On October 13, 2023, the Department of Health and Human Services Office of Inspector General (the OIG) released an advisory opinion regarding a multi-specialty physician practice's (the Practice) proposed plan to pay bonuses to its employed physicians based on net profits derived from certain procedures the physicians performed for the Practice.[1] The Practice requesting the advisory opinion sought to establish whether this bonus compensation arrangement would trigger the imposition of sanctions under the federal Anti-Kickback Statute.

Federal Anti-Kickback Statute

Under the Social Security Act, certain forms of conduct may subject an individual or entity to criminal and civil penalties. The Anti-Kickback Statute generally prohibits knowingly and willfully receiving any kind of remuneration in return for (i) referring an individual for the furnishing of services paid for under a federal healthcare program or (ii) the purchasing, leasing, ordering, or arranging the purchase, leasing, or ordering of any good, facility, or service that is paid for with funds from a federal healthcare program.[2] Remuneration in this case is broadly defined to cover anything of value, including rebates and discounts. There are several safe harbor protections from and exceptions to the Anti-Kickback Statute; however, because of the severity associated with non-compliance, individuals and entities frequently seek advisory opinions from the OIG to determine whether a particular business arrangement would violate the Anti-Kickback Statute.[3]

Bonus Compensation Arrangement

The Practice provides medical services, some of which are reimbursed through federal healthcare programs. These federally reimbursable services are provided by several physicians employed and compensated by the Practice. The Practice intended to implement a bonus compensation arrangement alongside the physicians' base salary. This bonus compensation arrangement was based upon the number of surgical procedures employed physicians performed for the Practice in a given calendar quarter. This arrangement specifically provided for an employed physician to receive 30% of net profits per quarter attributed to the surgical procedures performed by that physician.

In its analysis of the bonus compensation arrangement, the OIG noted that this particular structure would likely meet the statutory exception and regulatory safe harbor for employees. This exception and safe harbor allows employers to pay employees for items or services that are reimbursable under a federal healthcare program; such payments are not viewed as remuneration under the Anti-Kickback Statute as long as a bona fide employment relationship exists between the parties.[4] In the advisory opinion, the OIG opined that the statutory exception and regulatory safe harbor applied to the Practice's proposed bonus compensation arrangement, as the Practice had certified that the physicians met the definition of bona fide employee under 26 U.S.C. §3121(d)(2), and that the compensation amounted to payment by an employer to an employee for services performed in employment.

However, the OIG did note that different employment arrangements might lead to a different result. For example, if the physicians had owned the Practice themselves and paid bonuses out as a form of ownership distribution, such an arrangement would be suspect under the Anti-Kickback Statute. Similarly, if the physicians' status was something other than that of an employee, such as one with independent contractors, this particular safe harbor and exception would not apply, heightening the risk that the arrangement would violate the Anti-Kickback Statute. It is important to keep in mind that this advisory opinion applies only to this Practice's proposed bonus arrangement. While other entities or individuals could look to this opinion as a model to structure their compensation arrangements, they should ensure that any arrangement meets a safe harbor or exception on an individual basis or risk the possibility of an enforcement action and the associated consequences.

[1] Office of Inspector General, U.S. Dept. of Health and Human Services, Advisory Opinion No. 23-07 (Oct. 13, 2023).

[2] Social Security Act, 42 U.S.C. §1320a–7b(b).

[3] See Office of Inspector General, Advisory Opinions FAQs (last accessed Oct. 27, 2023), https://oig.hhs.gov/faqs/advisory-opinion faqs/#:~:text=What%20is%20an%20advisory%20opinion,existing%20or%20proposed%20business%20arrangement.

[4] 42 U.S.C. §1320a–7b(b)(3)(b).