Summary of OIG Advisory Opinion 09-17 

Issued September 30, 2009, and posted October 7, 2009
Written by Claire Turcotte; reviewed by Julie Kass*

In Advisory Opinion 09-17, the Office of Inspector General (OIG) concluded that an arrangement involving a proposed joint venture to provide ambulance services (Proposed Arrangement) would not result in administrative sanctions under the anti-kickback statute.

The Proposed Arrangement involves an ambulance company (Requestor) operating in a specific county (County) with four owners (Owners), including: (1) a subsidiary of a regional nonprofit healthcare system providing healthcare services that makes no referrals to the Requestor; (2) a subsidiary of a nonprofit, charitable healthcare system that provides hospital, ambulance, home health, and skilled nursing services, neither of which own hospitals or nursing homes in locations where the Requestor is licensed to operate and which do not refer to the Requestor; (3) an Owner-Manager nonprofit medical transportation services company, which generally does not make referrals to the Requestor but may do so in emergency situations where the Requestor has the closest ambulance to an area where the Owner-Manager is under contract to provide services, which occurs only two to three times per month; and (4) an Owner-Hospital located in the County that does not own, operate, or provide ambulance services, and which contracts with the Requestor for ambulance services.

Each of the four Owners has a 25% ownership interest and 25% voting rights. Each Owner has made an equal capital contribution to the Requestor to fund the purchase of five ambulance vehicles, guaranteed in equal proportions a bank line of credit taken out by the Requestor, agreed to contribute equally in response to any capital calls, and would receive distributions in proportion to its ownership interests and capital contributions.

The Owners formed the Requestor to bid on a request for proposal (RFP) from the County's Emergency Medical Authority (EMA), which contracts with a single EMS provider on behalf of local municipalities to provide EMS through its 911 dispatching system. Historically, the EMA had difficulties with ambulance companies because of deficient services and financial failures. The EMA chose Requestor from several bidders. Under the EMA contract, the Requestor's sole compensation consists of payments from patients and their insurers, including Medicare and Medicaid.

In addition to services under the EMA contract, the Requestor entered into a non-exclusive preferred provider contract (Transport Agreement) with the Owner-Hospital as the preferred source for scheduled medical transportation services on an as-needed basis. The Requestor must accept all patients referred to it under the Transport Agreement without regard to the patient's insurance status or ability to pay. Under the Transport Agreement, the Requestor bills third-party payors or private-pay patients, or is paid by the Owner-Hospital for services "under arrangements" at fair market value rates, as certified by the Requestor.

In addition, the Requestor and the Owner-Manager entered into a four-year Management and Operations Services Agreement for the Owner-Manager to provide management and operations services, systems, and personnel to the Requestor. Under the Management Agreement, the Owner-Manager's management fee is a percentage of the Requestor's gross revenues, and the Requestor has certified the management fee is fair market value.

In determining whether the Proposed Arrangement would present an unacceptable risk of fraud and abuse under the anti-kickback law, OIG reiterated its longstanding concerns about problematic joint venture arrangements between those in a position to refer business and those furnishing items or services payable by federal healthcare programs. Specifically, OIG noted that joint venture arrangements raise concerns under the anti-kickback statute because they pose a risk that income from the venture may be payment for referrals to the venture or to co-investors. See OIG's 1989 Special Fraud Alert on Joint Venture Arrangements (51 FR 65372) and 2003 Special Advisory Bulletin, "Contractual Joint Ventures" (68 FR 23148).

OIG indicated that the arrangement failed to satisfy the small entity investment safe harbor because, among other reasons, the Owner-Hospital's and the Owner-Manager's combined 50% stake in the Requestor exceeds the 40% ownership permitted by the safe harbor. As a result of this failure, OIG carefully scrutinized the facts and circumstances of the Proposed Arrangement to determine if the risk of fraud and abuse was sufficiently low. Based on a review of the totality of facts and circumstances, as certified by the Requestor, OIG concluded that it would not impose administrative sanctions under the anti-kickback statute.

In particular, with respect to the Owners' return on investment for the Proposed Arrangement, OIG concluded that the Proposed Arrangement presented a low risk that returns are in exchange for making referrals to the Requestor for the following reasons:

1. The substantial majority of the Requestor's revenue is from the EMA contract, which consists solely of EMS calls dispatched through the County's 911 system, and the Requestor won the EMA contract through a competitive RFP process;
   
   
2. The Proposed Arrangement promotes public health because it is a more reliable and stable provider of emergency transportation services for County residents than historical providers;
   
   
3. The Proposed Arrangement presents a low risk that it relies on referrals from the Owners, since the revenues attributable to the Owner-Investors are far below the 40% threshold in the small entity safe harbor;
   
   
4. The Requestor's distributions to Owners are strictly in proportion to each Owner's 25% ownership interest and capital contribution, which reduces the risk of rewarding referral sources; and
   
   
5. The Requestor is an equity joint venture in which each Owner has assumed genuine business risk by committing financial resources, as distinguished from joint ventures in which an owner makes little to no financial investment but provides substantial referrals.

With respect to the Transport Agreement, OIG concluded that the Transport Agreement did not appear to pose an undue risk of fraud and abuse for the following reasons:

1. The Transport Agreement presents no substantial risk of "swapping" discounts on patients paid for by the hospital in exchange for referrals of Medicare patients for whom the ambulance company could bill Medicare directly at a higher non-discounted rate; and
   
   
2. The Transport Agreement does not present a significant risk of overutilization because discharge services and interfacility transports entail a prearranged third-party destination, and the Owner-Hospital has an incentive not to overutilize services "under arrangements" as it bears the risk of billing and collecting from third-party payors and patients, but must pay the Requestor a fair market value rate, whether or not it collects.

OIG concluded that the Management Agreement failed to satisfy the personal services and management contract safe harbor because the aggregate compensation paid to the Owner-Manager is not set in advance, but rather is a percentage of the Requestor's gross revenues. Nevertheless, OIG concluded that the Management Agreement and its role overall in the Proposed Arrangement posed an acceptably low risk of fraud and abuse for the following reasons:

1. There is little risk that the management fee is a disguised method of paying the Owner-Manager for referrals to the Requestor;
   
   
2. The Requestor has certified that the management fee is fair market value; and
   
   
3. The Management Agreement satisfies all other conditions of the personal services and management contracts safe harbor.

For all of the above reasons, OIG concluded that it would not impose administrative sanctions under the anti-kickback statute on Requestor. However, OIG expressly cautioned that similar arrangements with different facts and circumstances could be highly prone to fraud and abuse and could lead OIG to a different conclusion.

The Fraud and Abuse Practice Group Leadership would like to thank Advisory Opinions Task Force Members Claire Turcotte, Esquire (Bricker & Eckler LLP, Cincinnati-Dayton, OH), and Julie Kass, Esquire (Ober Kaler Grimes & Shriver, Baltimore, MD), for respectively drafting and reviewing this summary.