OIG Permits Deferred Payment Physician Partner Buyout

Picture a revolving door.

Even though many physicians and facility administrators don’t realize it, a revolving door can be a useful analogy for anti-kickback analysis. Or, I suppose, just for kickbacks.

You see, although most understand the implications of the federal anti-kickback statute (“AKS”) to a physician’s obtaining an interest in a healthcare facility or other entity to which he or she refers, payments to the physician in connection with his or her departure might also implicate the AKS.

As a quick refresher, the AKS prohibits the offer of, demand for, payment of, or acceptance of any remuneration for referrals of federally funded healthcare program patients, such as Medicare or Medicaid patients. There are exceptions, most notably regulatory “safe harbors,” that describe certain arrangements not subject to the AKS because they are unlikely to result in fraud or abuse.

In early January 2024, the Department of Health and Human Services Office of Inspector General (“OIG”), the agency charged with regulating and enforcing AKS, released a December 2023 advisory opinion (Adv. Op. 23-12) addressing an instance in which retiring physician partners in a multi-hospital venture could elect into an arrangement by which their ownership interest would be redeemed in a series of three annual payments, set at fair market value at the time of each payment, which value would likely increase between the election and each subsequent years’ valuation.

The potential kickback twist: The electing physician partner would continue to practice and refer to the hospitals for 6 months following the first payment of redemption money. An increase in the value or number of the physician’s referrals could impact the amount of the subsequent valuation/payment he or she will receive over the remaining buyout term.

Based on two factors, the OIG determined that although the proposed arrangement would generate prohibited remuneration under the AKS if the requisite intent were present, it would not impose sanctions.  The two factors are as follows:

1. The offer is being extended to all physicians upon attaining a certain age, in this case, 67. It is not conditioned on, or a reward for, the physician making referrals to or generating business for the hospitals or related entities and individuals. That reduces the risk of overutilization and of steering of patients.
2. In order to qualify for the offer, the physician must agree not to refer patients to the hospitals or to its owners (a medical center entity and other physician partners) upon: (i) the physician partner’s retirement date (which would occur within 6 months of the first payment); or (ii) the date the physician partner no longer meets the requirements of the partnership agreement, whichever comes first. The OIG stated, “[i]t is true that the [p]hysician [p]artners who accept the [offer] may continue to refer patients to the [hospitals and other physician partners] for the 6-month period between the first payment under the [agreement] and retirement. However, because the period between the first payment under the [agreement] and retirement is time-limited and, as Requestor certified, is necessary to allow the [p]hysician [p]artners who accept the Redemption Offer to wind down their medical practices consistent with state law requirements, it is unlikely that the Arrangement would cause the retiring [p]hysician [p]artners to alter their referral patterns to benefit the [hospitals and other physician partners] during this 6-month period.”

The Essential Takeaways for You

1. Although an Advisory Opinion is binding only on its Requestor, it’s a window into the thinking of the regulators.
2. Payments to a referral source require analysis under the AKS.
3. Here, the physician partners were making referrals, and receiving remuneration not in direct proportion to their ownership interests, which payments would increase based on the value and volume of their referrals – all red flags and outside of any safe harbor.
4. Just because a flag is red doesn’t mean that the underlying arrangement violates the AKS, but there’s a significant chance that it does.
5. Each situation must be analyzed carefully because the AKS is a criminal statute, the violation of which can lead to fines, civil penalties, whistleblower lawsuits, exclusion as a provider, and imprisonment.