In an advisory opinion posted November 10, 2021 (AO 21-15), the Office of the Inspector General of the United States Department of Health and Human Services (OIG) appeared to soften a disturbing position that it had taken in 2012 regarding the employment safe harbor.

The issue is the breadth of the employment safe harbor, which is also specifically included in the Federal Anti-Kickback Statute (AKS) as a statutory exception.  In Advisory Opinion 12-06 (AO 12-06), the OIG confronted referring physicians attempting to profit from anesthesiology services.  Without going into the details of that complicated opinion, AO 12-06 evaluated a situation where a new entity was created (owned by the referring physicians’ professional entity) that would employ or contract with anesthesiologists to provide services at the ASC.  The OIG noted that, “neither the employment safe harbor nor the personal services and management contracts safe harbor would protect the remuneration” reflected in the distribution of profit generated by the employees to the owners of the practice.  This statement effectively meant that the OIG had largely eviscerated the employment and personal services safe harbors because those safe harbors would only apply where the referring employer or contractor did not potentially profit from the employment or contract.  But this is almost never the intent, and in fact, failure to profit might itself raise FMV and commercial reasonableness issues.  It is also difficult to imagine that Congress, in adding the statutory exception to the AKS, meant it only to apply where the referring employer did not anticipate a profit.

In its recently-published AO 21-15, the OIG cleared the air a bit.  It blessed the employment of a CRNA to provide anesthesia services to a pain management practice, while aware that the practice would likely profit off its referrals to the CRNA as a result of the CRNA’s assignment of its billing rights.  The OIG first noted that it continues to maintain that the employment safe harbor does not protect the distribution of profits to referring shareholders related to the employment.  However, the OIG noted that bona fide employment in which a professional reassigns billing rights in exchange for compensation is “a commonplace practice in the health care industry, explicitly authorized by … the Medicare program.”  Since at issue was a “straightforward employment agreement” where the employer “assumes certain duties that may be typical of an employer and where … the CRNA is a bona fide employee,” the OIG deemed the employment to present a low risk of abuse and approved the relationship.

While it is disappointing that the OIG continues to argue that the employment exception does not protect a standard and accepted component of health care employment, it appears that the OIG is aware of the problems its position creates.  Its new position accepts bona fide employment despite the profit to be generated for the CRNA’s employer based on the CRNA’s referrals.

Photo of Edward S. Kornreich Edward S. Kornreich

Past long-standing chair of Proskauer’s Health Care Department, Ed Kornreich is a recognized authority on the legal, regulatory and business issues related to health care services.

Ed works primarily on health care transactions, regulatory compliance, health care payment and governance issues for varied…

Past long-standing chair of Proskauer’s Health Care Department, Ed Kornreich is a recognized authority on the legal, regulatory and business issues related to health care services.

Ed works primarily on health care transactions, regulatory compliance, health care payment and governance issues for varied providers (both for-profit and not-for-profit), vendors, GPOs, distributors and entrepreneurs. His approach combines sensitivity to meeting regulatory business goals with a comprehensive and realistic assessment of the health care environment, and he is particularly experienced in dealing with the complex issues related to integrated health care systems.

After working for the Legal Aid Society, Ed entered private practice, where he helped represent a major public hospital corporation in a series of reimbursement disputes with the state and federal governments, and counseled New York area hospitals and nursing homes on reimbursement and operational issues. Thereafter, Ed served as General Counsel of St. Luke’s-Roosevelt Hospital Center, one of the largest teaching hospitals in New York. After leaving St. Luke’s-Roosevelt Hospital Center, Ed joined Proskauer as a Partner in 1990.

Ed frequently writes and lectures on Medicare and Medicaid reimbursement, health care integration, not-for-profit law and corporate governance issues, and the application of federal and state anti-kickback and “Stark” laws to health care transactions.