Today's Practice: Changing the Business of Medicine | Page 33

Physician-Syndicated “MSO Models”

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OWNERSHIP AND MANAGEMENT OF
THE PSMSO AND ITS CONTRACTING
PHARMACIES AND LABORATORIES
OVERLAP, AND ARM’S LENGTH
NEGOTIATIONS AND CORPORATE
FORMALITIES ONLY EXIST ON PAPER.
The requirement of entirely separate and distinct
ownership and management of the PSMSO and its
contracting pharmacies means that any overlap of
ownership between the PSMSO and the pharmacy
could ruin the deal. To ensure independence and
an actual arm’s length negotiation of appropriate
service fees, law enforcement agencies will also
expect that the PSMSO and the affiliated pharmacies are represented by different law firms.

CARVING OUT FEDERAL
PATIENTS IS NO SOLUTION
To dodge federal scrutiny, PSMSOs purposefully
carve out federally funded business. However,
contrary to common belief, the mere carving out of
federally funded program patients does not mean
that the business cannot be subject to federal law
enforcement review. This is even more true in the
context of pharmacies and toxicology laboratories,
which are inherently subject to federal scrutiny
(“CLIA” and “DEA” and “Controlled Substances
Act”).
The following is an abbreviated enumeration of
possible grounds for federal jurisdiction despite
carve-outs.

Oberheiden | Elliott | Byrd | Sauter

POSSIBLE GROUNDS FOR FEDERAL
JURISDICTION
------- SEC VIOLATIONS
PSMSOs are offered as federal securities via
Private Placement Memoranda. Some of the
PPMs reviewed, however, failed mandatory registration with the Securities and Exchange Commission (SEC) or proper notice of Form D filings and
therefore operate inconsistently with federal law.

------- DEA JURISDICTION
The Office of Diversion Control, a branch of the
Department of Justice (DOJ) and the Drug
Enforcement Administration (DEA) enforce the
Controlled Substances Act (CSA), a federal
statute. CSA audits may require pharmacy owners
to disclose all corporate documents including but
not limited to contracts with physicians, physician
consulting agreements, marketing agreements,
and the like (e.g. MSO relationships) to federal
authorities.

------- SECONDARY COVERAGE
The Office of Inspector General (OIG) has
responded to federal carve-outs by investigating
commercial laboratories and pharmacies for their
accidental processing of federally funded patients.
Indeed, some patients that appear to have commercial insurance coverage only, do, in fact, have a
non-obvious supplemental Medicare or Tricare
plans, thus invoking original OIG jurisdiction.

------- SECONDARY COVERAGE
The Office of Inspector General (OIG) has
responded to federal carve-outs by investigating
commercial laboratories and pharmacies for their
accidental processing of federally funded patients.
Indeed, some patients that appear to have com-

TODAY’S PRA C T I C E: C HA NGI NG T HE BUS I NES S OF M EDI CINE

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