Listen to this post

Late last week, the Department of Health and Human Services Office of the Inspector General (“OIG”) posted Advisory Opinion No. 23-07 affirming the broad protection available for compensation to employed physicians under the bona fide employee exception and safe harbor to the federal Anti-Kickback Statute (the “AKS”). The opinion highlights flexibility for healthcare providers seeking to compensate employees in ways that align incentives with their employers, and particularly for physician practices to align employed physicians with use of the practices’ ambulatory surgery center (“ASC”) capabilities.

In the opinion, the OIG considered a proposed bonus compensation methodology for physician employees of a multi-specialty physician practice (the “Practice”). The Practice operates two ASCs, each as a corporate division within the same legal entity as the Practice. Under the proposed bonus methodology, physician employees of the Practice who performed procedures at the ASCs would receive thirty percent of the Practice’s net profits from the ASC facility fee collections for those procedures. 

The OIG opined that, although the bonus methodology would implicate the AKS, it would be protected by the statutory exception and regulatory safe harbor for employees. Specifically, the Practice certified that all bonus recipients would be bona fide employees of the Practice, and the compensation would be paid for “employment in the furnishing of any item or service for which payment may be made…under Medicare, Medicaid, or other Federal health care programs.” 

Notably, the OIG was clear that “a similar arrangement involving bonus payments to independent contractor physicians or other nonemployees or under a different corporate structure (in which, for example, the physicians were owners of the ASCs and paid themselves the bonuses contemplated by the proposed arrangement as ownership distribution) may raise fraud and abuse concerns under the [AKS]”, since “[p]ayment structures that tie compensation to profits generated from services furnished to patients referred by the compensated party are suspect under the [AKS].” The proposed arrangement would be permissible specifically because of the application of the bona fide employee exception and safe harbor and “despite the potential risks of fraud and abuse….”

In reaching its conclusion, the OIG reaffirmed core structural features of the AKS and its embedded protections for employee compensation, including that healthcare providers have broad flexibility in determining how to compensate their employees, and that even compensation structures that may carry fraud and abuse risk are protected if the compensation meets the requirements of an exception or safe harbor. These principles may offer important flexibility to practices seeking to align incentives for employed physicians, particularly within practices that have ASC capabilities. The OIG’s general suspicion of compensation methodologies that link payment to profits generated by a clinician, however, underscores the importance of working closely with legal counsel in developing appropriate compensation structures, particularly for complex healthcare organizations. The members of the Sheppard Mullin Healthcare Team are available to answer your questions and to help your organization achieve business goals while maintaining compliance with the law.