On October 13, 2023, the U.S. Department of Health and Human Services, Office of the Inspector General (OIG) posted Advisory Opinion 23-07, a favorable opinion regarding an employer’s proposal to pay bonuses to its employed physicians based on net profits derived from certain outpatient surgical procedures the employed physicians perform at the employer’s two planned ambulatory surgery centers (ASCs).
The OIG stated that this proposal implicates the Federal anti-kickback statute (AKS) when the employed physicians refer relevant procedures to the ASCs that are reimbursable by a Federal health care program, but that the statutory exception and regulatory safe harbor for employees protects the proposed bonus compensation payments such that the remuneration exchanged would not generate prohibited remuneration under the AKS.
This favorable opinion is a welcome development for physician practices, especially those with ASCs within the same legal entity as the physician practice, because it offers the practices flexibility in how they compensate employed physicians who use the practices’ ASCs. Moreover, the advisory opinion emphasizes that while certain employee compensation arrangements may give rise to fraud and abuse concerns, meeting the requirements of an exception or safe harbor protects these arrangements.
In this case, the employer operates a multi-specialty physician practice that has approximately eleven physician employees who furnish services that are reimbursable by a Federal health care program. The employer also plans to operate two ASCs, each as a corporate division within the same legal entity as the practice and not as subsidiaries. The employer proposes to offer and pay each employed physician a quarterly bonus equal to 30 percent of the employer’s net profits from the ASC facility fee collections attributable to that employed physician’s procedures that he or she performed at the ASCs for the preceding quarter (in addition to base employment compensation).
The OIG concluded that the statutory exception and regulatory safe harbor for employees protects the proposed bonus compensation because: (1) the employer certified that the employed physicians would be “bona fide employees” in accordance with the definition of that term set forth at 26 U.S.C. § 3121(d)(2); and (2) the bonus compensation constituted an amount the employer paid to the employed physician for furnishing any item or service on the employer’s behalf for which payment may be made (in whole or in part) under the Federal health care programs. Accordingly, the OIG determined that the remuneration the employer proposed to pay would not generate prohibited remuneration under the AKS, and the OIG would not impose administrative sanctions on the employer.
The OIG acknowledged, however, that a similar arrangement involving bonus compensation payments to independent contractor physicians or other non-employees, or those made under a different corporate structure (in which, for example, the physicians owned the ASCs and paid themselves the bonuses as ownership distributions) might raise fraud and abuse concerns under the AKS. This is because payment structures tying compensation to profits generated from services furnished to patients referred by the compensated party are suspect under the AKS.
Should you have any questions regarding the above, please contact Andrew Blustein, Kimberly Kempton-Serra, David Traskey, the Garfunkel Wild attorney with whom you regularly work, or email us at [email protected].