
anti-kickback statute are independent legal authorities and each must
be evaluated separately."
In reaching its conclusion that the proposed contractual joint venture
could generate prohibited remuneration under anti-kickback statutes, the
OIG cautions that a definitive judgment requires a determination of intent.
The OIG also notes its standard disclaimers for all advisory opinions:
that they apply only to the facts presented and the parties involved,
are nonbinding, and may not be introduced into evidence in an action involving
The OIG has included a review of contractual joint ventures in its 2005
work plan and continues to express keen interest in the potential for
these joint ventures to violate federal laws. The College will continue
to work with members of Congress and federal regulatory agencies to protect
the interests of patients and pathologists.
Carl Graziano is CAP manager of government communications.