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Every investment or venture into which a physician enters must be carefully scrutinized to assure compliance with several state and federal laws.
Physician and practice clients often come to me for advice concerning whether or not to invest in a certain healthcare business or become involved in a new venture with friends or colleagues. Every investment or venture into which a physician, healthcare provider (or healthcare business) enters must always be carefully scrutinized to assure compliance with a broad array of state and federal laws.
Some of the issues which providers often need to consider when they are looking at any health care related investment include the following:
1. What is the reason for this investment? If the provider is looking to invest because of a promise of a high or immediate return on investment, I will always recommend they speak with a financial adviser. Most investments take time and involve risk. Promises of a large or immediate result can be suspicious.
2. What will you get out of the deal? If even one purpose behind the investment is an expectation that other investors in the venture, or those who provide services or items for the venture, will (directly or indirectly) drive business to you or your practice, be very cautious. Direct and indirect referrals can implicate federal and state laws related to kickbacks. Having a family member hold an investment, or using family members to make referrals, will still implicate applicable laws. Additionally, investors cannot rely on assurances that federal patients will not be involved in an investment or venture, since such arrangements can still violate both federal and state laws.
3. Will you be sharing pricing information with competitors? There are many independent physicians looking to pool resources by forming independent physician associations, accountable care organizations, and other types of integrated arrangements where they can leverage their numbers and collaborate. However, sharing information among competitors can lead to antitrust law issues, and collaboration among physicians in the same specialty within a small geographic region can create concerns of a monopoly. Such arrangements must be carefully evaluated by legal counsel. Another issue related to providers sharing information is HIPAA and state privacy laws, which must be observed at all times.
4. Are you engaging in a venture to capture referrals that otherwise leave your practice? Although one purpose behind such arrangements is always the convenience of patients, starting a physical therapy, lab, or other line of business in your practice can create legal challenges. The federal government is suspicious of arrangements where physicians expand into a line of service by entering into partnership with a provider that ordinarily would have received the physician’s referrals. Such arrangements are considered “contractual joint ventures” and a legal review is mandated since certain steps can be taken to minimize risk.
This list is only a few of the concerns that arise in healthcare investments. Every state and federal law that might apply needs to be evaluated in each potential investment scenario.
Although start-up business ventures do not always have all the information a reviewing lawyer may desire to advise a client, counsel for a possible investor should at least be able to identify the laws potentially at issue based on the venture’s intended business activities and the steps that will be taken to assure compliance. A regulatory memorandum or other documents from the venture’s counsel should also include this information.
Most importantly, it is essential when investing in any healthcare business that the potential investor (and his counsel) has confidence in the specific health law experience and knowledge of the legal advisers working with the venture. The area of health law is complicated and the consequences for failure to comply can be significant, not only for the business but for each of the providers and participants involved. A competent healthcare attorney should be able to help a business take steps to meet available exceptions and safe harbors within the law, propose modifications to the venture to minimize risk, and suggest alternative arrangements that are more appropriate for all parties involved.