OIG Looks at How Employed Physicians Bonuses Are Paid from ASC Profits
- A recent U.S. Department of Health & Human Services Office of the Inspector General (OIG) advisory opinion could impact how multi-specialty physician practices structure bonuses paid to physician employees from procedures performed at its ambulatory surgery centers.
- The proposed compensation arrangement described in the advisory opinion would not be prohibited remuneration under the federal anti-kickback stature.
- The opinion provides meaningful insight to the OIG's position on the broad protection afforded to compensation paid under the employment safe harbor.
The U.S. Department of Health & Human Services Office of the Inspector General (OIG) on Oct. 13, 2023, posted Advisory Opinion No. 23-07 detailing a favorable response to a proposal by a Requestor to pay bonuses to its physician employees based on net profits from certain procedures those physicians perform at ambulatory surgery centers (the Proposed Arrangement). The OIG's opinion determined that the Proposed Arrangement would not constitute prohibited remuneration under the federal anti-kickback statute (AKS). This determination is notable because of the impact this payment model could have on other multi-specialty physician practices with physician employees that might consider similar compensation structures.
The Requestor is a multi-specialty physician practice with physician employees. The Requestor also operates two ambulatory surgery centers (ASCs) as corporate divisions of the Requestor. Under the Proposed Arrangement, the Requestor wanted to provide employment bonuses to physicians based on a percentage of net profits from certain outpatient surgical procedures the employees performed at the Requestor's ASCs. Specifically, the Requestor planned to offer and pay each bona fide physician employee remuneration in the form of a quarterly bonus equal to 30 percent of the Requestor's net profits from its ASC facility fee collections attributable to that physician's procedures performed at either of its ASCs for the preceding quarter (in addition to base employment compensation).
The OIG opined that even though this bonus methodology could implicate the AKS, the bonus payments to the physician employees would be for compensation paid to bona fide employees of the practice for employment in the furnishing of items and services for which payment may be made under Medicare, Medicaid or other federal healthcare programs, and that therefore the bonus payments would be protected by the statutory employment exception and the employment safe harbor to the AKS.
The OIG concluded that the bonus compensation under the Proposed Arrangement is protected by the statutory exception and regulatory safe harbor for employees due to:
- the Requestor certifying that the physician employees would be bona fide employees of the Requestor in accordance with the definition of that term
- the bonus compensation constituting 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 healthcare programs
The OIG noted that similar arrangements involving bonus payments to independent contractor physicians or other nonemployees or arrangements under a different corporate structure may raise fraud and abuse concerns under the federal anti-kickback statute. The OIG pointed to a situation where physician owners of an ASC pay themselves similar bonuses as ownership distributions as an example of an arrangement not covered by the advisory opinion and which may raise fraud and abuse concerns under the AKS.
The opinion provides meaningful insight to the OIG's position on the broad protection afforded to compensation paid under the employment exception. Key issues remain to be resolved moving forward such as whether an ASC can rely on the employment exception in lieu of the ASC safe harbor to protect ASC distributions to physician owners of the ASC as long as the owners are bona fide employees of the entity making the distributions or whether the protection is limited to situations where the physicians are just employees and not direct or indirect owners of the ASC. Although not expressly cited as a favorable factor in the opinion, a fact worth noting is the bonus proposal in this advisory opinion was to pay bonuses to only those physicians who performed services at the ASCs, similar to the extension of the practice concept for the ASC safe harbor. This may have been the factor that distinguished this favorable OIG opinion from OIG Advisory Opinion No. 03-5 in which the OIG refused to grant a favorable response to a multi-specialty group practice that owned a surgery center in which the surgery center profits would be distributed to all members of the group practice, just not in a manner that would reward the physicians for their referrals to the ASC.
Please contact the authors for more information on OIG Advisory Opinion 23-07 and approaches to structuring physician compensation.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.