Articles

OIG Issues Favorable Opinion for Proposal to Pay Bonuses to Employed Physicians Based on Net Profits

November 27, 2023, Legal Intelligencer article by Lamb McErlane Health Law attorneys Vasilios J. (Bill) Kalogredis and Sonal Parekh.

The HHS Office of Inspector General (OIG) issued Advisory Opinion No. 23-07 (opinion) on Oct. 10 regarding a “requestor’s” proposal to pay bonuses to its employed physicians based on net profits derived from certain procedures performed by the physicians (the proposed arrangement).

The HHS Office of Inspector General (OIG) issued Advisory Opinion No. 23-07 (opinion) on Oct. 10 regarding a “requestor’s” proposal to pay bonuses to its employed physicians based on net profits derived from certain procedures performed by the physicians (the proposed arrangement). Specifically, the requestor inquired as to whether the proposed arrangement would warrant sanctions under Section 1128(b)(7) or Section 1128A(a)(7) of the Social Security Act (SSA), as they relate to Section 1128B(b), the federal anti-kickback statute (AKS).

The opinion concludes that the proposed arrangement, if undertaken, would not generate prohibited remuneration under the AKS. Accordingly, the OIG would not impose administrative sanctions on the requestor in connection with the proposed arrangement under Sections 1128A(a)(7) or 1128(b)(7) or the SSA as they relate to the AKS.

Factual Background and Proposed Arrangement

The requestor operates a multispecialty physician practice with several “physician employees,” who receive certain employment compensation from the requestor in exchange for services they provide on behalf of the requestor, including services for which payment may be made under federal health care programs, but excluding designated health services as defined under 42 C.F.R. Section 411.351.

Under the proposed arrangement, the requestor would implement an additional employment compensation bonus structure for the physician employees in exchange for the services they provide on behalf of the requestor. “Specifically, when a physician employee performs outpatient surgical procedures at either of two ambulatory surgical centers (ASCs) operated by the requestor in a given calendar quarter, the physician employee would receive a bonus in the form of 30% of the requestor’s net profits from the ASC facility fee collections attributable to that physician’s procedures performed at the ASC for that quarter.”

The Law: Federal Anti-Kickback Statute

The AKS makes it “a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce, or in in return for, the referral of an individual to a person for …  any item or service reimbursable under a federal health care program.” The prohibition extends to remuneration to induce, or in return for, the purchasing, leasing, or ordering of, or arranging for or recommending the purchasing, leasing, or ordering of, any good, facility, service, or item reimbursable by a federal health care program. Here, remuneration includes the transfer of anything of value. The statute applies to any arrangement where at least one purpose of the remuneration is to induce referrals for items or services reimbursable by a federal health care program. Violations of the AKS constitute a felony punishable by a maximum fine of $100,000 and up to 10 years of jail time, as well as exclusion from federal health care programs and potential imposition of fines by the OIG. The OIG noted that the “safe harbor” exception for employees is potentially applicable to the proposed arrangement. The statutory exception protects “any amount paid by an employer to an employee (who has a bona fide employment relationship with such employer) for employment in the provision of covered items or services.” The safe harbor regulations further provide that the term “remuneration” does not include “any amount paid by an employer to an employee, who has a bona fide employment relationship with the employer, for employment in the furnishing of any item or service for which payment may be made in whole or in part under Medicare, Medicaid or other federal health care programs.

Legal Analysis

Under the proposed arrangement, the opinion states, “when the relevant ASC procedures are referred by the physician employee and are reimbursable by a federal health care program, the AKS would not be implicated,” and would instead be protected by the statutory exception and regulatory safe harbor for employees because: the requestor certified that the physician employees would be bona fide employees of the requestor in accordance with 26 U.S.C. Section 3121(d)(2); and the bonus compensation would constitute an amount paid by an employer to an employee for employment in the furnishing of any item or service for which payment may be made in whole or in part under Medicare, Medicaid, or other federal health care programs.

The OIG drew a sharp distinction between the permissible proposed arrangement, and an impermissible arrangement where either the bonus payments would be to independent contractor physicians or nonemployees, or the physicians were owners of the ASCs and paid themselves the bonuses contemplated by the proposed arrangement as ownership distributions.

Conclusion and Limitations

Based on the facts provided, the OIG concluded that the proposed arrangement, if undertaken, would not generate prohibited remuneration under the AKS, and, accordingly, would not warrant sanctions under Sections 1128A(a)(7) and 1128(b)(7) of the SSA. It is important to note that the opinion is limited in scope to the specific proposed arrangement under the AKS, and not the Physician Self-Referral Law (Stark Law), and is not to be relied upon by any person other than the requestor. While the opinion may not be specifically relied upon for other arrangements, the reasoning stated therein is useful to keep as a consideration when structuring a business or engaging with other businesses to provide, or arrange for the provision of, certain services.

Read the article online on Law.com/Legal Intelligencer.

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Vasilios J. (Bill) Kalogredis, Esq. has been advising physicians, dentists, and other healthcare professionals and their businesses as to contractual, regulatory and transactional matters for over 45 years. He is Chairman of Lamb McErlane PC’s Health Law Department. Bill can be reached by email at bkalogredis@lambmcerlane.com or by phone at 610-701-4402.

Sonal Parekh, Esq., who contributed to this article, is a practicing attorney at Lamb McErlane PC who focuses on healthcare transactional matters and a broad range of healthcare regulatory-related issues on behalf of healthcare systems, physicians, dentists, and other healthcare providers and is a pharmacist by education and training. Sonal can be reached by email at sparekh@lambmcerlane.com or by phone at 610-701-4416.

 

*This article is for educational purposes only and is not intended to be legal advice. Should you require legal advice on this topic or have any questions or concerns, please contact Vasilios J. (Bill) Kalogredis, Esq. or Sonal Parekh, Esq