On October 13, the U.S. Department of Health and Human Services Office of Inspector General (OIG) issued Advisory Opinion 23-07, approving a physician practice’s proposal to pay its physician-employees a portion of the facility fee profits from procedures they perform at ambulatory surgical centers (ASCs) operated by the practice.

The advisory opinion demonstrates the breadth of the federal Anti-Kickback Statute’s statutory exception and regulatory safe harbor for employment, which protect compensation from an employer to a bona fide employee for employment in the furnishing of items or services payable by federal healthcare programs. Although the opinion reflects a straightforward application of the safe harbor, it is important to recognize the opinion’s limitations and the unusual nature of the requestor’s operations and corporate structure.

The Proposed Arrangement

The requestor would operate within a single entity a multi-specialty physician practice and two ASCs. In effect, the ASCs would be corporate divisions of the requestor, not separate legal entities.

Under the proposed arrangement, the requestor would pay each of its physician-employees a bonus equal to 30% of the net profits from the ASC facility fees attributable to the physician’s procedures. These bonuses would be in addition to the base compensation the requestor pays the employees.

Notably, the requestor did not ask OIG to opine on distributions of the remaining 70% of the ASCs’ net profits or the apparent corporate restructuring the requestor would undertake, and the advisory opinion covers neither issue. Also noteworthy is the fact that the requestor certified that it would not furnish “designated health services” (as defined by the federal physician self-referral law, or Stark Law, as it is commonly known)—circumstances that are unusual for a multi-specialty practice that operates two ASCs.

OIG’s Analysis

The bonus payments would be protected by the employment safe harbor, OIG concluded, because the requestor certified that the physicians were bona fide employees of the requestor, and the bonuses would be payments for employment in the furnishing of items or services payable by federal healthcare programs.

Although, as OIG observes, “[p]ayment structures that tie compensation to profits generated from services furnished to patients referred by the compensated party are generally suspect” under the Anti-Kickback Statute, the employment safe harbor can protect these payments if two conditions are satisfied. One, the compensation must be from an employer to a bona fide employee. Two, the employment must be for the furnishing of items or services payable by federal healthcare programs. Here, both conditions were met.

While the bonuses would satisfy the safe harbor, similar payments to independent contractors—or even payments to the same physicians as ownership distributions, rather than wages for employment—could pose fraud and abuse risks.

Takeaways

The employment safe harbor is straightforward and broad, and the advisory opinion illustrates both features. If an employer pays a bona fide employee for employment in the furnishing of items or services payable by a federal healthcare program, the payments are protected. Unlike many safe harbors, the employment safe harbor does not require the payments to be consistent with fair market value, and it can protect even payments that vary with the volume and value of federal healthcare program business the recipient generates. In this respect, the same payments that may pose significant risk if paid to an independent contractor—e.g., sales commissions for marketing services—may be safe harbored if paid by an employer to an employee.

As always, this opinion is limited to the requestor and to the particular facts and circumstances described by the requestor, which, as noted above, are somewhat unusual. Where a physician group owns and operates an ASC, it often does so through a separate legal entity. OIG’s analysis leaves open the question of whether similar bonus payments would be permissible under the Anti-Kickback Statute where, rather than the ASC being a division of the employer, the ASC is instead a wholly-owned subsidiary.

Likewise, the requestor’s certification that it does not furnish designated health services is unusual. Multi-specialty practices that operate an ASC typically do furnish designated health services, and it is unclear what effect that fact, if true here, would have on the proposed arrangement. If the requestor were organized as a single legal entity operating primarily for the purpose of being a physician group practice, payments like those contemplated under the proposed arrangement would not prevent the requestor from qualifying as a “group practice” and satisfying the in-office ancillary services exception to the Stark Law.