Are medical tourism legal questions variations on MSO-Physician arrangements?

This article was originally published at Cohen Healthcare Law Group

Are medical tourism legal questions variations on MSO-Physician arrangements?

The Short Answer

Medical tourism legal questions also raises corporate practice of medicine and fee-splitting.

Z’s Medical Tourism Business Plan

Jim Z, a licensed medical doctor, has two companies: his Professional Medical Corporation (Jim Z MD, Inc., a Professional Medical Corporation) and Jim Z’s Medical Tourism, Inc.

Jim Z’s Medical Tourism Inc. has a contract with Foreign Company, an overseas company in an exotic destination where Jim Z was born.  This exotic country has an obesity problem and Dr. Jim Z is an expert in medical recommendations (including lifestyle changes) for metabolic disease and diabetes.

The contract provides that Jim Z will:

  • Screen Exotic Country candidates for diabetes care in the U.S.  Options range from a week-long immersive intensive in food preparation and menu creation for the diabetic patient, to surgery if necessary, all to be handled by Jim Z MD, Inc.
  • Arrange travel and transportation for Exotic Country patients to come to the U.S.
  • Contract with physician specialists who can provide care for diabetic complications, as needed.

Patients pay a package fee of $100,000 for 3 months of service.

Jim Z’s Medical Tourism gives Foreign Company 30% of all of Jim Z MD, Inc.’s revenues from each Exotic Country patient “closed” at the $100,000 package rate.

Jim Z’s Medical Tourism also remits 30% to Professional Medical Corporation, and keeps the remaining 60% to pay for its medical tourism arranging services.

Jim Z gets referred in by his corporate lawyer who has been asked to review the contract and wonders whether there are any regulatory issues.

But Dr. Z is doing good!

Dr. Z does not want another lawyer.  All he wants to do is take care of diabetic patients.  In his mind, he’s doing good by helping patients from his country of origin – and providing revenues to Foreign Company.

However, Dr. Z has stepped into the waters of healthcare fraud and abuse. Regulators will not turn an eye toward his satisfied Exotic Country patients.  They will regard Dr. Z’s arrangements with great scrutiny.

A host of legal and regulatory issues

Key legal concerns for Dr. Z include corporate practice of medicine and fee-splitting.

No matter how many times we address corporate practice of medicine and fee-splitting, they keep coming up in our practice, because in the arena of health and wellness services, non-doctors ultimately want to bring doctors into their venture.

In this particular medical tourism case, it’s a reverse scenario: the medical doctor creates an LLC or general corporation to do a business deal with a foreign company that sometime circles back to the MD’s professional medical corporation.

So there is a 3-way relationship here between the professional medical corporation, the doctor’s business entity, and the foreign company.

The clinical care must be handled by the professional medical corporation

Jim Z’s arrangement creates a corporate practice of medicine issue.

Basically, 100% of the control over the clinical activities must be handled by Jim Z’s professional medical corporation.

Jim Z’s non-medical, business company, Jim Z’s Medical Tourism, Inc., cannot intrude into the medical domain.

By screening patient candidates, arranging travel based on the screening, hiring specialists, and making all the arrangements and connections, the Medical Tourism company may be engaging in unlicensed medical practice.  The actual determination depends on the facts of each case, but here the medical tourism company is doing more than buying plane tickets.

Even though Jim Z is a licensed medical doctor, he has to separate his medical, clinical activities from the general business activities on a non-professional corporate entity.

Fee-splitting also rears its head here, as there is a profit-sharing arrangement between the three entities.

Regulators could ask: Is this a patient fee, or just a fee for travel arrangements?

And remember that an undercover investigator can pose as a patient and collect evidence.

Because Jim Z is on several sides of the transaction, and its promoter too, he is at risk of anti-kickback and fee-splitting violations.  He believes he is simply making it easier for patients to obtain the necessary care, but in fact he’s giving a cut of the patient fee to his own non-professional corporation, and also to the foreign company.

The profit-sharing arrangement is also an inducement to generate referrals to this program.

As well, patient payments land first in the Medical Tourism company and then “kicked back,” as it were, to the professional medical corporation as payment for professional medical services.

Some legal strategy for Dr. Z

Ideally, the arrangement should be restructure so that it becomes clear as to who is paying which entity, for what services (i.e., medical vs. administrative and marketing).  For example:

  • The patients should be paying the professional medical corporation for professional medical services:
  • The patients could pay the medical tourism company for travel services.
  • The medical tourism company can’t pay the foreign company for referrals, nor can the foreign company pay the medical tourism company for referrals.  However, the medical tourism company potentially could charge either the professional medical corporation, or the foreign company, at fair market value for management and/or marketing services it legitimately provides to either (i.e., other than for referring patients).  This has to carefully reviewed by legal counsel.

More thoughts

We’ve seen this kind of arrangement not just in medical tourism, but in other settings such as diagnostic screening services.

In general, bundling services and creating discount packages that encourage patients to buy a bundle of health care services, raises enforcement red flags. It’s best to tease out the arrangements with experienced healthcare counsel who can navigate the shoals of fee-splitting and other legal hazards.

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