Do retrospective physician bonuses violate anti-kickback laws?

Do retrospective physician bonuses violate anti-kickback laws? 

Well they are problematic.

In general, compensation arrangements involving physicians or physician employees should be carefully scrutinized for kickback violations.

When do physician bonus issues typically arise?

This is one of those questions that can get presented to attorneys in the context of a shareholder dispute among physicians who started as friends, launching a clinical care center.

Whenever physicians create a clinical care center together, disputes often arise, especially as the center flourishes and makes money.

One of the medical doctors will feel that he or she has contributed more to the success of the medical group or medical center than the others. This can be especially thorny if there are only two physician shareholders and each one is mission-critical; yet one feels that he or she is the superior earner, or the driver behind the value.

A variation on this theme is that the physician shareholders (or partners in a physician partnership) feel that one of the partners is not contributing as much as the others – or is older and slowing down, and needs to be moved out of the medical practice.

These disputes can often lead to litigation; or at the least, to sharks circling in the waters, drawn by the smell of blood.  That’s where it’s good to have legal counsel at your side.

Great Noses!

In our situation, Physician A owned 49% and Physician B owned 51% of Great Noses Plastic Surgery Center.  They grew the plastic surgery center steadily, together for three years.  At that point, Physician B landed a national television show, leading to a cascade of new patients; while Physician A plugged along, at a slower growth curve.  Physician B did not necessarily serve or see all those patients, but rather, because of Physician B’s national profile, new patient visits to Great Noses exploded.

Both physicians were participating in Medicare.

Great Statutes

Self-referral and anti-kickback concerns arise because of ownership and compensation arrangements involving multiple entities and overlapping individuals.

Federal law (i.e., Stark and federal anti-kickback law) must be analyzed if any patient service is covered (reimbursable) by Medicare or Medicaid/Medi-Cal. Federal anti-kickback law can apply to all practitioners, not just physicians, where federal reimbursement monies are involved.

State law must be analyzed irrespective of insurance or reimbursement arrangements.  We’ll use California law here for illustration — self-referral law (“PORA”) and California anti-kickback law (“B&P 650”).

In order to protect beneficial arrangements, the federal Centers for Medicare and Medicaid Services (“CMS”) has published certain statutory safe harbor regulations that define practices that are not subject to the anti-kickback statute. If the conditions in the safe harbors are met, neither party will be prosecuted or sanctioned for the arrangement. Fitting into an exception under Stark is mandatory, whereas under anti-kickback law, if an arrangement does not meet every element of a safe harbor, it is not necessarily unlawful, but rather, is at risk of scrutiny by the Office of the Inspector General (“OIG”).

Two typical safe harbors used by surgery centers and other clinical care facilities are bona fide employee safe harbor, and the personal services and management contracts safe harbor.  We won’t go into the details of those here.

In California, Business & Professions Code Section 650 does not provide explicit safe harbors. However, Section 650(b) is often used to justify payment of the management fee based on a percentage of gross revenues at fair market value; however, that model does not exist here.

Physician Bonus Issues

While federal law does provide a safe harbor for an arrangement involving a bona fide employee, the safe harbor is not unlimited. For example, Great Noses could not pay Physician B $100 per patient he referred to Great Noses, simply by virtue of his being a bona fide employee. This would be a kickback.

Fundamentally, the federal anti-kickback statute prohibits the knowing and willful offer or receipt of remuneration to induce the referral of business or services covered by a federal health care program, including Medicare; moreover, even in the presence of other legitimate purposes, the courts have interpreted the statute to cover any arrangement where one purpose of the payment or offer of payment was to obtain money for the referral of services or to induce further referrals.

The problem with a retrospective bonus for Dr. B, based on the fact that the medical center grew so much once Dr. B got his reality TV show, is that the bonus potentially could be seen as compensating Dr. B for results instead of efforts.

We can at least say that these broad principles run through Stark and the federal anti-kickback statute, as well as state anti-kickback and fee-splitting prohibitions:

• Compensation must be at fair market value (“FMV”) (as otherwise, payment is flowing in one direction or another for something other than FMV—i.e., for the referral).
• FMV is judged according to effort, not income/result (as otherwise, compensation is tethered to the value or volume of referrals, which is a kickback by definition). Effort equates with productivity, which is, in general, an accepted basis for compensation under Stark and antiickback
• Typically, compensation is prospective (agreed in advance), not retrospective, as a retrospective payment suggests that value or volume of referrals has been taken into account.

While there is some ambiguity in this situation, these principles suggest proceeding with caution.

Bona Fide Employee Safe Harbor not available

In one case, U.S. v. Luis, the safe-harbor provisions of Medicare’s anti-kickback statute and related regulation did not apply to payments made to nurses for recruiting patients for health care businesses, even if nurses were bona fide employees of those businesses, particularly if businesses fraudulently billed Medicare on behalf of referred patients for home health services that were not medically necessary or were never provided).

In Luis, the Court found that simply because defendants made payments to bona fide employees, did not mean that there was no anti-kickback violation; in other words, finding that a payment has been made to a bona fide employee does not in itself meet the safe harbor or conclusively suggest that anti-kickback concerns have been satisfied.

Here’s the legal citation: U.S. v. Luis, 966 F.Supp.2d (S.D. Fla. 2013), aff’d, 564 Fed.Appx. 493, cert. petition filed, 2014 WL 5148451.

In addition, the Court in Luis stated that for the bona fide employee safe harbor even to apply, the remuneration “must have been made to the employee for furnishing or providing covered items or services or for items or services payable under Medicare.”

According to the Court, this conclusion is evident from the text of the safe harbor (as well as from precedent, as the safe harbor by its terms applies to “any amount paid by an employer to an employee … for employment in the provision of covered items and services” (emphasis added by the Court):

Luis suggests that the safe-harbor provisions will only apply when payments made to an employee compensate the employee for furnishing or providing covered items or services or items or services payable by Medicare, not simply for referring patients.

Even if these patients ultimately received legitimate medical care, payments to these nurse/recruiters for referring patients were seen to violate the Anti-kickback statute. This made it irrelevant that the nurses were bona fide employees paid for “covered items or services” because, according to the Court, the payments to them were, at least in part, for their illegal patient referrals.

In other words, the bona fide employee safe harbor does not apply to a bonus rendered for services other than provision of medical services that are covered by and payable under Medicare.

Kickback Caution under State law

In California, Business & Professions Code Section 650(b) requires that the bonus be: “for services other than the referral of patients” and “commensurate with the value of the services furnished.”

Once again, the bonus must be tied to services (here, we read effort, not results, which could be seen as “referral of patients”); and,the bonus must be “commensurate with the value of the services furnished”—i.e., again at fair market value, and tied to the value services furnished (not the value of the result).

A possible strategy

In this situation, Physician B still feels he deserves more; but he is only a 51% shareholder.

In order for him to get something, it’s important to justify any additional payment as fair market value for production or effort.  If Physician B’s reality TV show can be viewed as effort marketing the practice, perhaps that might count – but payment for marketing on anything other than a pre-agreed, flat fee can raise enforcement scrutiny.

A bonus on efforts going forward is another story.  Such a bonus should be structured to comply with the management and personal services arrangements safe harbor.

Even so, the Luis case casts doubt on the extent to which the federal, bona fide employee safe harbor can be used to support a bonus based on efforts other than provision of medical services that are reimbursable under Medicare/Medi-Cal.

The Upshot

Let’s face it, kickback questions are complicated and this one required research; even with a federal case and some written analysis, there is still a lot to consider.  (I’d like to find a better metaphor than “gray.”  That’s too drab for the rich, nuanced complexity.)

The Jewish sage Hillel was asked to summarize the whole Torah was standing on one foot. He was able to do so, with an aphorism about love, but he added that the rest is commentary and needs to be studied.

There are lots of legal questions and legal strategy that can be addressed and mapped out in a a one-hour consultation,

Kickback issues, though, usually require a more thorough review. In particular, contact legal counsel with questions about compensation arrangements.

Or, if you physician partner suggests a bonus or other compensation arrangement and your Spidey sense is tingling, it’s probably for a reason.

The bottom line here is that we would have grave doubts about giving Dr. B a bonus based on his good fortune in getting selected for a Reality TV show, which then resulted in an increase in patient referrals (or self-referrals) to his clinical care center.  On its face, this suggests to us compensation based on value or volume of patients referred, which is a kickback.  Any bonus should be carefully scrutinized for potential anti-kickback enforcement.