Stark Implications: Trends in Imaging JVs and Arrangements

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A convergence of factors shaping the current health care environment—including some key regulatory changes—has caused many health systems to reevaluate their broad array of physician relationships in an effort to determine the optimal hospital–physician alignment strategy. This is particularly true of medical imaging arrangements, as hospitals struggle to recapture a profit center that continues to shift away from the hospital setting.

imageJerry J. Sokol, JD

These strategies include hospital–physician comanagement arrangements, the group-practice imaging-division model, the ancillary-only management model, and hospital–physician employment arrangements. At first glance, these strategies might seem like the usual suspects, which have been tried and tried again—perhaps with some success, or maybe without it. It is from those prior experiences, however, that these strategies have evolved, in the current marketplace, to take into account the best approaches from the past and the optimal tactics for success, now and into the future.

Today’s Health Care Environment

Hospitals are increasingly attempting to collaborate with their affiliated physicians in medical imaging arrangements, for a number of reasons. First, a new imaging venture typically requires the participants to choose from a broad array of imaging and testing modalities, many of which are coupled with high capital costs, yet in today’s economic environment, health systems and other health care providers typically have limited access to capital.

imageJoshua M. Kaye, JD

Second, many hospitals are experiencing a decline in imaging revenue due to falling reimbursement, a decline in elective procedures, and increased competition from physician practices and other imaging suppliers.

Third, commercial payors (and patients) are demanding better clinical performance at a lower cost. In fact, a number of commercial payors are considering, or have otherwise implemented, strategies that are intended to pay for performance (or to avoid paying for underperformance). Moreover, patients are becoming increasingly knowledgeable about their health care, in terms of both the types of services being offered and the associated costs. A properly structured imaging hospital–physician arrangement can incorporate appropriate safeguards to address these payor concerns.

Medical imaging suppliers are under increasing regulatory scrutiny from CMS and the OIG in an industry that is perceived as being fraught with overutilization (and perhaps fraud and abuse). Recent changes to the Stark law, as well as to regulations governing imaging suppliers, have forced many health systems and other imaging suppliers to restructure existing arrangements and otherwise address new compliance issues.
Comanagement Arrangements

While medical imaging comanagement arrangements can vary in form, each generally has three common characteristics. First, the participating physicians and hospital invest in and capitalize a newly formed company that provides certain limited inputs to the hospital in connection with the hospital’s provision of an imaging service. Second, the hospital purchases these items and/or services from the new company. Third, the hospital bills and collects for the services under the hospital’s Medicare number and payor contracts.

A number of these arrangements were historically structured as under-arrangement transactions, with the new company often providing turnkey services in exchange for a per-click or per-scan fee at fair market value. As of October 1, 2009, however, the Stark law has imposed two substantial limitations that have required the restructuring or unwinding of such arrangements.

The first limitation is that the Stark law has been broadened to apply not only to the entity billing for the imaging services (the hospital), but also to the entity that is performing the service. As a result, it is critical to scrutinize the scope of items and/or services that the new company provides to the hospital closely in order to determine whether the new company is the imaging service provider. Note that CMS has recognized that an entity that solely leases personnel, solely provides the imaging equipment, or otherwise provides a single input would not be considered to be performing the service.

The second limitation is that the Stark law will no longer permit a referring physician-owned entity to provide space or equipment in exchange for a per-click or other variable fee. Accordingly,