Publications: Update On Per-Click And Time-Share Lease Arrangements Still Too Good to Be True?

In June of 2004 I wrote an article for this publication describing the legal risks arising out of per-click and time-share leases between imaging centers and referral source physicians—risks that extend to both sides of the transaction. In that article, I characterized these leases as “too good to be true.” Given the proliferation of these leases throughout the country and the significant interest in this issue by imaging centers and physicians alike, I was asked to provide an update on what has been happening in the marketplace on these types of “lease” arrangements since publication of the original story. I was also asked whether my “too good to be true” prediction still applies—see what you think after reading this update.

A Little Background

In the good old days, there were imaging centers that provided services to patients referred by physicians in the area. Physician referrals were based on the quality and convenience of the imaging center. As more imaging centers entered the market, the competition among centers increased. After a while, many markets were oversaturated and imaging centers faced underutilization. At the same time, physician expenses were increasing and their revenues were decreasing. Given these dynamics, it wasn’t long before physicians and imaging centers joined together to solve their respective problems and the “per-click” and the “time-share” leasing concept was born.

Under such a lease arrangement, the imaging center typically allows the referral-source physician to make a relatively small lease payment for the use of the center, its equipment, and its personnel. The referral-source physician then bills the patient’s insurance company as if the physician actually provided the imaging services — after collecting a lot more than the “rental” payment made to the imaging center. The technical fee for the imaging service that in the past had been the exclusive property of the imaging center is now being split with the referral-source physician. This serves to keep the referrals coming to those centers that are willing to share their fees. Some would say that this also helps to increase utilization and to decrease quality.

Legal Issues

There are a variety of laws that may be implicated by these lease arrangements, depending on the facts. If Medicare, Medicaid, or other governmental payer patients are referred, the federal anti-kickback and physician self-referral statutes are implicated and potentially violated. If governmental payer patients are not referred (either as part of a lease arrangement or otherwise), the arrangement may still violate the law if the parties are located in a state with its own anti-kickback and/or self-referral laws that protect private insurance payers from kickback schemes. Additionally, most states have insurance fraud laws. Depending on the scope of the law and the facts and circumstances of the particular lease arrangement, state insurance fraud laws may be violated.

Beyond federal and state law implications, such lease arrangements potentially raise contractual issues. Insurance companies, concerned with skyrocketing increases in imaging claims, are beginning to deny what they refer to as “passthrough” claims submitted by physicians who bill for imaging services that they do not in fact provide in their office but rather through “leased” off-site imaging centers.

What’s New With “Lease” Arrangements

There have been numerous developments directly and indirectly relating to and impacting lease arrangements between imaging centers and referral-source physicians. For example, we have seen national news stories in the Wall Street Journal, recommendations on imaging services by the Medicare Payment Advisory Committee (MedPAC) to Congress, guidance from the Health and Human Services Offices of Inspector General, and actions by states (discussed below).

Perhaps one of the most significant developments was the front page exposé in the Wall Street Journal on May 2, 2005, titled, “MRI and CT Centers Offer Doctors Way to Profit on Scans.” This article provides a very comprehensive look at this practice from a variety of perspectives and concludes that although the bottom line is that “doctors profit on each scan they order and imaging center is more likely to have steady volume,” the problem is that “deals risk clashing with laws on payment for referral and self-referral, and may encourage overuse.” Another Wall Street Journal article appeared on July 28, 2005, covering the federal investigation of a physician in Florida for various alleged fraudulent acts including “lease” arrangements. These two articles served to significantly raise the national level of consciousness on this issue.

Also, in March of 2005, concerned with the quality and increased utilization of imaging services, MedPAC, an independent federal body established to advise Congress on the Medicare program, made a number of recommendations to Congress to improve the quality and the utilization of imaging services. The recommendations include improving Medicare’s ability to audit imaging studies, setting standards for performing and interpreting diagnostic imaging studies for all providers who bill Medicare, measuring individual physician’s use of imaging services to compare practice patterns, and strengthening rules that govern physician investment in imaging centers to which they refer patients.

We are now also looking more closely at an earlier 2004 advisory opinion from the OIG (No. 04 17) that discusses an analogous situation and perhaps indicates where the OIG may come out on imaging lease arrangements. This opinion considered pathology company time-share lease arrangements with referral-source physicians. In this opinion, the OIG concluded that providing referral-source physicians with the opportunity to earn the markup on lab services without incurring any of the business expense or risk in providing lab services could potentially generate prohibited remuneration under the anti-kickback statute for which sanctions could be imposed.

Last June, the Louisiana State Board of Medical Examiners addressed the issue of per-click or per-use arrangements head on. This Board held that an arrangement under which a referring physician “leases” and/or purchases the full complement of technical and professional services necessary to provide imaging services to the physician’s patients on an unscheduled, per-use basis for less than the referring physician’s reimbursement from the patient or the patient’s third-party payer violates the Louisiana anti-kickback law. Physicians who engage in this practice subject themselves to disciplinary action by this Board.

Last spring, in a somewhat analogous case involving electro diagnostic services, the Illinois Attorney General unsealed a whistleblower lawsuit utilizing the relatively new Illinois Insurance Claims Fraud Prevention Act (State of Illinois ex rel Scott Schichtl v. ZT Technical Services, Inc., et al., No. 03 L 00870-4).

In this precedent-setting lawsuit, the Attorney General alleged that the defendant company provided kickbacks to referring physicians for referral of patients for the provision of electro diagnostic services. These alleged kickbacks arose out of arrangements whereby the defendant company “leased” its equipment and technicians to referring physicians, thereby allowing these physicians to bill for the technical component of the service. The whistleblower in this case was a competitor of the defendant.

The Assistant Attorney General who is handling this case advised that the Attorney General has been successful in shutting down the defendants and recovering damages. He further advised that the Attorney General is ready, willing, and able to bring other similar actions where there is evidence of kickbacks to referring physicians for healthcare services and where there is a credible whistleblower.

Given the potential recovery for states and the financial incentives to potential whistleblowers who get a percentage of the fines assessed, such actions are a viable enforcement tool against problematic arrangements involving referralsource physicians.

As mentioned above, the insurance industry, faced with huge increases in imaging services, is showing a significant interest in investigating and putting a stop to per-click and time-share lease arrangements for imaging services.

In August of last year, the National Health Care Anti-Fraud Association sponsored a national audio conference on this topic. The purpose of this association is to fight healthcare fraud, and its members include most all of the major insurance companies as well as many law enforcement liaisons including state Attorneys General and state insurance department investigators.

The conference featured a variety of panelists (myself included) discussing legal issues, financial issues, quality issues, and on-going investigations. One of the panelists—an owner of a privately held imaging company with centers in numerous states whose company does not engage in lease arrangements and as a result has been hurt in the marketplace—discussed the decline in the quality of services provided by imaging centers that engage in the practice. He commented on the fact that the imaging centers that engage in “lease” arrangements are less likely to invest in state of the art equipment and are less likely to focus on quality.

To emphasize his point, this panelist jokingly related the following anecdote: “When a physician is deciding where to send a patient for an MRI, he will send his mother to us but will send his mother-in-law to the center where he has a lease.”

Lastly, given the press coverage that MRI lease arrangements have received, there is anecdotal information that vendors and private-equity companies are also concerned. Loaning money or extending a capital lease for a new MRI machine to a company that engages in a practice that may be closed down by law enforcement, or not reimbursed by an insurance company, obviously carries considerably more risk from a return-on-investment perspective.

The Bottom Line

My bottom-line advice remains the same as in the prior article. These “lease” arrangements are in fact “too good to be true,” and I predict their demise is imminent now that insurance companies and law enforcement agencies understand what is going on and monetary recovery is so significant for whistleblowers and state enforcement agencies. For example, in Illinois, the recovery can be $5,000 to $10,000 per claim plus treble damages, with 50% going to the whistleblower. Not many imaging centers could survive this kind of recovery.

If after reading this update, you still want to pursue entering into a “lease” agreement, you should consult knowledgeable healthcare counsel. As a final matter...don’t forget the story about where a physician is more likely to refer his or her mother.

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