Legal Tips to Forming a Referral Partnership

*Note: This article is not intended to take the place of legal advice.

In my years of practice as a health lawyer and previously as an administrator, I have seen many arrangements proposed between healthcare providers that, in a normal commercial context, would be perfectly permissible and commercially reasonable and customary. But, those same arrangements in the healthcare context may be illegal and expose both parties to criminal penalties and civil sanctions. Allow me to provide an example and explain.

Hypothetical Scenario

An urgent care center was planned carefully for 18 months, market studies were performed to select the location to serve the target demographic. It was designed to optimize efficient and effective patient care throughput with just the right laboratory and diagnostic imaging equipment, and it was built to the exacting specifications provided by the team of professionals hired by the owners, Bob and Ray Caduceus, two fine gentlemen who had previously developed successful shopping malls, to develop and operate this fine facility. The location, in a suburban shopping center, is several shops away from a busy medical practice providing primary care services during normal working hours five days a week.

The acquisition of the equipment and build out of the space of the center, unfortunately, exceeded the budget. As a result, the center was ready to open but there were no funds for a marketing program. Bob and Ray decided to approach the primary care practice and offer to treat their patients after hours and on weekends.

In exchange for the opportunity to treat their patients, Bob and Ray offered the primary care practice 25 percent of all revenues collected on their patients. The primary care practice knew that they could not accept 25 percent of the revenues collected by the center for treating their patients as it might be considered a kickback, rebate or split-fee arrangement in exchange of the referral of patients in violation of federal and state law.

Instead, they proposed that the center pay them for providing the patient demographic data, and for billing and collection services. While Bob and Ray were obtaining managed care contracts for the center, the primary care practice would bill the managed care plans under their contracts and pay 75 percent of the amount collected to Bob and Ray for providing medical services to their mutual patients.

In addition, the primary care practice knew that the center had a diagnostic ultrasound machine. Their patients occasionally needed ultrasound procedures, but they could not afford to purchase the ultrasound machine and hire a technician to operate it. So, the urgent care center agreed to perform their occasional ultrasound procedures. The primary care center agreed to pay the urgent care center $35, and the primary care practice would be solely responsible for billing and collecting for each procedure.

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