In the last several years, radiologists who own and operate imaging centers have been confronted with pressures to lease time at their imaging centers to referring physicians on a part-time basis. Such arrangements may comply with the Stark exceptions, but raise concerns under the anti-kickback statute. The ARRS Memo spoke with Thomas W. Greeson, partner with Reed Smith LLP, Falls Church, VA, about these arrangements.

What are imaging lease arrangements?

Mr. Greeson: A lease arrangement is an agreement that allows a group of referring physicians, say a group of orthopedic surgeons, to lease an MRI scanner on a part-time basis and bill for the technical component, if structured to comply with Stark, through their group practice number. Rather than just refer their patients to an imaging center, the orthopods lease the facility, pay a lease fee, bill Medicare or other payers and have the opportunity to profit from the arrangement.

These arrangements have come about largely as result of guidance from the Centers for Medicare and Medicaid Services in the Stark II, Phase I, final Stark rule published in January 2001 and reaffirmed in last year’s Phase II rule. Under the Stark rules, groups could not only bring imaging services into their offices, protected by the in-office ancillary services exception, but could also do so in shared imaging arrangements in their own building.

The 2001 rule also provided that so-called “per-unit” or “per-click” lease arrangements satisfy the “set in advance” requirement under Stark exceptions. Consequently, per-click lease arrangements have been proliferating since publication of the Phase I rule four years ago. Many referring physician groups insist on these types of arrangements, but the Office of Inspector General (OIG) actively dislikes them.

If CMS finds these lease arrangements acceptable, are they okay under the fraud and abuse laws?

Mr. Greeson: They are not okay unless they are also structured to address anti-kickback risks. Over the past two years, the U.S. Department of Health and Human Services OIG has repeatedly voiced its skepticism and concern regarding what the OIG refers to as contractual joint ventures.

In April 2003 the OIG issued a special advisory bulletin on contractual joint ventures. The bulletin described a health care provider in one line of business that had expanded into another line of business through a lease arrangement with another entity, for example an imaging center.

OIG indicated that these types of arrangements are suspect under the anti-kickback statute when there is a difference between the reimbursement for the service that is received and the fee paid by the group leasing the center.

The OIG refers to this as the “money left on the table” (i.e., profit), which may constitute prohibited remuneration from the imaging to the leasing group for the referral of Medicare patients. The OIG believes this “money left on the table” may serve as an inducement to refer Medicare patients to the imaging center.

Are there characteristics of suspect lease arrangements that the OIG has identified to look out for?

Mr. Greeson: The OIG bulletin includes an illustrative, but not exclusive, list of “indicia” that separately or together may indicate a suspect contractual joint venture arrangement that is prohibited by the anti-kickback statute. The indicia are as follows:

New line of business: A medical specialty group expands into services that can be provided to its existing patients (i.e., MRI services).
Captive referral base: The new business predominantly or exclusively serves the leasing group’s existing patient base and is not intended to expand and serve patients outside of that category.
Little or no bona fide business risk: The leasing group’s primary contribution to the venture is referrals. It makes little or no financial or other investment in the business, assuming only risks such as nonpayment for services (which can be planned for based upon historical activity). Despite the lack of risk based upon contributions to the business, the leasing group still retains profits from the services provided to its captive referral base.
Status of imaging center as potential competitor to leasing group’s new line of business: The imaging center has the capacity to provide virtually identical services itself and to bill for those services in its own name.
Imaging center provides substantial services necessary for leasing group’s business: The imaging center provides key services such as management, billing, equipment, personnel and related services, office space, training and health care items/supplies/services. The greater the total services provided to the lessee by the imaging center, the greater the “suspectness” of this indicator.
Residual profits for leasing group: The practical effect of the entire arrangement is that the leasing group is able to bill payers for services provided by the imaging center, and the profits for the leasing group vary with the value and volume of the business.
Exclusivity: The leasing group is barred from providing the services of the business to any patients other than its own referrals and/or the imaging center is barred from providing services in its own right to the patients of the leasing group.
In addition to the bulletin, the OIG has issued two negative advisory opinions regarding lease agreements. What can you tell us about these?

Mr. Greeson: In June of last year, the OIG issued a negative opinion in response to a proposal by a multi-specialty physician group to develop and own a physical therapy center and lease the center’s space, equipment and personnel to physicians with patients requiring physical therapy services.

The OIG noted that failure to qualify for a safe harbor does not make lease arrangements illegal per se, but concluded that the parties could potentially be subject to penalties under the anti-kickback statute due to a number of factors that create what the OIG perceives as an unacceptable level of fraud and abuse risk.

One potential fraud and abuse problem cited by the OIG was the overlapping, as-needed nature of the leases that would make it difficult to monitor, assess and document fair market value. Such overlapping arrangements are typical in per-click lease agreements for imaging services.

Finally, the OIG cited risk created by guaranteeing a certain income stream from the physical therapy center by basing the rental payments from all lessees on the total rental value of the equipment, space and personnel services of the physical therapy center, rather than on each lessee’s individual usage of the physical therapy center.

The OIG is concerned that a guaranteed income stream could constitute a form of compensation in exchange for referrals. Thus, the OIG concluded that because the physician group’s proposal could potentially generate prohibited remuneration under the anti-kickback statute, it did not qualify for safe harbor protection and that the OIG could potentially impose administrative sanctions on the physician group in the event it was to proceed with its proposal.

Was the second opinion the same?

Mr. Greeson: Last December, the OIG reiterated its “longstanding concerns” regarding contractual joint ventures in another advisory opinion. Specifically, the OIG takes issue with what it views as “turn-key” arrangements where the leasing physician group commits little or nothing in the way of financial or human resources to the arrangement and, therefore, assumes no real business risk. The OIG did not accept the argument that the lessee physician groups incur business risk through the requirement that they pay a flat monthly fee, regardless of how often or how little they utilize the leased facility since the lessor admitted that the monthly fee would be established based on historical usage data for the physician group. The OIG felt that use of historical data would allow the parties to set a monthly fee that could easily be met by the physician groups based on past business generated. In sum, the OIG noted that:

The leasing company was in a position to be a competitor to the physician groups.
The aggregate payments to the company would vary with the volume of referrals by the lessee groups.
The two parties would share in the economic benefit generated by their referrals.
Although certain aspects of the arrangement could potentially qualify for protection under a safe harbor, the arrangement as a whole and the profit it generates for the physician groups could not be protected under safe harbor.
The OIG concluded that the proposal appears to be constructed for the purpose of doing what the leasing company could not otherwise do directly—that is, pay the physician groups for patient referrals and, thus, could expose the parties to the imposition of sanctions.

Does this mean that one must avoid lease arrangements altogether?

Mr. Greeson: Not necessarily. Properly structured lease arrangements can be organized to comply with Stark and should be capable of withstanding scrutiny under the anti-kickback statute. We recommend that our clients who enter into lease agreements look to block-time lease arrangements, where specific date and time slots are set in advance, and thus meet the equipment and space rental safe harbors.

If blocks of scans or blocks of hours of scan time are leased, pricing must be set to make sure the lessee is incurring genuine business risk. We suggest they avoid arrangements that vary pricing based on the volume or value of referrals.

Will these arrangements continue to proliferate unabated?

Mr. Greeson: Hard to say for sure, but probably not. The OIG has too many concerns. MedPAC has recommended steps to Congress to eliminate many such arrangements, and payers like Highmark Blue Cross Blue Shield in the Pittsburgh area will not permit its participating imaging centers to lease to other physician groups. The Louisiana State Board of Medical Examiners has issued an opinion that per-click lease arrangements violate the state’s anti-kickback law. If other states or other payers follow their lead, these arrangements could disappear.