HHS-OIG’s “Contractual Joint Venture” Doctrine Lives On

Over 20 years ago, HHS-OIG issued a Special Advisory Bulletin on Contractual Joint Ventures (SAB).¹ The SAB was controversial from the moment it was published, principally because HHS-OIG took the position that even if each and every service, lease, and other agreement between parties to a so-called “contractual joint venture” fit squarely into an Anti-Kickback Statute (AKS) safe harbor, the arrangement still could be prosecuted under the AKS. The agency reasoned that, under these contractual joint ventures, one party provides another with an “opportunity to generate a profit,” and this “opportunity” represents a stream of remuneration that (i) is independent of the other remuneration (e.g., money, space, services, etc.) flowing between the parties under their various agreements and (ii) unlike that other remuneration, is incapable of safe harbor protection.

Notwithstanding the controversy surrounding the SAB, HHS-OIG stuck to its guns, issuing several advisory opinions (AOs) applying the contractual joint venture doctrine between 2003 and 2012. Over the ensuing decade, however, HHS-OIG had relatively little to say regarding contractual joint ventures, and some began to wonder whether the agency might have rethought its position. Apparently, it hasn’t. Twice in the past two years, HHS-OIG has issued AOs applying the contractual joint venture doctrine. Most recently, on August 15, 2023, HHS-OIG issued an unfavorable AO (AO 23-05) regarding a proposed intraoperative neuromonitoring (IONM) joint venture.²

Proposed Arrangement

IONM is used to observe a patient’s neurological functions during surgery. AO 23-05 concerns a proposed joint venture between a provider of IONM services (Requestor) and the surgeons who order those services.

Requestor contracts with hospitals and ASCs to (i) furnish the technical component (TC) of IONM services and (ii) arrange for a physician practice (Practice) to furnish the professional component (PC) of IONM services. Surgeons at the hospitals and ASCs ultimately serve as the source of the business for Requestor and Practice, since the surgeons determine whether IONM services are required for a particular surgery.

Under the Proposed Arrangement, these same referring surgeons (Surgeon Owners) would form a new entity (Newco) that essentially would replace Requestor. That is, Newco (and not Requestor) would contract with hospitals and ASCs to provide (or arrange for the provision) of the TC and PC of IONM services for surgeries at those facilities. Requestor and Practice would not have an equity interest in Newco; they would, however, be almost entirely responsible for managing Newco’s day-to-day business operations. Specifically, under a series of services agreements (i) Requestor would provide billing, collection, and other administrative services to Newco, and (ii) Practice would provide (or arrange for the provision of) the TC and PC of IONM services for Newco. Newco would pay Requestor and Practice for these services.

According to Requestor, Newco was expected to earn “substantial” profits under the Proposed Arrangement due to the difference between Newco’s collections for IONM services and the fees Newco would pay to Requestor and Practice for furnishing those services. Requestor and Practice, by contrast, would earn “substantially less” under the Proposed Arrangement, because they would be charging Newco less than they currently bill hospitals, ASCs, and third-party payors for the same services.

HHS-OIG Analysis

In AO 23-05, HHS-OIG concluded that the Proposed Arrangement presented a material risk of fraud and abuse. The agency began by noting that the Proposed Arrangement implicated the AKS because it involved at least three streams of remuneration that could induce the Surgeon Owners to make referrals for IONM services:

• the “discounts” that would be provided by Practice and Requestor to Newco under their services agreements;

• the “returns on investment” the Surgeon Owners would receive due to their ownership interest in Newco; and

• the “opportunity” (provided by Requestor and Practice) for Newco to generate a profit based on the difference between (i) the reimbursement Newco would receive from hospitals, ASCs, and payers for IONM services and (ii) the amount Newco would pay to Practice and Requestor for furnishing those same services.

Consistent with its position in the SAB, HHS-OIG then stated that not all of these streams of remuneration would qualify for safe harbor protection. “For example,” the agency stated, “the opportunity for Newco to generate a profit—through the difference between the fees paid by Newco to each of Requestor and Practice under the services agreements and the reimbursement Newco would receive for such services—would not be protected by any safe harbor.”

Because HHS-OIG concluded that at least some remuneration under the Proposed Arrangement could not be safe harbored, the agency went on to perform a facts-and-circumstances analysis to assess the risk of fraud and abuse under the AKS, concluding that the Proposed Arrangement presented “a host of risks of fraud and abuse,” including “patient steering, unfair competition, inappropriate utilization, and increased costs to Federal health care programs.”

In reaching this conclusion, HHS-OIG asserted that the Proposed Arrangement exhibited many features of the problematic contractual joint ventures described in the SAB. Specifically:

• through the joint venture, the Surgeon Owners would be expanding into a “related line of business”—IONM services—that would be “dependent” on their own referrals;

• the Surgeon Owners’ “actual financial and business risk” under the Proposed Arrangement would be “minimal or nonexistent” because the Surgeon Owners would be in a position to control or influence the amount of business they direct to Newco;

• Requestor and Practice were each an “established provider of the same services” that Newco would provide and, in the absence of the Proposed Arrangement, “would be competitors to Newco”; and

• by entering into the joint venture, Requestor and Practice essentially would be foregoing a portion of the profits they would otherwise earn under their current business model for providing IONM services, while providing the Surgeon Owners the opportunity to share in those profits.

Due to the above factors, HHS-OIG could not exclude the possibility that the Proposed Arrangement could “enable Requestor and Practice to do indirectly what they could not do directly” under the AKS—i.e., “pay the Surgeon Owners a share of the profits from their referrals for IONM services that could be reimbursable by a Federal health care program.” The agency went on to express its concern that “[t]he financial incentives inherent in the Proposed Arrangement could corrupt the Surgeon Owners’ medical decision-making and result in overutilization or inappropriate utilization of IONM services and improper steering to Newco.”

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1. HHS-OIG Special Advisory Bulletin on Contractual Joint Ventures (Apr. 2003), https://oig.hhs.gov/documents/special-advisory-bulletins/885/042303SABJointVentures.pdf; see also HHS-OIG Special Fraud Alert on Joint Venture Arrangements (Aug. 1989), https://oig.hhs.gov/documents/physicians-resources/980/121994.pdf. ↩︎
2. HHS-OIG Advisory Opinion No. 23-05 (Aug. 15, 2023), https://oig.hhs.gov/documents/advisory-opinions/1128/AO-23-05.pdf. ↩︎