$11.5m Sightline Health Settlement: What Can We Learn?

Earlier this year, radiation therapy provider SightLine Health reached a $11.5m settlement with the DOJ in a lawsuit alleging it knowingly violated the federal physician self-referral and anti-kickback laws.

Financial Arrangement

According to the complaint, SightLine’s operating model was to build a radiation therapy center in a new market, and “syndicate” ownership of the center among referring physicians (primarily urologists). Sightline would keep 20% ownership of the JV entity and receive a management fee of $30,000 per month. The referring physicians would individually purchase the remaining 80%, split among 8 to 10 physician-investors who each invested approximately $100,000. The centers were leased to radiation therapists who billed and collected on a global basis and made rent payments to the JV entity for use of the space that allegedly varied based on the volume and value of referrals.

Allegations

The complaint alleges that 1) Sightline violated the Anti-Kickback Statute (“AKS”) by offering physicians the ability to profit, virtually risk-free, in a way that takes into account the volume and value of their referrals to the clinic; 2) the physician-investors violated the AKS by accepting remuneration from Sightline to refer patients; and 3) the physician-investors violated the Stark Law by referring designated health services to centers in which they have an ownership interest.

Potential FMV Issues

Although FMV issues aren’t specifically addressed in the complaint; there may be reason to assume that the plaintiff felt the physician's investments were not made at an FMV price.

Doing some back-of-the-envelope math, the physicians received an 80% interest in a JV entity for a total investment of between $800,000 and $1m, implying a total equity value of $1m to $1.25m. This, of course, is well shy of the cost to build a radiation therapy center with IMRT capabilities – a linear accelerator costs $2.5m to $3m itself, not including buildout. What we don’t know is if financing was used to acquire the facility and equipment – if it was, $1m to $1.25m of equity could theoretically be consistent with FMV.

Another potential FMV issue with the arrangement is that the complaint alleges the physician-investors were offered financing for the $100,000 investment at a 4.5% interest rate, with only the future profits of the venture pledged as collateral. According to the complaint, the investment was typically repaid with center profits within the first year. As a result, the complaint argues that the physicians took on very little financial risk, if any, while receiving significant remuneration.

What Can We Learn?

Since the case settled prior to trial, a lot of key information is unavailable. However, the complaint does include some specifics about the operating model and financial arrangement that provide clues that there may have been FMV-related issues that led to the significant settlement payment, including the investment amounts paid by the physician-investors and the related financing arrangements.

Review the complaint yourself here.

Have a joint venture you'd like reviewed from an FMV perspective? Contact us