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GREGG D. REISMAN, ESQLEGAL COUNSEL
910
he Stark Reality About Shared Nuclearedicine Imaging Equipment Leasingrrangements After January 1, 2007
orton L. Travis, Esq, Steven J. Chananie, Esq, Jacqueline H. Finnegan, Esq
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NTRODUCTION
re you currently involved in, orontemplating entering into, ahared equipment leasing arrange-ent for nuclear medicine imaging
quipment? Although such ar-angements have for many yearseen required to comply with theederal antikickback law, effectiveanuary 1, 2007, nuclear medicinemaging equipment arrangementsill also be required to comply with
he requirements of the federal phy-ician self-referral law (commonlyeferred to as the Stark law). There-ore, serious consideration must beiven to whether these types of ar-angements should be entered intond, if already in existence, whetheruch arrangements will need to beestructured before January 1,007, when nuclear medicine andositron emission tomographicPET) scans will officially be con-idered “designated health services”DHS) for purposes of the Starkaw.1
Although compliance with bothhe Stark and antikickback laws hasong been required for the leasing ofther diagnostic imaging equip-ent, such as magnetic resonance
maging (MRI) scanners, com-uted tomographic (CT) scanners,nd ultrasound equipment, the in-
In light of the 9% increase in the utilization ofuclear medicine and PET scans between 1993nd 2004, Congress added nuclear medicine andET scans to the list of DHS because of its con-ern that physicians investing in imaging centersay be ordering unnecessary scans to enhance
sheir own reimbursement.
lusion of nuclear medicine systemsnd PET scanners as DHS for theurposes of the Stark law will have aignificant impact on existing andontemplated arrangements foruch equipment. For example, phy-ician practices leasing nuclearedicine systems and PET scan-
ers must have offices in the sameuildings in which the leasedquipment is located. Additionally,f the leasing physicians are other-ise referral sources to the physi-
ian practices from which thequipment is leased, the arrange-ents must be structured to avoid
he “suspect” characteristics of con-ractual joint ventures, as articu-ated by the US Department of
ealth and Human Services Officef Inspector General (OIG).
This column addresses some ofhe key legal issues as they relateo a case study involving a sharedease arrangement between a radi-logy practice and an orthopedicsractice for the use of a PET scan-er. We note that although thepplication of the Stark law to thease study does not apply untilanuary 1, 2007, any contem-lated nuclear imaging arrange-ents should be structured to
omply with the Stark law in lightf the impending applicability ofhe statute.
ASE STUDY
niversal Radiology is a radiologyractice that owns certain diagnos-ic imaging equipment (eg, a CT
canner, an MRI scanner, nuclear c0091
edicine systems, PET scanners,ltrasound equipment). Centralrthopedics, an orthopedic prac-
ice, has approached Universal Ra-iology to lease its PET scanneruring certain hours when it is nottherwise being used. Central Or-hopedics also wishes to lease (1)he office space in which the PETcanner is located and (2) Universaladiology’s technicians to adminis-
er the scans. Central Orthopedicsill furnish the PET scans to itswn patients and will bill for suchervices under its own billing num-er.2
PPLICATION OF THEEGAL REQUIREMENTSO THE CASE STUDY
an Universal Radiology enter intohese lease arrangements with Cen-ral Orthopedics without violatinghe Stark or antikickback laws?3 As
We note that the discussion of the applicabilityf the Stark and antikickback laws applies notnly in leasing arrangements but also in owner-hip arrangements. We further note that al-hough this case study is limited to the use of aeased PET scanner, the Stark and antikickbackaws may also be implicated if Central Orthope-ics refers patients to Universal Radiology forther diagnostic imaging procedures, such asRIs, CT scans, or ultrasounds, and therefore,
uch referrals must independently satisfy thetark law exceptions or the antikickback safe har-ors. An analysis of these situations, however, iseyond the scope of this column.We note that state laws also govern these typesf arrangements but are outside of the scope ofhis column. To the extent that you are involvedn the type of arrangements discussed in this ar-icle, you should seek advice from your local
ounsel as to the implications of your state’s laws.© 2006 American College of Radiology-2182/06/$32.00 ● DOI 10.1016/j.jacr.2006.09.008
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Legal Counsel 911
iscussed below, the answer de-ends on how the arrangement istructured.
he Stark Law
he Stark law generally prohibits ahysician from making referrals ton entity for the furnishing of cer-ain DHS reimbursable by Medi-are if the physician (or an immedi-te family member of thehysician) has a direct or indirectnancial relationship with that en-ity, unless an exception to the laws satisfied [1]. If the referral is pro-ibited, so too is the submission ofclaim for payment by the entity
hat receives the prohibited referral.hese prohibitions extend to refer-
als made to outside physician prac-ices as well as to physicians withinhe same practice. The penalties foriolating the Stark law include (1)he denial or the required refund ofny payments for services that re-ulted from an unlawful referral,2) civil monetary penalties, and (3)xclusion from federal health carerograms.Under the Stark law, there areany different categories of DHS,
ncluding, but not limited to, cer-ain radiology services, such as
RIs, CT scans, and ultrasoundervices, as well as nuclear medicinend PET scans as of January 1,007 [2]. Given that these radiol-gy services qualify as DHS underhe Stark law, a prohibited referralay occur if a physician from Cen-
ral Orthopedics refers a Medicareatient for one of these radiologyervices to either (1) Universal Ra-iology or (2) another physicianho is a member of Central Ortho-edics. Because there exists a finan-ial relationship between the refer-ing physician and Universaladiology (created by the sharedquipment lease arrangement) ornother physician within Central
rthopedics (created by the com- iensation arrangement betweenhe physicians or the practice), andreferral has been made for DHS
the radiology services), the Starkaw will be violated unless an excep-ion is satisfied.
With respect to the case study,he most obvious reason for Uni-ersal Radiology and Central Or-hopedics to enter into a lease ar-angement for a PET scanner is toermit Central Orthopedics to per-orm and bill for the PET scans itrders on its own patients. This in-ernal referral within Central Or-hopedics will violate the Stark lawhen a scan is performed on aedicare patient unless Centralrthopedics complies with the re-
uirements of Stark’s “in-office an-illary services” exception [3]. Thisxception is designed to allow phy-icians in a group practice to fur-ish DHS that are ancillary to thehysicians’ core medical practice as
ong as such services are provided inlocation where the core medical
ervices are routinely delivered [4].o qualify for this exception, how-
ver, Central Orthopedics musteet numerous requirements, in-
luding the supervision, location,nd billing requirements of the ex-eption.
Although a detailed analysis ofach of the requirements of the in-ffice ancillary services exception isutside of the scope of this column,ne of its key requirements, as ap-lied to the case study, is whetherhe PET scanner is located either in
“centralized location” or in thesame building” in which Centralrthopedics maintains an office.he arrangement between Univer-
al Radiology and Central Ortho-edics does not qualify for the cen-ralized location requirement,ecause Central Orthopedics doesot exclusively own or operate (on a4/7 basis) the part of the building
n which the PET scanner is lo- fiated. The space is owned by Uni-ersal Radiology and leased part-ime by Central Orthopedics,eaving neither party with exclusivewnership of the space. Central Or-hopedics may, however, satisfy theame building requirement, pro-ided the practice has an office inhe same building in which theET scanner is located. There are 3eparate tests, any one of whichay be met, to satisfy the same-
uilding requirement [5]. For ex-mple, under one of these tests,entral Orthopedics would need toaintain an office (in the same
uilding in which the PET scanners located) that is normally open ateast 8 hours a week, and a memberf the group practice must regularlyractice medicine and furnish ser-ices to patients (some of whichust be unrelated to the use of theET scanner) in the office at least 6ours per week.Assuming that the same building
nd all other requirements of then-office ancillary services excep-ion are satisfied, a shared equip-ent leasing arrangement is, as a
hreshold matter, at least a possibil-ty under Stark. In addition, how-ver, if Central Orthopedics makesther referrals to Universal Radiol-gy, then other applicable Stark lawxceptions must be met relating toll aspects of the financial relation-hip between the parties (ie, the ac-ual leasing of the equipment,pace, and personnel). The applica-le Stark exceptions for each ofhese leasing arrangements require,or instance, that the lease be inriting, that the term be at least 1ear, and that the price be set indvance at fair market value in aanner that does not take into ac-
ount the value or volume of anyeferrals between the parties.
If the Stark law requirements areot satisfied under either the in-of-
ce ancillary services exception,
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912 Legal Counsel
ith its same building requirement,r the other applicable exceptions,he shared leasing arrangement williolate the law. In such a case, botharties, Universal Radiology andentral Orthopedics, could be sub-
ect to sanctions and penalties.
he Antikickback Law
s if complying with the Stark lawere not enough, physicians in-olved in shared equipment leasingrrangements must also complyith the federal antikickback law ort within all applicable safearbors. The antikickback law pro-ibits the offering, payment, solici-ation, or receipt of any remunera-ion (including kickbacks, bribes,r rebates, whether in cash or inind) in return for the referral ofatients for the purchasing or leas-ng (or the ordering, recommend-ng, or arranging) of items or ser-ices for which payment may beaid in whole or in part by “a fed-ral healthcare program,” including
edicare and Medicaid [6]. Viola-ion of this law is a criminal offensehat could result in significant finesr imprisonment for both sides ofn illegal kickback arrangement. Inddition, substantial civil monetaryenalties and administrative penal-ies, including exclusion from fed-ral and state health care programs,ay also result from violations of
he antikickback law.Applying the antikickback law to
he facts of our case study, if Cen-ral Orthopedics is in a referral re-ationship with Universal Radiol-gy, the leasing arrangement couldotentially violate the antikickback
aw because the lease payments mayonstitute remuneration for the re-errals. For example, if Central
rthopedics refers Medicare oredicaid patients to Universal Ra-
iology for other radiology services,uch as CT scans or ultrasounds,
he lease payments could constitute bemuneration and could be seen asotential kickbacks for such refer-als if, for example, the paymentsere for less than fair market value.herefore, to the extent that a refer-
al relationship exists, the arrange-ent should be structured to satisfy
ll of the applicable antikickbackafe harbors, which include thoseor space rentals, equipment rent-ls, and personal services and man-gement contracts [7].
In general, these safe harbors re-uire the same provisions as thoseequired by the Stark law excep-ions for equipment and spaceeases, as discussed above. The mostmportant requirement, however, ishat the prices paid for the space,quipment, and personnel must beet in advance and consistent withair market value. These safe har-ors serve to protect against the riskhat the arrangement will be viewedy the OIG as a disguised kickback.Assuming that all aspects of the
rrangement in the case study com-ly with all of the requirements ofhe applicable antikickback safearbors, there is still a risk that theIG may nonetheless find the ar-
angement to violate the antikick-ack law because Central Orthope-ics, the referral source, is beingiven the opportunity to bill for aervice that could have otherwiseeen billed by Universal Radiology.he OIG has taken the position
hat the transfer of a revenue streamo a referral source constitutes re-uneration in certain arrange-ents often referred to as “contrac-
ual” joint ventures.4
Of particular concern to theIG are “turnkey” type arrange-ents, in which referring physi-
ians (Central Orthopedics) ex-and into a new line of business
The OIG addressed the issue of contractualoint ventures in an April 2003 special advisory
pulletin and Advisory Opinion 04-17.
PET scanning services) to serviceheir existing patient population byontracting with an existing pro-ider or potential competitor (Uni-ersal Radiology). This is particu-arly suspect to the OIG when theeferring physicians contract outhe entire operation (ie, space,quipment, and personnel) to theirotential competitor in return forhe ability to retain the profits fromhe radiology referrals they wouldtherwise be unable to retain. Inhis situation, the OIG may viewentral Orthopedics as doing vir-
ually nothing except profitingrom the arrangement. Also of con-ern to the OIG is the fact that theeferring physicians assume little oro risk when entering into this new
ine of business. This is highlightedy the fact that the referring physi-ians commit virtually nothing inhe way of financial, capital, or hu-an resources. Under the OIG’s
ationale, paying a set rental feeoes not constitute financial riskecause the referring physicians canncrease the amount of businesshey do (ie, referring more patientsor PET scans) and thus obtain aindfall in return for their PET
can referrals.In essence, the OIG views these
ypes of arrangements as nothingore than a way for the provider ofMedicare service, such as Univer-
al Radiology, to indirectly pay itseferral source, Central Orthope-ics, a share of the profits fromentral Orthopedics’ PET scan re-
errals, something that clearly is im-ermissible under the antikickback
aw. In short, the OIG has statedhat these types of “contractual”oint ventures may be problematicf structured in such a way that per-
its the parties to do indirectlyhat they cannot do directly (ie,aying for referrals).Thus, if Central Orthopedics
rovides referrals to Universal Ra-
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Legal Counsel 913
iology for services reimbursablehrough federal health care pro-rams, such as Medicare and Med-caid, precautions must be takenhen structuring the leasing ar-
angement to avoid the concernsrticulated by the OIG. This re-uires careful analysis of the factorshe OIG considers suspect, includ-ng (1) whether Central Orthope-ics is entering into a new line ofusiness (ie, providing PET scan-ing services); (2) whether Centralrthopedics is assuming any real
isk by contributing something tohe venture other than referrals (ie,nancial, capital, staff); (3) whetherniversal Radiology, the would-be
ompetitor, is providing or per-orming many or all of the day-to-ay operations necessary for the
ew line of business (ie, by provid- eng equipment, office space, andersonnel); and (4) whether theET scanning services permit Cen-ral Orthopedics to collect revenueor tests that otherwise would haveeen provided by Universal Radiol-gy.
ONCLUSION
f you are considering entering intoshared equipment leasing ar-
angement for diagnostic imagingquipment, careful considerationust be taken to ensure that the
rrangement complies with all ap-licable Stark law exceptions andntikickback safe harbors and is nottructured in a way that the OIGould view as suspect. This is noth-ng new for physicians involved inhe leasing or sharing of MRI
quipment, CT scanners, and ul- 7rasound equipment. However, forhysicians currently involved in, orontemplating entering into,quipment leasing arrangementsor nuclear medicine systems andET scanners, this a new require-ent that carries with it hefty fines
or failing to comply.
EFERENCES
. 42 USC § 1395nn.
. 42 USC § 1395nn(h)(6); 42 CFR § 411.351.
. 42 CFR § 411.355(b).
. Stark II Phase I Regulations (Preamble), 66Federal Register 856, 888 (Jan. 4, 2001) (Pre-amble to the Stark II Phase I Regulations).
. 42 CFR § 411.355(b)(2). See also Stark II,Phase II Regulations (Preamble), 69 FR16,054, 16,073 (Mar. 26, 2004).
. 42 USC § 1320a-7b(b).
. 42 CFR §§ 1001.952(b)-(d).
orton L. Travis, Esq. and Steven J. Chananie, Esq., are partners and Jacqueline H. Finnegan, Esq., is an associate in the Greateck, NY office of Garfunkel, Wild & Travis, PC, a specialty health care law firm with offices in NY and NJ.he authors can be contacted at: Garfunkel, Wild & Travis, PC, 111 Great Neck Road, Great Neck, NY 11021; e-mails:[email protected]; [email protected]; [email protected].
