Spine Centers of Excellence: Legal Issues and Governance
Almost any type of joint venture between physicians and a hospital is at risk of being found to violate the Federal Anti-Kickback Statute. This is because distributions from the joint venture to the referral source may be characterized as remuneration paid “in return for” or “to induce” referrals in the joint venture. There is a safe harbor provision related to this statute, however in practice, very few joint ventures will actually satisfy the safe harbor requirement. Particularly, the first element of the safe harbor states that no more than 40% of the value of the investment interest of each class of investments may be held in the previous fiscal year or the previous 12 month period by investors who are in a position to make or influence referrals to, furnish items or services to or otherwise generate business for the entity. Note the fact that just because the arrangement does not fall within the safe harbor does not necessarily make it illegal.
Additionally, the Office of the Inspector General (OIG) has issued a special fraud alert with respect to joint venture arrangements. Of the several items that the OIG has identified as suspect, extraordinary returns on investment in comparison with the risk involved has been included.
Additionally, there are certain stark issues that apply and the entity would need to fit within an exception of these requirements.
In some circumstances, the use of a general business corporation as a joint venture entity may be preferable where there is a tax-exempt participant, if the venture will generate income that is “unrelated” to the charitable purpose of the tax-exempt entity.
An additional consideration in the selection of a joint venture model is its anticipated governance. The establishment of a Board of Directors is recommended. The Board should be made up of no fewer than four members and no more than seven members and should include physician and hospital representatives who serve defined terms. The Director of the Spine Center should be a nonvoting member of the Board.
It will be the responsibility of the Board to implement the Center’s mission and vision statements. The Board is also responsible for the following:
- Implementation of standards of care, methods of peer review, utilization review and quality assurance
- Establishment of well-defined clinical protocols and algorithms for the various diseases and conditions that are treated within the Spine Center Establishment of membership requirements in the Spine Center
- Reviewing requests for membership by non-members
- Establishment and approval of Spine Center budgets
- Monitoring the performance of the institute against plans and projections