Insights & Resources

January 17, 2024 | Alerts

OIG Approves Creative Approach to Restructuring Medical Practice Partnerships

OIG Approves Creative Approach to Restructuring Medical Practice Partnerships

The U.S. Department of Health and Human Services, Office of Inspector General (OIG) posted a favorable Advisory Opinion (23-12) that allows a limited liability partnership (the Partnership) consisting of two classes of physician partners to make a one-time, voluntary redemption offer (offer) to individual partners when they reach age 67.  The offer allows the Partnership to re-purchase partnership interests (hereinafter, units) of individual partners in three equal increments over a two-year period in exchange for the individual partner’s voluntary retirement from the practice of medicine within 6 months of receiving the first incremental payment.  This opinion is noteworthy because it highlights OIG’s collaborative efforts with the medical community to address novel questions and identify creative solutions to restructuring medical practice partnerships.

The Partnership is organized pursuant to a partnership agreement that sets forth terms of the partnership, including eligibility requirements. The Partnership operates a hospital and wholly owns an entity that operates a second hospital (the Hospitals).  The Partnership has two classes of partners: (1) a medical center entity that is wholly owned by a non-profit corporation (the Medical Center); and (2) individual physicians with direct partnership units in the Partnership (the Physician Partners).  Among other things, the Partnership agreement permits the redemption of units upon a Physician Partner’s voluntary retirement from the practice of medicine.  Importantly, the Partnership agreement does not define or otherwise contain a mandatory retirement provision (e.g., one requiring retirement at a particular age or if the Physician Partners reduce the number of days or hours they work).  Without mandating a retirement age for the Physician Partners, the Partnership certified that the offer is designed to manage the unpredictability of when Physician Partners will exercise the offer and any potential resulting liquidity crisis if a large number of Physician Partners unexpectedly retire in close succession.

OIG determined that the offer would generate prohibited remuneration under the Anti-Kickback Statute (AKS) because eligible Physician Partners refer patients, including Federal health care program beneficiaries, to the Hospitals, the Medical Center, and other Physician Partners.  Further, OIG noted that referrals could continue for up to 6 months after the Physician Partners receive the first incremental payment under the offer.  OIG found that no safe harbor applies to this arrangement.

Nevertheless, OIG issued this favorable opinion because the risk of fraud and abuse (including steering, overutilization, inappropriate utilization, and unfair competition) presented by the offer was sufficiently low because:

  • the offer is made on an objective basis unrelated to the volume or value of referrals or other business the Physician Partners generate;
  • if the offer is extended in a given year, it is extended to all Physician Partners upon attaining age 67 and it is not conditioned on, or a reward for, making referrals to or generating business for the Hospitals, the Medical Center, or other Physician Partners; and
  • the offer expressly includes a No-Referral Certificate that prohibits the Physician Partners from referring patients to the Hospitals, the Medical Center, or to other Physician Partners upon the earlier of the Physician Partner’s retirement OR the date on which they no longer meet the requirements of the Partnership agreement.

OIG acknowledged that Physician Partners who accept the offer may continue to refer patients to the Hospitals, the Medical Center, and other Physician Partners for the 6-month period between the offer’s first incremental payment and retirement, but that it was unlikely the Physician Partners would alter their referring patterns during this limited 6-month period.  The OIG also acknowledged that this 6-month period allowed Physician Partners to wind down their medical practices in accordance with state law requirements.

Notwithstanding this favorable opinion, it is important to verify that a medical practice’s offer (or mandate) of retirement does not otherwise violate Federal or state age or disability discrimination laws.  Recently, the Equal Employment Opportunity Commission found in a different matter that a medical practice’s mandatory retirement requirement gave reasonable cause to believe that the practice violated the Federal Age Discrimination in Employment Act (ADEA) and the Americans with Disabilities Act (ADA).

A complete copy of Advisory Opinion 23-12 is available at: https://oig.hhs.gov/documents/advisory-opinions/1144/AO-23-12.pdf

Should you have any questions regarding the above, please contact the authors, the Garfunkel Wild attorney with whom you regularly work, or contact us at [email protected].