HI hurdles net-tangible-asset rule

Few publicly held imaging services firms will find shelter fromHeath and Human Services antifraud investigation under the $50million net-tangible-assets safe harbor, according to Robert D.Carl, president and CEO of center firm Health Images of Atlanta.

In fact, Carl suspects HI may be the only imaging firm to qualify.

While SCAN listed several public imaging services firms withinreach of $50 million in total assets in our last issue, the safe-harborasset target is harder to reach when both good will and debt aresubtracted to meet the net-tangible-asset qualification, he said.

HHS has allowed firms to add back to their assets the depreciatedvalue of medical equipment. Even this break, however, will notbring the asset goal within reach of most companies, Carl said.

"Health Images absolutely does (meet the asset criteria).We have the best balance sheet in the industry and the highesttangible net worth," he said. "Our tangible net worthwould be $71 million before adjusting for depreciation."

If Carl's stance is correct, HI will have a competitive advantagein scooping up independent MRI centers seeking to escape frompotential antifraud prosecution. It is too early to predict howmany centers will seek this way out, Carl told SCAN.

"The initial response (to the safe-harbor regulations)may be (for centers) to put their heads in the sand and hope toget by without Medicare patients. But I don't think that is goingto work in the long run," he said. Avoidance of restrictionson referring-physician ownership in medical centers will becomeharder if private insurance groups follow the HHS lead.

The Office of the Inspector General within HHS is likely togive centers until the end of this year to respond to the safeharbors, Carl said.

"My feeling is that after the beginning of the year, weare going to see significant prosecution taking place. OIG willgo after the more abusive self-referral kickback schemes,"he said.

HI is not immune from the need to restructure to fulfill safeharbor criteria, Carl said. Some of its centers have about 10%ownership by referring physicians. In these cases, HI may be consideredas an investor in a partially referring-physician-owned centerthat:

• is in a position to control or influence referralsthrough its marketing efforts; and

• owns over 40% of center equity.

Hospitals that run ventures with minority physician partnerscould be in a similar bind. They may lay outside the safe harborrequirement that 60% of equity in physician joint ventures beheld by nonreferring investors, Carl said.

Since physician investment at HI is so low, it is doubtfulthat HHS would investigate, even though there might be a technicalviolation. In any case, buying out its physicians would not havea material affect on HI operations, he said.