Over the years, an increasing number of physicians have become involved in a variety of joint venture activities. Yet, the BME regulations have remained unclear with regard to whether physicians are allowed to participate in certain joint venture activities. Some have interpreted these ambiguities to mean that the BME has not expressly prohibited these arrangements and activities. Others who have sought written clarification from the BME before proceeding forward with a particular investment or activity have, in the past, received specific written guidance from the BME. More recently, however, many physicians have found the BME to be more reluctant to opine as to whether a particular structure or activity is permissible under its regulations due to the BME’s guidance being misconstrued and misapplied to unintended situations. With neither the black letter law in the BME Regulations nor the BME providing clear direction to several questions surrounding joint venture activities, there is ample confusion and difference of opinion with regard to if and how physicians may participate in certain joint venture activities under New Jersey law. For better or for worse, however, it looks as if the BME is about to take the issue head on.

Approval of Draft Regulations

At its January 2007 meeting, the Board voted to approve for publication a draft of new corporate practice regulations (Draft Rule). The Draft Rule has not yet been officially published in the New Jersey Registrar and will likely be revised again before being approved by the full Board for release to the public for official comment. Nevertheless, the discussion that took place at the January public meeting and the initial Draft Rule circulated at that meeting offer some insight into the new restrictions and requirements physicians may expect to see in the official draft that is published in the near future.

The open public session minutes for the January 10, 2007 meeting are posted on the BME’s website at www.state.nj.us/lps/ca/bme/minutes/bmemin.htm. The minutes state that Assistant Attorney General Joyce offered a brief overview of the changes in the Draft Rule and noted that the push to overhaul the corporate practice regulations was the need "to attempt to clarify some ambiguities and to adopt regulations that were consistent with the Federal regulations [Stark and the Anti-Kickback Statute]." AAG Joyce further acknowledged that even with the Board membership changing, each configuration of the Board agreed that there was a need to amend its regulations. At the same time, AAG Joyce pointed out that "it was important to make physicians accountable and to provide appropriate heath care options to patients."

The minutes also state that, with the proposed new rules, the BME seeks to clarify within the definitions areas that over the years have been questioned by practitioners, and to outline the types of business structures and formats that would be acceptable to the Board. AAG Joyce further indicated that the Draft Rule "also seeks to establish the nature of the commitment of the practitioner to assure that it is an appropriate format and to provide a majority ownership provision as a way to also address the integrated practice of closely allied health care professionals within those fields as defined within the statutes." The minutes also note that there are some exemptions outlined in the proposed rules, but these are largely the same as already exist in the current regulations.

As for the substance of the Draft Rule, in general, the new regulations would repeal N.J.A.C. 13:35-6.16 and 6.17, which currently address permissible professional practice structures, professional fees and investments, and prohibit kickbacks. The new regulations would create a new Subchapter 12 that delineates the specific business structures and formats within which physicians may practice and would further set forth their professional responsibilities related to those business structures. Proposed Subchapter 12 would also contain new rules prohibiting kickbacks, fee-splitting arrangements and self-referrals and clarify in-office ancillary service and ambulatory surgery center exceptions to the Stark Laws and under N.J.S.A. 45:9-22.4 et seq. (a.k.a., the "Codey Law"). Finally, the new provisions of Subchapter 12 would apply regardless of whether or not Medicare, Medicaid or any other person or entity is responsible for payment for the health care services that are provided or are the subject of referrals. More specific restrictions and requirements contained in the draft regulations are discussed below.

New Joint Venture Category

Under the current BME Regulations, physicians may engage in professional practice under several business structures or formats, including solo proprietorships, a partnership or professional association, and a general business corporation only if the corporation is a licensed facility, is not in the business of offering treatment services to customers, is a non-profit corporation, is an accredited educational institution, or licensed as an insurance carrier. The current BME Regulations also permit physicians to invest in a health care service, provided that said service is owned solely by one or more licensed health care professionals.

The Draft Rule proposes to add "joint ventures" as a new specifically-authorized business structure and format. However, physicians would be permitted to practice in a joint venture structure only if they satisfy several requirements and operate within new mandatory restrictions.

For instance, practitioners would be permitted to engage in a joint venture involving licensed health care facilities or other practitioners holding the same type of license and individuals licensed in "closely allied professional services" (i.e., surgery, optometry, physical therapy, registered professional nursing, or dentistry) only if at least one of the practitioners with the least limited scope of practice personally and regularly provides patient care services at each location operated by the joint venture entity such that the practitioner is at the location for at least eight hours per week or at least one-third of the practitioner’s medical practice income from all sources for the previous 12-month period is derived from performance of procedures at that location. If a practitioner holds a significant beneficial interest in a health care joint venture entity in which licensed health care professionals providing closely allied professional services also has an interest, the practitioner must also own a majority 51 percent of the equity interest in the business structure.

In addition, the joint venture must still comply with the New Jersey Codey Law restricting physician self-referrals, as well the federal Stark Law and Anti-kickback statute. The Draft Rule goes further, however, in that it may make certain federal standards mandatory, including the requirement that: (i) all investors be offered the opportunity to purchase the investment interests on the same terms and conditions of ownership, regardless of their ability to refer patients to, or otherwise generate business; (ii) none of the capital contributed to the joint venture be obtained with funds loaned or guaranteed by another direct or indirect investor or any individual or entity acting on behalf of the facility or any direct or indirect investor; (iii) the joint venture not track its sources of referrals and/or distribute this information to the investors; (iv) investment interests not be related to volume of business; and (v) at least 60 percent of the joint venture entity’s investment interests be held by persons that are not in a position to make or influence referrals to, furnish items or services to, or otherwise generate business for the entity.

If the Draft Rule is published as currently drafted, its provisions would essentially require joint ventures involving physicians to meet certain safe harbor provisions of the federal Anti-kickback statute as a condition of operation. Under federal law, the safe harbor regulations offer a voluntary "safe harbor" from liability under the anti-kickback statute for arrangements that meet each of the specific terms of a given safe harbor, but failure to meet the safe harbor provisions does not automatically result in a determination that the arrangement violates the federal statute. However, if the BME makes the requirements set forth in the Draft Rule final, this would require joint venture entities operating in New Jersey to insure that their operations fit squarely within these restrictions.

Unwinding Provision

The Draft Rule provides that, if a practice structure was organized prior to the effective date to be set for the new BME regulation and is not authorized pursuant to the new requirements and restriction governing joint ventures, such practice structure will be permitted to continue its existence for two years from the effective date of the new rule. This is not a grandfathering provision. Grandfathering provisions generally allow previously existing businesses to continue to exist but preclude new businesses from forming that would otherwise violate restrictions found in a new law. Rather, the two-year "unwinding" provision in the Draft Rule would require many currently-operating physician joint ventures to restructure or cease operations if the Draft Rule is adopted as currently drafted. Needless to say, this would have a profound impact on many physician JV activities in New Jersey.

What Should Physicians Do?

Once the final proposed new rule is officially published, it is likely that the BME will allow at least 60 days for interested parties to comment on the proposal. In addition, the BME may also hold "informational" public hearings as described at its January 17, 2007 Board meeting. Unofficially, it has been suggested that the final proposed BME rule should appear in the New Jersey Registrar within the next one to two months. Physicians who may be impacted by the potential changes highlighted in this article should look for the new regulation and be prepared to submit comments or participate in any scheduled public hearings in accordance with the BME’s directions.

Finally, given the impending changes in the area of physician joint ventures, any physician who wishes to begin participating in a new joint venture opportunity should not do so without first consulting with an attorney.