HHS Advisory Opinion Approves Profit-Based Bonus Plan for Bona Fide Physician Employees

October 25, 2023

On Oct. 13, 2023, the U.S. Department of Health and Human Services Office of Inspector General (OIG) issued Advisory Opinion 23-07 approving a multispecialty physician practice’s proposal to pay bonuses to each of its employed physicians based on net profits derived from the facility fee generated by procedures the physician performed at the practice’s ambulatory surgery center (ASC).

The advisory opinion indicates that OIG views the bona fide employee protections under the federal Anti-Kickback Statute (AKS) very broadly, protecting compensation based on revenue streams that previously may have been deemed to fall outside the safe harbor’s protection.

OIG concluded that the proposed arrangement would not implicate the AKS because the arrangement met the bona fide employee statutory exception and regulatory safe harbor to the AKS. As with all OIG advisory opinions, OIG’s conclusions apply only to the proposed arrangement and cannot be relied upon by persons other than requester. Further, this advisory opinion focuses on the employment status of the bonus recipients but does not directly address how the OIG would view similar compensatory payments to practice physician owners, situations when the ASC is a separate legal entity, or similar payments structured as distributions. It is, however, informative for those evaluating similar physician compensation arrangements.


Advisory opinion 23-07 addresses an arrangement where a multispecialty physician practice requester (the practice) with approximately 11 physician employees operates two ASCs, each as a corporate division within the same legal entity as the practice. As proposed, the practice would provide a compensatory bonus to the physician employees who performed outpatient surgical procedures at either of two ASCs, in the form of 30% of the practice’s net profits from the ASC’s facility fee collections attributable to that physician employee’s procedures performed at the ASC.

Under the AKS, OIG concluded that the bonus compensation is protected by the statutory exception and regulatory safe harbor for bona fide employees. Specifically, OIG found that the 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 Medicare, Medicaid, or other Federal health care programs.”

OIG noted that similar arrangements involving bonus payments to independent contractor physicians or other nonemployees or under a different corporate structure could still implicate the AKS despite this advisory opinion. OIG specifically noted that it expressed no opinions on any ownership distributions provided by the practice (that is, compensation to the practice owners), specifically relying on the practice’s certification that all recipients of the proposed bonus were bona fide employees as defined in the Tax Code. OIG also specifically noted that, in the proposed arrangement, the ASCs were not separate legal subsidiaries of the practice, and it expressed no opinion on whether the reorganization of the practice (to, for example, make each ASC its own distinct legal subsidiary) would impact the analysis. The advisory opinion did not discuss whether a similar arrangement wherein a physician practice has an ownership interest in an ASC (and runs those distributions from such ASC through its compensation model) would be protected.

However, OIG specifically indicated that if the physicians were owners of an ASC and paid themselves bonuses in the form of ownership distributions, then this could raise fraud and abuse concerns, as payment structures that tie compensation to profits generated from services furnished to patients referred by the compensated party may violate the AKS.


The advisory opinion provides direction to practices with ASC divisions inside the same legal entity practice hoping to offer different ways to compensate employed physicians. However, the OIG provided examples of other arrangements that would not meet the same safe harbor and exception, which will require further analysis. In addition, the advisory opinion did not review this arrangement in connection to the Stark Law — i.e., the federal physician self-referral prohibition — because the requestor certified that it would not furnish any “designated health services.” Thus, it is important to exercise caution and to construct appropriate safeguards when structuring compensation methodologies that relate to profits from services performed by physicians.

McGuireWoods has extensive experience assisting clients with similar state healthcare transaction restrictions. McGuireWoods’ integrated healthcare transactions team — which brings together regulatory and corporate expertise — has significant experience navigating AKS concerns. In addition, team lawyers closely track guidance and developments in this area for purposes of providing clients with informed strategic advice. Please contact one of the authors for additional information on this advisory opinion or other related compliance concerns.