Furthering the suspicion afforded to block lease arrangements in recent governmental commentary, the Office of Inspector General (OIG) declined approval of a proposed block lease arrangement in Advisory Opinion No. 08-10. In the Opinion, a physician practice group that provides radiation and chemotherapy treatments in a facility (the Requestor), proposed to execute block lease arrangements with urology groups. Pursuant to the arrangements, the urologists would lease space and equipment in the Requestor's facility, as well as personnel, for fixed periods of time, during which the urologists would furnish intensity-modulated radiation therapy (IMRT) to their prostate cancer patients. The urologists proposed to bill all third party payors for the IMRT and pay the Requestor a fixed fee for the leased space, equipment, and personnel. The Requestor currently bills third party payors for IMRT services furnished to prostate cancer patients, including some referred by the urologists.

Citing a previously issued Special Advisory Bulletin on Contractual Joint Ventures (68 Fed. Reg. 23148 (April 30, 2003)), the OIG noted that the proposed arrangement established a joint venture between the Requestor and urologists with many of the suspect factors identified in the Bulletin.

The suspect factors included the following:

  • The urologists would be expanding into a related line of business, IMRT, which was dependent on referrals from the urologists.
  • The urologists would contract out substantially all IMRT operations to the Requestor and assume little business risk.
  • The urologists could ensure the success of the business by referring patients and choosing IMRT over other therapies for prostate cancer.
  • The Requestor is an established provider of IMRT services and, absent the arrangements, would bill and retain all revenue from the treatments.
  • The urologists would use the leased premises, equipment, and staff to serve their own patient base—some of whom previously were referred to the Requestor.

The OIG noted that in agreeing to provide services it could otherwise provide in its own right, the Requestor provided the urologists with the opportunity to generate a fee and a profit, potentially constituting remuneration under the federal Anti-Kickback Law. Thus, the OIG concluded that the proposed arrangement presented a significant risk of use as a vehicle to reward the urologists for referrals in violation of the federal Anti-Kickback Law, and declined to approve the transaction.

In light of the OIG's conclusion, it is recommended that block lease arrangements be reviewed for potential Anti-Kickback Law implications.