Where Physicians May Invest in and Refer to an Outside Entity — Requirements

  1. Law
  2. Tennessee Code
  3. Professions of the Healing Arts
  4. Medicine and Surgery
  5. Health Care Referrals
  6. Where Physicians May Invest in and Refer to an Outside Entity — Requirements

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There may be situations in which a needed entity would not be built or instituted if referring physicians were prohibited from investing in the entity and a need might exist when there is no entity of reasonable quality in the community or when use of existing entities is onerous for patients. Therefore, physicians may invest in and refer to an outside entity, whether or not they provide direct care or services at or for the entity, if there is a demonstrated need in the community for the entity and alternative financing is not available. In such cases, the following requirements apply:

  1. Individuals who are not in a position to refer patients to the entity shall be given a bona fide opportunity to invest in the entity and be able to invest on the same terms that are offered to referring physicians. The terms on which investment interests are offered to physicians shall not be related to the past or expected volume of referrals or other business from the physicians;
  2. There is no requirement that any physician investor make referrals to the entity or otherwise generate business as a condition for remaining an investor;
  3. The entity shall not market or furnish its items or services to referring physician investors differently than to other investors;
  4. The entity shall not loan funds or guarantee a loan for physicians in a position to refer to the entity;
  5. The return on the physician's investment shall be tied to the physician's equity in the entity rather than to the volume of referrals;
  6. Investment contracts shall not include noncompetition clauses that prevent physicians from investing in other entities;
  7. Physicians shall disclose their investment interest to their patients when making a referral. Patients shall be given a list of effective alternative entities if any such entities become reasonably available, informed that they have the option to use one of the alternative entities and assured that they will not be treated differently by the physician if they do not choose the physician-owned entity. These disclosure requirements also apply to physician investors who directly provide care or services for their patients in entities outside their office practice;
  8. The physician's ownership interest shall be disclosed, when requested, to third party payers;
  9. An internal utilization review program is established to ensure that investing physicians do not exploit their patients in any way, such as by inappropriate or unnecessary utilization; and
  10. When a physician's financial interest conflicts so greatly with the patient's interest as to be incompatible, the physician shall make alternative arrangements for the care of the patient.


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