This favorable OIG opinion relates to a proposed arrangement (“Arrangement”) regarding a one-time voluntary redemption offer to physician partners reaching age 67 to have their partnership units repurchased by the partnership over a 2-year period, if the physician partners agree to retire from the practice of medicine. OIG concludes that, although the Arrangement would generate prohibited remuneration under the federal Anti-Kickback Statute (“AKS”) if intent were present, OIG will not impose administrative sanctions on Requestor in connection with the Arrangement.

A high-level summary of the Arrangement (more specific details appear in the Opinion) follows:

(i) Requestor is an organized limited liability partnership that operates a hospital and wholly owns an entity that operates a second hospital (“Hospitals”). There are two classes of partners:

  • Class H – a medical center entity that is wholly owned by a nonprofit corporation (“Medical Center”) and
  • Class P – individual physicians with direct partnership interests (“Units”) in Requestor (“Physician Partners”)

(ii) Physician Partners are not limited to practicing at the Hospitals or facilities owned or controlled by any partners of Requestor and are permitted to refer patients to any individual or facility regardless of whether the individual or facility is affiliated with Requestor, any of Requestor’s partners or the Hospitals.

(iii) The partnership agreement permits redemption of Units upon a Physician Partner’s voluntary retirement from the practice of medicine, but does not define mandatory retirement.

  • to date, the partnership has redeemed all Units of all Physician Partners who voluntarily retired, but Requestor expresses concern with a liquidity crisis if a large number of Physician Partners decide to retire in close succession,
  • the Requestor certified that the Arrangement is designed to manage the economic uncertainty without mandating a retirement age of Physician Partners.

(iv) The Arrangement allows Requestor to offer Physician Partners the option at age 67 to have their Units redeemed in three equal increments over a 2-year period, in exchange for the Physician Partners’ agreement to retire from the practice of medicine within six months of receiving the first redemption payment (“Redemption Offer”).

  • acceptance of the Redemption Offer is voluntary,
  • all Physician Partners who meet the applicable age criteria will be given the Redemption Offer, regardless of their referrals or business they would otherwise generate,
  • Physician Partners who decline the Redemption Offer can continue as partners (subject to the partnership requirement) until retirement or death, at which point their units may be redeemed under the terms of the partnership agreement.

(v) The Arrangement sets out a schedule for implementing the offer for Physician Partners who are aged 67 and older in 2023 (first year of the Arrangement) and then annually for those who reach age 67 in the following years.

(vi) The redemption amount is equal to the fair market value of the Physician Partner’s Units as of each repurchase date.

(vii) Physician Partners who accept the Redemption Offer are required to sign a document stating they will not, or will not be, in a position to make a referral of patients to the Hospitals, the Medical Center, or to any other Physician Partner on dates specified in the Arrangement.

(viii) Repurchased Units under the Redemption Offer Agreement are offered to existing and new Physician Partners through partnership offerings.

The full text of Advisory Opinion 23-12 includes a statement of the facts considered by the Office of Inspector General.

It is our view that OIG’s conclusion is based upon the existence of all the factors in the Proposed Arrangement. We expect that a different conclusion may be reached by OIG if one or more of those factors did not exist.

The following summarizes OIG’s legal analysis:

The Proposed Arrangement would implicate the federal AKS because the Requestor offers remuneration in the form of the Redemption Offer to eligible Physician Partners who refer patients, including federal health care program beneficiaries, to other Physician Partners, the Medical Center and the Hospitals, and would continue to make such referrals for up to six months after the Physician Partners receive the first redemption payment under the Redemption Offer Agreement. The Proposed Arrangement does not fall squarely within any safe harbor.

However, for the reasons cited, OIG concludes that the risk of fraud and abuse presented by the Arrangement is sufficiently low under the federal AKS, leading it to issue a favorable advisory opinion for the following reasons:

  1. the Redemption Offer is made on an objective basis unrelated to the volume or value of referrals or other business generated by the Physician Partners. Specifically, the Redemption Offer, if extended, is offered to all Physician Partners upon attaining age 67 and is not conditioned on, or a reward for, Physician Partners making referrals to, or otherwise generating business for, the Medical Center, the Hospitals or other Physician Partners. This reduces the risk the Redemption Offer could result in steering and increased costs from overutilization or inappropriate utilization.
  2. the remuneration paid under the Redemption Offer Agreement is unlikely to result in unfair competition since it includes a no-referral certificate (cited in the facts). Although referrals can occur for the six-month period after the first payment under the Redemption Offer Agreement, OIG opines that the period between the first payment under the Redemption Offer Agreement and retirement is time-limited and necessary to allow the Physician Partners to accept the Redemption Offer, to wind down their medical practices, consistent with state law requirements, and it is unlikely the Arrangement would cause the retiring Physician Partners to alter their referral patterns to benefit the Medical Center, the other Physician Partners or the Hospitals during that six-month period.

Note:
OIG Advisory Opinions are very fact specific and, by their terms, limited to the facts presented by the specific Requestors, and are subject to specific limitations set out in the Advisory Opinions. The above is a high-level summary and consultation with counsel is recommended for a fuller review and discussion of the Advisory Opinion.

Should you need anything else on this topic or if you have a matter that you wish to pursue with the Department of Health and Human Services’ Office of Inspector General for an Advisory Opinion, please feel free to reach out to Matthew Babcock at mbabcock@harrisbeach.com to discuss an engagement.

This alert is not a substitute for advice of counsel on specific legal issues.

Harris Beach has offices throughout New York state, including Albany, Buffalo, Ithaca, Long Island, New York City, Rochester, Saratoga Springs, Syracuse and White Plains, as well as Washington D.C., New Haven, Connecticut and Newark, New Jersey.