Fool’s Gold: How To Avoid Suspect Business Arrangements in Diagnostic Testing Ventures

November 30, 2013 | Health Services

The lure of easy money can draw some radiologists to engage in conduct reflecting what is, at best, an alarming lack of awareness and, at worst, a deliberate disregard of the serious criminalliability1 risks entailed in entering into certain suspect business arrangements  with diagnostic testing ventures. Radiologists must understand these liability risks in order to avoid the pitfalls that can lead to unwelcome scrutiny by regulatory authorities and, potentially, criminal liability.

Of course, many business arrangements between radiologists and diagnostic testing companies are lawful and comply with the regulations governing such ventures. However, some business arrangements approach or cross the line into illegality. The proponents of such arrangements often seek out radiologists willing to accept, or at least ignore, a certain level of risk in return for the chance to make additional income.

For example, an individual claiming to have a diagnostic testing company may approach a radiologist  and offer to pay him or her to read certain diagnostic tests in return for the radiologist’s  agreement to permit global billing of the technical and professional components under the radiologist’s provider number. The testing company may not be authorized to practice medicine, though. Also, the tests’ technical component may be performed  off site without the radiologist’s  knowledge or supervision. The radiologist may have no understanding of how orders for these tests are being generated or whether the tests are even medically necessary.

In some cases, the radiologist may be asked to form a professional corporation through which the diagnostic testing business is conducted. In addition, the radiologist may unknowingly [or not] authorize bank accounts where health insurance proceeds will be deposited and withdrawn. The business partner may offer to provide the radiologist with management services for the business, even though the radiologist does not actually run the corporation  or control the accounts on a day­to-day basis. The radiologist  may have no idea what potentially criminal transactions are being processed in his or her name. 

Don’t Leap Before Looking

Do these arrangements  sound dangerous to you? They should, of course, yet the temptation of earning additional income can blind some radiologists to the enormous criminal liability risks that these arrangements present.

It is imperative that radiologists seek the advice of counsel before entering into such business arrangements; leaping before looking can be perilous. Sometimes, it may be too late because the radiologist  is already deeply engaged in a business relationship that, for one reason or another, has made the radiologist  uneasy or suspicious. Either way, it is essential to understand the risks of continuing a suspect business arrangement or starting  a new one.

That education might start off with an oft-repeated maxim:  If it looks too good to be true, it probably is. This is a wise principle to live by for radiologists who are approached with dubious business proposals.

It is a crime in many states to practice or to aid and abet the practice of medicine without a license. In New York, for example, such conduct is a felony offense.2 If a radiologist’s business partner is not a medical professional and has a diagnostic testing company that provides medical services but is not formed as a professional corporation, the radiologist is arguably aiding and abetting the illegal practice of medicine by facilitating the conduct of a diagnostic testing business in which the radiologist has no involvement in test performance or supervision. If the business is formed as a professional corporation in the radiologist’s name, the radiologist still is liable unless he or she actually controls the corporation. If the radiologist is only a nominee or “straw” owner with no actual day-to-day controller supervision over the business, then the radiologist is considered to be facilitating the illegal practice of medicine. And this is only scratching the surface of the risks entailed in the radiologist’s involvement in this type of arrangement.

Protect Yourself

It is considered fraudulent for a radiologist to allow his or her name and provider number to be used by others who are not part of the radiologist’s medical practice for the purpose of billing insurers for the technical component  of testing services that the radiologist has not performed  or supervised. This is true even if the test reports are being sent to the radiologist for interpretation. The latter fact is relevant only to the billing of the professional component, not the technical component. Radiologists need to understand that participating in this type of arrangement could support criminal charges for health care fraud based on the radiologist’s knowing facilitation of an illegal billing scheme.

Furthermore, the dangers of being an “absentee” owner of a diagnostic testing business cannot be overstated. How does the radiologist know what is being done in his or her name? If the business is billing for tests that are medically unnecessary or that were not rendered, the radiologist may be exposed to health care fraud charges. If the radiologist was asked to complete forms for submission to the government or private insurers that falsely represented his or her operation and control of the business and also helped conceal the entity’s true owner/operator, this could result in felony charges for making false statements.3

Additionally, if the radiologist  conducted or authorized financial transactions  leg, agreeing to open a bank account for the testing business and authorizing his or her signature use] he or she could be exposed to money laundering charges. For example, pursuant to 18 USC§ 1957, a person commits money laundering by knowingly engaging in monetary transactions involving criminally derived property valued at more than $10,000. Although the property must be derived from “specified unlawful activity,” 4 as defined by statute, the law does not require that the defendant know which form of unlawful activity is involved, only that the property was derived from some criminal offense.

Also, an absentee radiologist cannot safely claim ignorance of what was being done in his or her name or through his or her bank account, since under the doctrine of conscious avoidance knowledge of a criminal activity can be imputed to the radiologist if evidence shows that the radiologist turned a blind eye to the activity.5  For example, if a simple review of banking activity in the radiologist’s account reveals the criminal conduct, it may be insufficient for the radiologist to argue that he or she had no idea that crlmlnal proceeds were flowing through the account.

Antikickback Statute

When federal programs such as Medicare and Medicaid are involved, radiologists must be aware of whether their business dealings present antikickback concerns. The federal antikickback statute [42 USC§ 1320a-7b) makes it a felony to pay or solicit any form of remuneration with the intent of inducing referrals of items or services that are payable under any federal health care program. For purposes of the statute, remuneration means anything of value that is transferred directly or indirectly, overtly or covertly, in cash or in kind. There are several antikickback-related risks associated with the kind of absentee radiologist business arrangement described above.

The radiologist’s agreement to lend out his or her name and provider number to those who otherwise would have no ability [much less right) to use that information to bill insurers is a valuable commodity being given in return for a steady stream of referral exams for the radiologist to interpret. This reasonably could be viewed as a violation of the antikickback statute.

Additionally, in some arrangements, the radiologist’s  business partner may be receiving exorbitant management fees that far exceed fair market value, once again supporting the inference that the radiologist is paying for test referrals rather than paying fair value for management services.

Moreover, because the radiologist may have no idea how demand for the testing services is being generated and may not know, even in situations where the testing business was set up in the radiologist’s name, how the testing business actually runs on a day-to-day basis, there always is the risk that the radiologist’s business partner may be paying other medical providers for patient referrals in violation of the antikickback statute.

As demonstrated here, it is imperative for radiologists seeking to earn extra income to make sure they understand the long list of criminal liability risks that can be associated with business arrangements  with diagnostic testing companies. Those risks depend on who actually is running the testing business, how patient referrals are generated, and how the tests will be billed to insurers. What appears to be an easy way to earn additional income may instead be an easy way to land in the crosshairs of criminal prosecution.


1. This article only addresses criminal liability risks, but clearly there also are assorted civil liability and professional licensure risks that arise from these suspect business arrangements, including risks arising under the federal False Claims Act [31 USC§ 3729 et seq) and the Physician Self-Referral Law [42 USC§ 1395nnl.

2. See eg, New York Education Law § 6512, Unauthorized practice [of a profession) a crime.

• Anyone not authorized  to practice  under this title who practices  or offers to practice  or holds himself  out as being able to practice in any profession in which a license is a pre­ requisite  to the practice  of the acts; or who practices any profession  as an exempt person during the time when his professional license is suspended, revoked, or annulled; or who aids or abets an unlicensed person to practice a profession; or who fraudulently sells, files, furnishes, obtains, or attempts  fraudulently to sell, file, furnish, or obtain any diploma,  license, record, or permit  purporting to authorize the practice of a profession  shall be  guilty of a class E felony.

• Anyone who knowingly aids or abets three or more unlicensed persons  to practice  a profession or employs or holds such unlicensed persons  out as being able to practice in any profession in which a license  is a prerequisite to the practice  of the acts or who knowingly aids or abets three  or more  persons  to practice any profession as exempt persons during  the time when the professional licenses  of such persons  are suspended,  revoked,  or annulled shall be guilty of a class E felony.

3. See eg, 18 USC§§ 1001, 1035.

4. Examples of “specified unlawful activity” include mail fraud, wire fraud, bank fraud, and any federal health care offense, as defined in 18 USC§ 24.

5. See eg, United States v Quinones,  635 F3d 590, 594 [2d Cir 2011): “A conscious avoidance instruction permits a jury to find that a defendant had culpable knowledge of a fact when the evi­ dence shows that the defendant intentionally avoided confirm­ ing the fact.”

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