The U.S. Department of Health and Human Services’ Office of Inspector General (“OIG”) recently issued Advisory Opinion No. 23-07 regarding the question of whether payment of bonuses to employed physicians based on net profits from certain procedures personally performed by the physicians in two (2) ambulatory surgical centers (the “Proposed Arrangement”) would constitute a violation of the Federal Anti-Kickback Statute (the “AKS”).[1]
Under the Proposed Arrangement, in addition to a base salary, the multi-specialty physician practice (the “Practice”) would pay physician employees a quarterly bonus. This bonus would be equal to thirty percent of the net profits from the ambulatory surgical centers’ (“ASCs”) facility fee collections derived from the employed physician’s personally performed procedures during that quarter. The ASCs would operate as two subdivisions of the Practice as distinct entities, complying with all applicable legal requirements for ASCs. The bonus would include monies received by the Practice from claims submitted to Federal health care programs. The requestor certified that all physician employees eligible for the bonus compensation were bona fide employees of the Practice, and the bonus compensation did not include fees paid for “designated health services” which would implicate the Federal physician self-referral law, commonly known as the “Stark Law.”
The AKS imposes criminal penalties against individuals or entities that knowingly and willfully offer, pay, solicit, or receive any remuneration:
(A) “in return for referring an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a Federal health care program” (which include Medicare and Medicaid), or
(B) “in return for purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a Federal healthcare program.”[2]
Remuneration is defined broadly to include the transfer of anything of value, directly or indirectly, overtly or covertly, in cash or in kind.[3] The AKS has been interpreted broadly by courts to cover any arrangement where one purpose of remuneration is to induce or reward referrals. A violation of the AKS is a felony, and conviction may result in a fine of up to $100,000 per occurrence, and up to ten years in prison, as well as civil monetary penalties and exclusion from participation in government reimbursed programs.[4]
The Proposed Arrangement implicated the AKS because the physicians receiving the bonus compensation referred patients to the ASC for services reimbursable by a Federal health care program. However, based on the specific facts and circumstances described in the Advisory Opinion, the bonus compensation qualified for the protection of the regulatory safe harbor, which excludes “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” from the definition of prohibited “remuneration” under the AKS.[5] The OIG warned that under a different arrangement, such as one in which bonus payments are made to independent contractors, the safe harbor protection would not be available.
Takeaway
Advisory Opinions may only be relied upon by the requesting party, but they are instructive as to the OIG’s likely view of similar arrangements. Arrangements in which a physician is compensated based on profits generated from services furnished to patients who were referred by that physician are generally suspect under the AKS, but qualifying bona fide employment relationships afford significant latitude to craft compensation methodologies that incentivize and reward productive physicians. This Advisory Opinion reinforces the OIG’s longstanding position that when arrangements are properly structured to comply with the regulatory safe harbor for bona fide employment relationships, certain payment practices that implicate AKS are not treated as offenses. It is important to note that the mere labeling of an arrangement as an employment relationship does not automatically qualify it for safe harbor protection; the question of whether a bona fide employment arrangement exists is a fact-sensitive inquiry, and only parties that satisfy the applicable criteria are eligible for protection from an AKS enforcement action. It is likewise important to remember that compliance with an AKS safe harbor does not obviate the need to review the arrangement under the state law analog to the AKS, if applicable.
How Frier Levitt Can Help
Frier Levitt regularly advises clients regarding potential risks under Federal and state laws designed to prevent, identify, and prosecute fraud, waste, and abuse. To evaluate the risk of a current or proposed compensation arrangement, contact Frier Levitt to speak with one of our experienced attorneys.
[1] Section 1128B(b) of the Social Security Act.
[2] 42 U.S.C. § 1320a–7b(b).
[3] 42 U.S.C. § 1320a–7b(b).
[4] 42 U.S.C. § 1320a–7b(b).
[5] 42 C.F.R. § 1001.952(i).
