OIG Issues an Advisory Opinion Approving a Group Practice Arrangement

On January 7, 2009, the OIG issued Advisory Opinion No. 08-24.  The opinion approved a proposed arrangement in which 23 physicians and podiatrists would invest in a shared medical practice. Under the arrangement, all equity interests in the practice would be held by licensed physicians and podiatrists who treat patients at the practice, with one exception. A one percent interest in the practice would be held by a licensed physician, but the physician’s duties would be purely administrative. Additionally, none of the investors would work at the practice full-time. Each investor would see patients separately, at non-affiliated locations. In addition, each investor would own a fixed percentage investment stake in the practice and share profits or losses in direct proportion to his or her individual investment stake. The practice certified that it has achieved or will shortly achieve compliance with the definition of “group practice” under the physician self-referral law.
 
The OIG noted that the arrangement does not fit the “investments in group practices” safe harbor because one investor does not treat patients at the practice. But given the circumstances of this particular arrangement, and because the arrangement complies with most other aspects of the safe harbor, the OIG believes the one percent interest held by the non-practicing physician would not pose significant risks to federal programs or beneficiaries. The OIG cited the following facts in its analysis:

• All equity interests minus one percent are held by practicing physicians;
• All equity interests are held in the practice and not in a subdivision. Each investor holds a fixed percentage stake, rather than in a particular specialty group. Therefore, all investors share in the entire group’s risks and returns;
• The arrangement complies with the definition of “group practice” under the physician self-referral law. The practice is structured as a unified business, with a central governing board comprised of managing practice members. The practice’s expenses and revenues are pooled together; not separated in relation to individual members; and
• Ancillary services revenue is derived from “in-office ancillary services” that meet the definition under the physician self-referral law.