In October 2023, the Department of Health and Human Services ("HHS") Office of the Inspector General (OIG) issued Advisory Opinion No. 23-07 ("AO") to a multi-specialty physician practice (the "Requestor") with 11 physician employees (the "Physicians"). The Requestor had inquired about the payment of bonuses to its employed physicians based on net profits from procedures performed by the Physicians ("Proposed Arrangement"). The Proposed Arrangement would implement a quarterly compensation bonus wherein the Physicians would receive 30% of the Requestor's net profits from collections attributable to the respective Physician's procedures performed at either of two (2) Requestor-operated ambulatory surgery centers ("ASCs").
The Requestor sought guidance to avoid violating the Anti-Kickback Statute ("AKS") by paying physicians illegal remuneration. 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 providing employed 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.
Specifically, 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 certified that the Physicians would be bona fide employees of the Requestor in accordance with the definition of that term; and
The bonus compensation constitutes 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 limited the scope of the opinion to the Proposed Arrangement and the Requestor, so several intriguing issues stem forth. The opinion noted that similar arrangements involving bonus payments to independent contractor physicians or other nonemployees or arrangements under a different corporate structure (such as physician owners paying themselves ownership distributions under the Proposed Arrangement's structure) may raise fraud and abuse concerns under the federal anti-kickback statute. The question remains as to whether an ASC can rely on the employment exception to protect ASC distributions to physician owners of the ASC if the owners are bona fide employees of the ASC or whether the protection is limited to situations where the physicians are just employees and not direct or indirect owners of the ASC.
It's also notable that the subject bonus methodology involves bonus payments only for physicians who performed services at the ASCs. This contrasts with the OIG's response in 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.
Ultimately, a medical practice or healthcare corporation that is considering implementing a bonus structure that is similar to the one presented in the opinion should carefully consider OIG's analysis.
BFMV is experienced in the valuation of professional healthcare service arrangements, including bonus compensation for physicians and other advanced practice providers. Contact us for more information or assistance.