This opinion addresses a proposed arrangement (“Proposed Arrangement”) between a multi-specialty physician practice (“Requestor”) that employs approximately 11 physician employees (“Physician Employees”). In addition to base employment compensation, the Proposed Arrangement proposes to implement an employment compensation bonus methodology for each Physician Employee in exchange for the services provided on behalf of Requestor. The covered services (outpatient surgical procedures) may include those provided under federal health care programs when performed by Physician Employees at either of two ambulatory surgical centers (“ASCs”) operated by Requestor in a given calendar quarter. The Physician Employee would receive a bonus in the form of 30% of Requestor’s net profits from the ASC’s facility fee collections attributable to that physician’s procedures performed at the ASC for that quarter.

1. The Advisory Opinion relies (without further analysis) on the Requestor’s representations that:

2. Physician Employees fit within the definition of “employee” as defined in 26 U.S.C. § 3121(d)(2).

3. The Requestor would not furnish any “designated health services” as defined at 42 C.F.R. §411.351.

4. The Proposed Arrangement would not implicate the physician self-referral law, section 1877 of the Social Security Act, and OIG did not express an opinion on the application of the physician self-referral law to the Proposed Arrangement.

The two ASCs are corporate divisions of Requestor, not subsidiaries of Requestor, and that each ASC would be a “distinct entity” as defined in 42 C.F.R.§ 416.2 and would otherwise comply with Medicare conditions for coverage and other requirements applicable to ASCs. OIG did not express any opinion regarding remuneration related to any corporate restructuring of Requestor or any ownership distributions provided by Requestor.

OIG’s Analysis section specifically provides that although OIG expresses no opinion with respect to the application of the physician self-referral law to the Proposed Arrangement, if the Proposed Arrangement would violate that law, the request for the Advisory Opinion would pose a hypothetical situation and would not qualify as an advisory opinion request.

The full text of Advisory Opinion 23-07: includes a statement of the facts considered by the Office of Inspector General.

OIG determines that the Proposed Arrangement, if undertaken, would not generate prohibited remuneration under the Federal Anti-Kickback Statute. OIG concludes that it would not impose administration sanctions on Requestor in connection with the Proposed Arrangement under sections 1128A (a)(7) or 1128 (b)(7) of the Social Security Act, as those sections relate to the commission of acts described in the federal anti-kickback statute.

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:

1. When the relevant ASC procedures are referred by the Physician Employee and are reimbursable by a federal health care program, the federal anti-kickback statute would be implicated. However, OIG concludes that the bonus compensation under the Proposed Agreement would be protected by the statutory exception and regulatory safe harbor for employees because:

  • (i) Requestor certified that the Physician Employees would be bona fide employees of Requestor, as “employee” is defined under 27 U.S.C. §3121(d)(2); and
  • (ii) 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 a federal health care program (i.e., Medicare and Medicaid).

2. The Proposed Arrangement satisfies the statutory exception and regulatory safe harbor for employees, so the payment to the Physician Employees under the Proposed Arrangement would not constitute prohibited remuneration under the federal anti-kickback statute despite the potential risks of fraud and abuse that this type of arrangement may present in other types of arrangements.

3. OIG expressly states that it relies on the Requestor’s certification that the Proposed Arrangement would not implicate the physician self-referral law, section 1877 of the Social Security Act.

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 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 to discuss an engagement.

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

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