HHS warns about 'contractual joint ventures'. (Penalities of up to $50,000 Possible).

WASHINGTON -- Physicians who have recently started joint ventures in their offices, beware: The Department of Health and Human Services may be taking a special interest in you.

The department's Office of Inspector General (OIG) recently released a special advisory bulletin on the issue of contractual joint ventures." The report defines joint ventures rather broadly as "any common enterprise with mutual economic benefit." But it focuses on what it calls "questionable contractual arrangements," in which a health care provider in one line of business contracts with an existing provider of a related service to supply that service to the provider's patients, including those in Medicare and other federal programs.

One example arrangement that might be termed questionable is a group of nephrologisrs that establishes a wholly owned company to provide home dialysis supplies to their dialysis patients. The new company then contracts with an existing supplier of home dialysis supplies to operate the new company and provide all goods and services.

These types of problem arrangements have several things in common, according to the bulletin:

* The new line of business is dependent on referrals from the owner's primary business. Usually the new business mostly serves the provider's existing patient base.

* The provider neither operates the new business himself nor commits much money or resources to it. Instead, he contracts out all or most of the new business's operations. "While the supplier essentially operates the business, the billing of insurers and patients is done in the name of the [provider]," the bulletin notes. And, although the joint venture contract may appear to place the provider at financial risk, "the [provider's] actual business risk is minimal because of the [provider's] ability to influence substantial referrals to the new business."

* The supplier is an established provider of the same services as the new line of business--that is, without this arrangement, the supplier would be a direct competitor of the new line of business.