Overview
The US Department of Health and Human Services Office of Inspector General (OIG) recently issued Advisory Opinion (AO) 23-07, analyzing a proposed arrangement to pay physicians in a multi-specialty group practice bonuses that tie to profits from the practice’s ambulatory surgery centers (ASCs). Based on the specific facts and circumstances of the proposed arrangement, OIG reached a favorable conclusion, finding that the proposed arrangement would qualify for protection under the broad safe harbor for employee compensation under the federal Anti-Kickback Statute (AKS). While AO 23-07 is a helpful confirmation of the breadth of the employee compensation exception and safe harbor, we note this opinion is narrowly focused on and limited to the specific facts presented—namely, that a physician practice’s ASCs, operating under the practice’s own tax identification number, would be considered part of the practice and could be counted when using practice profits to compensate practice physicians.
In Depth
THE PROPOSED ARRANGEMENT
The AO was requested by a multi-specialty physician practice that furnishes services reimbursable by federal healthcare programs through 11 employed physicians. The practice stated that it planned to operate two Medicare-certified ASCs, in which certain of its physicians perform outpatient surgical procedures, under its own tax identification number (i.e., not as a subsidiary or separate corporate entity). These ASC proceduralist physicians are paid W-2 employment compensation by the practice for the services they provide on the practice’s behalf and would all qualify as bona fide employees.
The practice proposed to compensate its employee physicians who perform outpatient procedures at the ASCs under a new bonus compensation arrangement. Under the new arrangement, each physician, in addition to their base compensation, would receive a quarterly bonus of 30% of the practice’s net profits from the ASC facility fee collections attributable to that physician’s procedures performed at the ASC that quarter.
OIG ANALYSIS
OIG noted that typically, tying physician compensation to profits generated from services to patients referred by the compensated physician are suspect under the AKS. However, OIG concluded that the proposed arrangement fell within the statutory exception and regulatory safe harbor for compensation to bona fide employees.
The AKS statutory exception for employees 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” (42 U.S.C. § 1320a-7b(b)(3)(B)). The regulatory safe harbor similarly carves out “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,” under federal healthcare programs from the definition of “remuneration” prohibited by the AKS (42 C.F.R. § 1001.952(i)).
OIG determined that the statutory exception and regulatory safe harbor for employees applied to the bonus compensation because:
- The practice certified that the physician employees would be bona fide employees of the practice (as defined in 26 U.S.C. § 3121(d)(2))
- The bonus would constitute compensation to a bona fide employee for furnishing a service reimbursable by a federal healthcare program
OIG notes that similar bonus compensation arrangements, such as those to independent contractors or those in which the physicians receiving the bonuses were owners of the ACSs and received the bonuses in the form of ownership distributions, may raise fraud and abuse concerns under the AKS.
KEY TAKEAWAYS
The employee exception and safe harbor offer flexibility to structure compensation programs to improve alignment between healthcare providers and their physician employees. It is helpful for OIG to confirm the significant breadth of the employment exception and safe harbor. OIG has stated for many years, including in the first safe harbors, that employees may be paid for generating business for their employer. However, AO 23-07 is more interesting for what it does not say.
First, the requestor stated that it would not furnish any designated health services (DHS) and that the proposed arrangement would not implicate the physician self-referral law. This is a curious certification, as most physician practices furnish DHS. Perhaps the requestor meant that there was no DHS in the ASC arrangement, which would make sense because ASC services are not DHS. The AO is unclear on this issue. Even if the requestor furnished DHS at the practice, it is not obvious how that would change the employment bonus analysis. Since ASC services are not DHS, paying employed physicians a percentage of ASC facility profits would not be a payment for DHS.
Second, the requestor appears to have been restructuring its ASC as part of the request, but did not make that restructuring part of the request. Specifically, the requestor stated it “plans to operate the two ASCs as corporate divisions of Requestor (i.e., as divisions within the same legal entity as Requestor and not as subsidiaries of Requestor)” and the requestor “has not asked [OIG] to opine on, and [OIG] express[es] no opinion regarding, remuneration related to any corporate restructuring of requestor or any ownership distributions provided by requestor.” (Emphasis added). As a result of the requestor’s framing of the request, it is not clear what the ASC ownership structure was prior to the request or why or how requestor made the ownership change. The factual situation of an ASC being a “division” of a practice is relatively uncommon. Analytically, there does not appear to be much of a difference between an ASC as a division of a practice and an ASC as a wholly owned subsidiary of a practice, which is a common structure, but this AO addresses the former. Similarly, in the health system and group practice contexts, employers may want to encourage their employed physicians to perform cases at affiliated ASCs or hospitals, which are not the entities that actually employ the physicians. The potential regulatory risk associated with an employer’s compensation to its employees based on the use of affiliated entities is a fact-specific analysis.
Ultimately AO 23-07 leaves more questions unanswered than it answers. However, it is beneficial that AO 23-07 confirms the broad protection that the employee exception and safe harbor provides to compensation arrangements that fall within its scope.
Finally, we note that OIG’s analysis only addresses issues under the federal AKS. OIG does not express any opinion regarding the proposed arrangement’s compliance with any state law or the issues such an arrangement would pose under other potentially applicable federal law, such as the physician self-referral law. Before entering into a similar arrangement or considering the potential risk profile of practice-owned or affiliated ASCs, entities should consult legal counsel for an analysis under both federal and applicable state law.
