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Federal Investigations of MSOs


Business Owners Under Investigation, Physician Licenses at Stake

Management Services Organizations (MSOs) have served as a popular tool to seemingly legitimize physician-business joint ventures. The idea was simple: physicians own a portion in a company to which they do not refer any business, but, in return, receive prorated ownership distribution for services provided to pharmacies, hospitals, and toxicology laboratories. While the concept remains lawful, several MSO structures suffer operational flaws. These flaws are now the focus of the U.S. Justice Department and subject to insurance fraud investigations.

About Oberheiden P.C.

Oberheiden P.C. is a team of former Justice Department officials and prosecutors, former healthcare fraud prosecutors, and experienced defense attorneys. Our group of renowned defense lawyers offers clients the following legal experience:

  • Former Justice Department Litigators
  • Hundreds of Healthcare Audits (No License Revocation)
  • Hundreds of Healthcare Fraud Cases (No Criminal Charges)

We have local counsel throughout the United States including in Dallas, Houston, Austin, Miami, Orlando, Cleveland, Detroit, Las Vegas, San Francisco, and Portland. Call us today!

Department of Justice Prosecutions of Business Owners and Physicians of “Bad” MSOs

Starting in the 2010s, many physicians became part-owners of toxicology laboratories, pharmacies, and hospitals. Such joint venture ownership often implicates Stark Law, which restricts or prohibits a physician from having a financial interest in a healthcare entity to which that physician refers business. To legally circumvent the idea of direct ownership and Stark Law implications, MSOs were created and physicians invited to invest. Under the MSO syndication model, physicians no longer owned a piece of a pharmacy directly but would instead own a piece in a company that services a pharmacy, namely the MSO. The important distinction from a legal perspective is that physicians no longer refer business to an entity in which they (or an immediate family member) have a financial interest because they do not refer any business to the MSO but to a pharmacy (which they don’t own or control). Under said MSO model, physicians refer business to a pharmacy, but their ownership interest is with a different company, the MSO.

Exercising broad jurisdictional powers, the United States Department of Justice and the Department of Health and Human Services have recently opened several investigations targeting business owners and physicians involved in (commercial payor) MSOs. Key here is that the MSO that is co-owned by physicians and that provides services to the pharmacy in return for compensation does not indirectly violate the Anti-Kickback or the Stark Law Statute. It is important to make sure that the service compensation between the physician-owned MSO and the pharmacy reflects fair market value and that the services (e.g. accounting, HR, marketing etc.) are actually provided.The government’s investigatory options are twofold.

Criminal Investigations

The Anti-Kickback Statute is a criminal statute that prohibits the knowing and willful offer, payment, solicitation, or receipt of any remuneration to induce or reward referrals of items or services reimbursable by a federal healthcare program. See, 42 U.S.C. 1320a-7b(b). A violation of the statute is punishable by a fine of up to $ 25,000.00 per violation or by imprisonment for up to five years and exclusion from the Medicare and Medicaid programs.

Criminal investigations for alleged offenses for recommending or arranging referrals are historically extremely rare in many of the 95 federal districts throughout the country. See, for example, S. v. Miles, 360 F.3d 472 (5th Circuit, 2004). While the threat of criminal prosecution remains an option for the government, actual criminal prosecutions of MSO participants can be expected only in the most extreme of all arrangements. Examples may include illegal side deals and clear establishment of intentional fraud.

Civil Investigations

The more likely angle, the one seen so far utilized by sophisticated prosecutors and experienced OIG agents is the civil portion of the False Claims Act. In pertinent parts, the False Claims Act sanctions any person who presents or causes to present a false or fraudulent claim for payment or approval with the caveat that reckless disregard and deliberate ignorance are sufficient. Proof of specific intent to defraud, actual knowledge, or willful conduct are not required. See 31 U.S.C. 3729(a)(1)-(3), (b)(1). Violations of the False Claims Act may create liability for three times the amount of damages which the Government sustains because of the false claim in addition to a civil penalty of not less than $ 5,500 and not more than $ 11,000 per false claim. See 28 C.F.R. Sect. 85.3(a)(9).

The attorneys at Oberheiden P.C. have settled, resolved, and avoided civil liability in hundreds of healthcare fraud investigations and offer significant experience defending MSO arrangements. Physicians concerned about their licensure status, their reputation, or their exposure for fraud should contact Oberheiden P.C. for a free consultation today. Business owners who feel that they were ill-advised or want to make some modifications to existing MSO structures should contact one of our healthcare fraud compliance attorneys to get reliable advice today.

“Good” MSOs v. “Bad” MSOs

After all, the question becomes: which MSO is at risk of getting on the government’s radar. To be clear, the government is not questioning the legitimacy of management arrangements per se and law enforcement is not globally scrutinizing physician-syndicated MSOs. Instead, the government is distinguishing between low and appropriate compliance levels.

Features of “Bad” MSOs

  • Lack of Compliance Oversight, No Compliance Officer
  • No Compliance Training on HIPAA, Anti-Kickback etc. for Business Employees or Representatives
  • Boilerplate Templates of Copied or Mass-Produced Corporate Documents
  • Disproportionate, Commercially Unreasonably Service Fees (often 50% and more)
  • Catalog-type Enumeration of Plethora of Useless and Unrealistic Services
  • Underlying Service Agreement Represents “Arms-Length Negotiations” that Never Took Place
  • Fair Market Value Assessment Is a Mere Statement, Not a Documented Analysis
  • Service Fee Is Permanently Based on a Percentage, not a Flat Fee
  • Physicians are Implicitly or Explicitly Expected to Refer Business to Affiliated Pharmacy; Existing Emails and Correspondence is Revealing
  • Corporate Structure Is Designed to Incentivize Physicians to Refer/Prescribe Even Medically Unnecessary Products
  • Inherent Conflict Due to Identical Owners in MSO and Pharmacy/Laboratories
  • Frequently Observed Side Deals with Physicians
  • Noticeable Change of Physician’s Prescription Habits
  • No Accounting Involvement to Evaluate Need for Services
  • Marketers are 1099s and Incentivized to “Recruit” Physicians on a Percentage-Basis Commission
  • Attorney Receives Ownership Interest for Creating Corporate Documents

The government appears to be focusing on so-called “Series MSOs,” whereby MSOs are created and mass-produced underneath a holding company with each of these LLCs being assigned to individual physicians to maximize the physician’s revenue. The Department of Health and Human Services (HHS) and the Office of Inspector General (OIG) from the Washington D.C. headquarters are currently leading the investigations.

Features of “Good” MSOs

  • Documented and Existing Compliance Program
  • Existing Professional Compliance Staff
  • Management Service Fee Is Either a Flat Fee or Designed to Convert into a Flat Fee and Does Not Take into Account the Value or Volume of Referrals
  • Service Fee and Service Items Are Assessed by Independent, Professional Accountants Who Provide a Written Analysis as to How to Determine Fair Market Value
  • Ownership between MSO and Contracting Entities such as a Pharmacy Are Not Identical and Do Not Raise Conflict Questions
  • Investment in the MSO Must Not Be Premised on an Agreement (Explicit or Implicit) to Refer Patients to MSO-Contracted Entities
  • Marketers Are W2 Employees
  • Affiliated Pharmacy or Laboratory Provides Independent Medical Necessity Supervision

An important factor of regulatory compliance in the context of MSOs is the management service agreement between the MSO and the healthcare entity. While it is often difficult, perhaps impossible, for a start-up to establish a flat fee before inception of any business operations and prior to having any understanding of financial prospects, the company’s documented efforts should always demonstrate the company’s intent (a) to not take volume of referrals into consideration, (b) to convert into a flat, pre-determined service fee as quickly as feasible.

Because at the end of the day healthcare statutes are also designed to protect the patients from undue influence and biased decision-making, we also recommend adding transparency to the physician’s ownership interest by disclosing the fact that the physician has a financial interest in an MSO.

Important Questions Relating to MSO Investigations

What Should I Do If I Received a Government Subpoena?

If you received a subpoena or a Civil Investigative Demand (CID) from the Office of Inspector General (OIG), the Department of Health and Human Services (HHS), the Department of Justice (DOJ), or if you were contacted by investigators, you should immediately seek the advice of experienced defense attorneys to protect your rights and your license. Oberheiden P.C. attorneys offer a free and absolutely confidential consultation to assess your exposure and potential liability. Former Justice Department prosecutors will recommend concrete steps and outline a comprehensive defense strategy that is based on decades of healthcare fraud defense experience.

What Is the Statute of Limitations for Federal Healthcare Fraud Prosecutions?

In general, the government must bring its case within a five-year statute of limitations, which is subject to a number of important exceptions. If, for example, the MSO is still in existence or if your departure from the MSO is only recent, the government may have arguments to extend this five-year period. For example, if you entered an MSO in 2011 but your last distribution check was in 2016, the government may have until 2021 to move forward with its investigation.

What Are the Penalties for AKS Violations?

The federal anti-kickback statute is a hybrid statute, which means that the government can impose civil and/or criminal sanctions. Criminal liability can lead to federal felony prosecutions and imply years of imprisonment while civil violations of the anti-kickback statute can lead to monetary liability and requests for repayments. If you find yourself in the middle of such an investigation, you should immediately call attorney Dr. Nick Oberheiden for a confidential case assessment. The longer you wait, the more time you grant government lawyers to frame you as a target.

At What Point Do I Need to Be Worried About My MSO Involvement?

The clearest indication to be worried is if you received a Civil Investigative Demand (CID), a government subpoena, or a threatening letter from a private health insurance. Any of these events suggests that you are a target of an investigation. In general, you should contact Oberheiden P.C. if you have any questions regarding your MSO participation to get reliable advice and a free assessment.

Are All MSO Arrangements Bad?

Certainly not. A carefully drafted, analyzed, and reviewed service structure is one of a number of ways to create effective synergy between physicians and non-physicians. The key to compliance is to be advised by competent counsel who is able to present a competitive but yet defendable financial service relationship between the two entities involved. Such counsel will, for example, not simply say that fair market value exists (or is assumed), but will discuss objective, independent standards that will constitute a true analysis and true grounds for remuneration. “Good” MSO entities don’t just talk about compliance and compliance monitoring, but take active, ongoing steps to make sure that the structure, the financial relationships, and the services are exactly what the corporate documents say they are.

Why Should I Call Oberheiden P.C.?

Oberheiden P.C. offers clients unique perspectives and skill sets. We represent clients in need of qui tam defense, involved in False Claim Act investigation, facing federal criminal charges, and in other legal matters. What distinguishes our Firm is more than a century of insights at the Justice Department and our focus on healthcare defense cases. Many attorneys at Oberheiden P.C. were previously in charge of federal healthcare fraud investigations at U.S. Attorneys offices across the United States and understand what to do when someone receives a government subpoena or has questions about federal investigations.

How Can I Get in Touch with a Senior Attorney at Oberheiden P.C.?

Just call us today, including on weekends. Oberheiden P.C. does not use junior lawyers and all our attorneys offer valuable experience from the U.S. Department of Justice or many years of a successful defense lawyer. See for yourself, an example includes Aaron L. Wiley (former DOJ). Mr. Wiley is a highly accomplished former federal healthcare fraud and white-collar prosecutor. While at the Department of Justice, Mr. Wiley led some of the country’s largest fraud investigations and high-profile healthcare investigation.

If you were contacted by the government or received a letter from an insurance company regarding your involvement in physician-owned MSOs, or if an insurance carrier threatens to sue or expel you, then you should contact Oberheiden P.C. now to obtain a free and confidential consultation, including on weekends.

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