In an advisory opinion released on October 13, the Department of Health and Human Services (HHS) Office of Inspector General (OIG) approved a plan by a muti-specialty practice to pay its employed physicians bonuses related to outpatient procedures performed by those physicians at ambulatory surgical centers (ASCs) operated by the physician practice entity requesting the opinion (the Requestor).

According to the facts as presented by the Requestor, the practice employs a group of physicians across a range of specialties. The Requestor also operates two ASCs as corporate divisions of the practice’s legal entity and not as subsidiaries or affiliates. The Requestor plans to pay each employed physician who performs a procedure at either of the ASCs a quarterly bonus equal to 30% of the net profits generated by the facility fees that are directly attributed to that physician’s procedures performed at the ASCs during the preceding quarter.

Notably, there is no indication in the request that the bonus payments would be based solely on the professional component of services personally performed by the physicians; the measurement of profit per physician would be expected to include the technical component of the procedures.

Arrangement does not violate kickback law

In its very short analysis, OIG found that the proposed arrangement satisfies the broad employment exception and safe harbor to the Federal Anti-Kickback Statute (“AKS”).

The AKS, on its face, prohibits ASCs from paying physicians with an ownership or referral relationship with the ASC in return for performing procedures at the ASC. The AKS prohibits the knowing and willful offer, payment, solicitation, or receipt, directly or indirectly, of any remuneration if even part of the purpose is to influence or reward the referral of patients enrolled in a government health program. However, the AKS contains a statutory exemption for payments to bona fide employees in the course of employment and HHS has promulgated a safe harbor regulation that carves out from the definition of remuneration: “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.”

Both the statutory exemption and the regulatory safe harbor are applicable here, according to OIG. The opinion states that the Requestor of the opinion certified that all physicians would qualify as bona fide employees under the statutory exemption. (OIG advisory opinions do not address whether an individual is a bona fide employee.) Additionally, OIG concluded that the bonus compensation would constitute an amount paid by an employer to an employee for employment in the furnishing of an item or service for which payment may be made by a Federal health care program, thereby satisfying the regulatory safe harbor. Of note, however, according to OIG, if the same payments were made to non-employees or to independent contractors or under a different corporate structure, the arrangement could raise fraud and abuse issues.

Self-referral law not implicated

The OIG did not take a position on whether the arrangement would violate the federal physician self-referral law, frequently known as the “Stark Law,” which prohibits a physician from having a financial stake in an entity to which the physician refers designated health services, unless an exception applies. In this case, the Requestor stated to OIG that the physician employees do not have Stark-implicating relationships with the ASCs, which is commonly the case with ASCs given the types of procedures and claims submitted to federal programs by ASCs. Taking the Requestor at its word, OIG did not opine on whether the arrangement would implicate that law.

Key Takeaways

In this opinion, OIG reiterates its view that payments to bona fide employees for services paid by a federal health care program can be based on profit, in certain situations, so long as those employees are being compensated for services and items provided for the employer and billed to federal programs. Importantly, the opinion indicates that the ASCs are not subsidiaries of the Requestor – rather, they are corporate divisions of the practice legal entity. OIG expressly declined to address the application of the ASC safe harbor to any ownership distributions to the physicians; in fact, OIG noted that paying these bonuses to physician owners of the ASCs as ownership distributions would likely result in a different analysis.       

The advisory opinion, as with all such opinions from OIG, is only applicable to this particular situation and this particular Requestor. However, a health care practice or corporation that is considering implementing a bonus structure that is similar to this set of facts should closely examine this analysis from OIG.

The fact that the physician employees could qualify as bona-fide employees under the statute and that the ASCs were held as separate corporate divisions were deciding factors in approving this arrangement. While OIG advisory opinions are binding only on the requestor, this newest opinion suggests OIG’s broad view of compensation methodologies available to employees of an entity when those payments are made for bona fide services or items.

Reed Smith will continue to follow developments in health care fraud and abuse enforcement. For more information on this advisory opinion or the impact of the OIG’s guidance on your business, please contact one of the authors or a member of the Reed Smith health care team.