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Block Leasing of Imaging Services May Violate State Law

March 13, 2007

Block-leasing arrangements for diagnostic imaging services are fairly common in the health care industry, particularly between diagnostic imaging providers and physicians and/or their practice groups. Under such arrangements, physicians usually lease space, equipment and technicians from the diagnostic imaging provider for a designated period of time--such as four hours per day--then bill and receive payment from third-party payors for the technical and/or professional component of the services. Due to certain payment restrictions under the laws governing Medicare, many of these arrangements are intentionally limited to privately insured patients. While this strategy generally insulates such arrangements from application of the laws governing Medicare, it does not insulate them from a range of state laws, including provisions regarding fraudulent insurance billing, unfair trade practices and fee splitting.

A recent lawsuit filed in Illinois against certain MRI service providers serves as a sharp reminder that block-leasing arrangements can also be vulnerable under state law.

Illinois Attorney General Action
On January 17, 2007, the Illinois Attorney General intervened in a lawsuit previously filed by a private plaintiff against certain MRI service providers. The lawsuit alleges that the defendant MRI service providers paid illegal kickbacks to physicians in exchange for patient referrals, and that the kickbacks constituted violations of the Illinois Insurance Fraud Act and the Illinois Consumer Fraud Act. The complaint further alleges that the kickbacks were disguised in the form of lease agreements between referring physicians and the defendant MRI service providers. Despite the lease agreements, the complaint alleges that the referring physicians had no involvement in the provision of the MRI imaging services. The defendant MRI facilities allegedly provided or arranged for all of the technical and professional components of the MRI imaging services and the referring physicians’ involvement was allegedly limited to billing and collecting for the MRI imaging services.

(To view a copy of the complaint, click on: )

Wisconsin Fraud Claims
The Illinois lawsuit bears watching because it could trigger a similar action in Wisconsin, as well as other states. Whether such a lawsuit could be filed would primarily depend on the legal provisions in the applicable state. For example, in Wisconsin a criminal law provision prohibits the fraudulent submission of insurance claims; however, violations of the law would be enforced by the district attorney’s office or the state’s attorney general, not a private individual, as was initially the case in Illinois. For now, the Illinois case is a reminder that block-leasing arrangements must comply not only with the laws governing Medicare, but also with the applicable laws of the state in which the arrangement is entered into. Specifically, current arrangements should be reviewed, and restructured if necessary, to avoid violations of applicable state laws and new arrangements should be structured for compliance at the outset of the arrangement.

If you would like more information on the issues relating to block-leasing of imaging services or the regulatory concerns of such arrangements, please contact Chuck Vogel (414-287-9502 or or Choua Vang (920-831-6351 or or another member of our Godfrey & Kahn Healthcare Team.

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