Key Takeaways from OIG Advisory Opinion No. 23-07: Physician Compensation as a Percentage of ASC Profits

By Taylor Anderson, CVA, Taylor Harville, and Trent Fritzsche

The Department of Health and Human Services Office of Inspector General (OIG) posted Advisory Opinion No. 23-07 on October 13, 2023 (“Opinion”). The Opinion was related to the request submitted by a redacted requestor (“Requestor”) to pay bonuses to its employed physicians based on net profits derived from certain procedures performed by the physicians at ambulatory surgery centers (ASCs) operated by the Requestor (“Proposed Arrangement”). More precisely, the Requestor was seeking the opinion of the OIG about whether the Proposed Arrangement would lead to sanctions under the federal Anti-Kickback Statute (AKS).

Based on the relevant facts detailed in the Opinion, the Proposed Arrangement consisted of the following key facts and circumstances:

• The Requestor operates a multi-specialty physician practice of 11 physician employees.
  • Additionally, the Requestor certified that all these physicians would be considered bona fide employees of the Requestor in compliance with the definition of the term “employee” described in 26 U.S.C. § 3121(d)(2).
• The Requestor receives payments from federal healthcare programs.
  • Requestor certified that it would not furnish any “designated health services” as defined at 42 C.F.R. § 411.351 and that the Proposed Arrangement would not implicate the physician self-referral law, section 1877 of the Social Security Act.
• The employed physicians would receive employment compensation from the Requestor in exchange for the services provided on behalf of the Requestor. This included services related to payments made under federal healthcare programs.
• The Requestor proposed to set up a new compensation structure. The compensation structure would make it so that whenever a physician employee performed an outpatient surgical procedure at an associated ASC* the physician employee would receive a bonus equal to 30% of the Requestor’s net profits from the ASC facility fee collections attributable to the physician employee’s procedures performed that quarter.

Ultimately, the OIG concluded the quarterly bonus structure would not generate prohibited remuneration under the federal AKS.

Key Considerations

In the analysis summarized in the Opinion, the OIG highlighted several considerations that ultimately led to the conclusion. These included the following:

1. The Requestor certified that the physician employees would be bona fide employees of the Requestor in accordance with the definition of that term set forth at 26 U.S.C. § 3121(d)(2).
2. The bonus compensation would constitute 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 also noted that a compensation structure tied to profits generated from services provided to patients referred by the compensated party is suspect under the federal AKS, particularly in arrangements where the physician is an independent contractor or there is a different corporate structure. However, because the Proposed Arrangement satisfied the regulatory safe harbor for employees, the compensation would not be prohibited.

Lastly, the OIG noted that while the Proposed Arrangement would not generate prohibited remuneration under the federal AKS, it was clear that it expressed no opinion as to whether the Proposed Arrangement would implicate the physician self-referral law.

Conclusion

When developing unique compensation structures with physicians or any service provider it is important to be mindful of the various laws and statutes in place. Proper review and consideration of the federal AKS and other healthcare regulations is essential for any organization when structuring compensation plans to ensure proper regulatory compliance. Additionally, documentation of fair market value and commercial reasonableness is another key element of any provider compensation arrangement, especially if those providers are a source of potential referrals.

For additional guidance related to structuring and valuing provider compensation arrangements, please reach out to Managing Director Jonathan Helm at jonathan.helm@vmghealth.com to learn more.

Source

1. Office of Inspector General. (October 10, 2023). OIG Advisory Opinion No. 23-07.

Endnote

*The Opinion noted there were two ASCs operating as corporate divisions of Requestor.