OIG Issues Favorable Advisory Opinion Confirming the Broad Scope of the Anti-Kickback Statute’s Employment Safe Harbor

By Marki Stewart, Coppersmith Brockelman

In a landmark Advisory Opinion, the U.S. Department of Health and Human Services’ Office of the Inspector General (“OIG”) confirmed its expansive view of the Anti-Kickback Statute’s employment safe harbor this week, providing much-needed clarity on how physicians may be compensated for revenue they generate for their employer.  

In Advisory Opinion 23-07, the OIG considered a request from an employer that operates a multi-specialty physician practice and two ambulatory surgery centers (“ASCs”).  The employer proposed to provide a bonus to each employed physician consisting of 30% of the employer’s net profits from the ASCs’ facility fee collections attributable to that physician’s surgical procedures performed at the ASC.  The employed physicians’ bonus would therefore vary with the volume and value of procedures performed at the employer’s ASCs.  The OIG concluded that the proposed arrangement would fall within the employment safe harbor, and therefore, would not be subject to Anti-Kickback Statute liability.  

The Anti-Kickback Statute prohibits any person from paying or receiving remuneration in exchange for patient referrals covered by a federal health care program (such as Medicare or Medicaid).  Payments that vary with the volume or value of a physician’s referrals are generally considered to be high risk.  However, the Anti-Kickback Statute has a safe harbor for employees, stating that “remuneration” does not include “any amount paid by an employer to an employee, who has a bona fide employment relationship with the employer, 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 health care programs.”  The employment safe harbor therefore states generally that remuneration does not include payments to bona fide employees; however, the extent of that safe harbor, and whether employees’ compensation may be directly tied to profits from other service lines operated by the employer, was unclear until Advisory Opinion 23-07 was issued.

In approving the proposed arrangement at issue in 23-07, the OIG concluded that the employment safe harbor protected the bonus payments because: (1) the physicians subject to the bonus plan are bona fide employees (as opposed to independent contractors or other types of nonemployees); and (2) the employment safe harbor is broad enough to cover compensation tied to profits the physician generates for a separate service line—the ASCs—owned by the employer.  

The OIG noted, however, that a similar arrangement under a different corporate structure may raise fraud and abuse concerns under the Anti-Kickback Statute.  The OIG goes on to state that an arrangement where “physicians were owners of the ASCs and paid themselves the bonuses contemplated by the Proposed Arrangement as ownership distributions” may raise fraud and abuse concerns.  Indeed, a series of separate safe harbors applicable to ownership interests in ASCs require that payments to physician owners are based on the physician’s investment, not the volume or value of their referrals to the ASCs.  Therefore, physician owners of ASCs still may not receive remuneration that is based on their referrals, unlike employed physicians.

It is important to note that the ASCs were owned directly by the employer’s corporate entity.  If the ASCs were owned by a separate entity (even an entity wholly-owned by the employer), the employment safe harbor would not extend to compensation paid by that entity to the employed physician.    

Advisory Opinion 23-07 is a watershed opinion because: (1) it confirms that the employment safe harbor broadly allows employed physicians’ compensation to be tied directly to volume or value of the business they generate for their employer; and (2) it establishes that the employment safe harbor would cover compensation that is based on facility fee collections from a discrete corporate division of the employer, and is not limited to the employer’s collections for physicians’ professional fees.  Health care employers with multiple lines of service and who receive facility fees (including hospitals) now have clear guidance on how to structure employed physicians’ compensation in a manner that does not violate the Anti-Kickback Statute. 

Legal Counsel – Real Estate Transactions – Mayo Clinic

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Legal Counsel – Commercial Transactions Attorney – Mayo Clinic

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Telemedicine Controlled Substance Prescribing Rules Continue to Evolve Through Regulatory Sputters

By Kaytie Ravega, partner at Quarles & Brady LLP, with contributions from partner Ted Sullivan and associates Ashleigh Giovannini, Shamika Mazyck, Jacob Pallotta, and Monica Wright, who thankfully watched the DEA listening sessions referenced below in shifts to capture the threads and important points raised by the many speakers on this critical topic.

Introduction to federal law regulating telemedicine controlled substance prescribing, circa 2009 through 2020

It is well known that the Drug Enforcement Administration (“DEA”) requires a prior in-person visit before a healthcare provider may prescribe a controlled substance to a patient during a telemedicine encounter.  This is a component of the Ryan Haight Act (the “Act”), a federal statute that took effect in 2009. Perhaps less familiar, the Act also includes a mandate to DEA to create a way for telemedicine providers to register or have some path to providing controlled substance prescriptions to their patients without the in-person visit requirement.  Developing a registration for telemedicine providers has apparently not been as easy as creating a separate registration number, such as the recently-retired “X” numbers for suboxone prescribing.  Rather, despite multiple instructions from Congress over the past decade, as well as pleas from industry leaders such as the American Hospital Association, DEA has not implemented an option for telemedicine providers to provide care for patients who require controlled substance prescriptions without the in-person visit.  The most recent Covid-19 public health emergency (“PHE”), however, continued to force the issue.

Attempts at regulating telemedicine controlled substance prescribing, circa 2023

During the PHE the in-person visit requirement for telehealth controlled substance prescribing was generally waived, with an express statement from DEA that the requirement would be restored once the pandemic ended. As the PHE rambled toward closure, on February 24, 2023 the Department of Health and Human Services (“HHS”), the Department of Veterans Affairs (“VA”), and DEA issued a Notice of Proposed Rulemaking (the “Proposed Rule”) proposing to permanently extend the PHE telemedicine prescribing flexibilities and requesting public comments on the proposal.  

In May 2023, the DEA published an alert indicating that it received more than 38,000 comments from industry stakeholders regarding the Proposed Rule. Because of this comment volume, the DEA announced the submission of a draft Temporary Rule to the Office of Management and Budget titled “Temporary Extension of COVID-19 Telemedicine Flexibilities for Prescription of Controlled Medications” (the “Temporary Rule”) with an effective date of May 11,,2023. The Temporary Rule authorized providers to continue relying on the PHE telemedicine flexibilities for the prescription of controlled substances through November 11, 2023. Upon that expiration date, the Temporary Rule had stated that the full scope of telemedicine flexibilities will end for new relationships, and only be extended through November 11, 2024 for provider-patient telemedicine relationships established prior to or on November 11, 2023. 

As part of the planning for the Proposed Rule to become effective (once the Temporary Rule ended or at some other time to be determined) and to consider what additional changes may be needed in light of all the comments to the Proposed Rule, DEA hosted a two-day listening session on September 12 and 13, 2023 to empower “healthcare practitioners, experts, advocates, patients, and other members of the public” to voice their support for or objection to the provisions of the Proposed Rule. The stated goal of the listening session was to “receive additional input concerning the practice of telemedicine with regards to controlled substances and potential safeguards that could effectively prevent and detect diversion of controlled substances via telemedicine.”  In other words, DEA and the healthcare community at large face a challenge of competing interests in terms of telemedicine prescribing; specifically, how to support increased access to healthcare through telemedicine while managing the risk of diversion? 

Numerous presenters over the course of the two day event addressed a range of topics related to telemedicine prescribing, discussing:

  • the need for more flexibility, away from the rigidity of the pre-PHE prior in-person visit requirement;
  • concerns about ensuring prescriptions are valid and that provider-patient relationships exist;
  • ensuring that pharmacies are not treated as a gatekeeping substitute for adequate enforcement against rogue prescribers;
  • preventing telemedicine from being an avenue of diversion or fraud to the extent possible; 
  • the critical role of telemedicine in access to care in multiple scenarios where many parts of the U.S. confront provider shortages, including mental health care, behavioral health, and chronic condition management of many kinds; 
  • telemedicine’s effect on patient compliance with care and improved participation in care management, such as showing up for telemedicine visits more reliably and other key examples; 
  • a wide range of proposals for recommended changes, including those who requested prohibiting some specific products or provider types, such as nurse practitioners and physician assistants, from controlled substance prescribing via telemedicine altogether; and
  • whether DEA has a legitimate role in affecting telemedicine practice to the extent clinical care is affected, among many other points both for and against these examples.

In the face of all of this, to consider options and next steps, DEA again adjusted the compliant path.

The Current Rule, circa 2023-2024

Approximately a month after the listening sessions, on October 10, 2023, DEA, jointly with HHS, published a “Second Temporary Extension of COVID-19 Telemedicine Flexibilities for Prescription of Controlled Medications,” (the “Current Rule”).  Note that state requirements may vary from and be more stringent than DEA’s requirements.

The Current Rule extended and renewed the Temporary Rule, meaning that instead of ending on November 11, 2023, the flexibilities for controlled substance prescribing in place during the PHE are now extended through December 31, 2024. Further, the Current Rule authorizes all DEA-registered practitioners to prescribe Schedule II-V controlled substances via telemedicine until December 31, 2024, regardless of whether the practitioner established a telemedicine relationship with the patient prior to or on November 11, 2023. The DEA signaled that the agency chose to extend these flexibilities as it continues to evaluate the information gathered during the two-day listening session and develop new standards and/or safeguards for telemedicine prescribing of controlled medications. Drafters of the Current Rule indicated that DEA anticipates promulgating new rules in the Fall of 2024. 

Specifically, under the Current Rule, and if allowed by applicable state laws, controlled substance prescriptions may be issued during a telemedicine encounter, without a prior in-person visit, only if all of the following conditions are met: 

(1) The prescription is issued for a legitimate medical purpose by a practitioner acting in the usual course of professional practice; 

(2) The prescription is issued pursuant to a communication between a practitioner and a patient using an interactive telecommunications system referred to in 42 CFR § 410.78(a)(3) [a two way, audio video real time encounter];

(3) The practitioner is (i) authorized to prescribe the class of controlled substance specified on the prescription, or (ii) exempt from obtaining a registration to dispense controlled substances; and

(4) The prescription is consistent with all other applicable legal requirements.

See 21 CFR § 1307.41; 42 CFR § 12.1.