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American Academy of Emergency Medicine

Specifics of Employment "Safe Harbor" for Fee-Splitting

Introduction

Contract groups or hospitals will often tell the emergency physician that they have no cause for action on fee-splitting because they are employees and a "safe harbor" exists. There is such a safe

harbor but there are specific guidelines, listed below, to be followed in such relationships. In particular, note that there must be "fair market value" compensation and the compensation must be "commercially reasonable". If the amount of the physician fees retained by the hospital or contract group is in excess of the "fair market value" for what is returned, a cause of action is still feasible under the kickback statute regardless of employee status. OIG opinion 98-4 regarding a percentage-based take of the professional fee (Inspector General Comments on PPMs Taking a Percentage of Revenues) makes use of this same argument.

SEC. 1877. [42 U.S.C. 1395]

(e) EXCEPTIONS RELATING TO OTHER COMPENSATION ARRANGEMENTS -- The following shall not be considered to be a compensation arrangement described in subsection (a)(2)(B):

(2) BONA FIDE EMPLOYMENT RELATIONSHIPS -- Any amount paid by an employer to a physician (or an immediate family member of such physician) who has a bona fide employment relationship with the employer for the provision of services if--

(A) the employment is for identifiable services,

(B) the amount of the remuneration under the employment--

(i) is consistent with the fair market value of the services, and

(ii) is not determined in a manner that takes into account (directly or indirectly) the volume or value of any referrals by the referring physician,

(C) the remuneration is provided pursuant to an agreement which would be commercially reasonable even if no referrals were made to the employer, and

(D) the employment meets such other requirements as the Secretary may impose by regulation as needed to protect against program or patient abuse. Subparagraph (B)(ii) shall not prohibit the payment of remuneration in the form of a productivity bonus based on services performed personally by the physician (or an immediate family member of such physician).

(3) PERSONAL SERVICE ARRANGEMENTS--

(A) IN GENERAL -- Remuneration from an entity under an arrangement (including remuneration for specific physicians' services furnished to a nonprofit blood center) if--

(i) the arrangement is set out in writing, signed by the parties, and specifies the services covered by the arrangement,

(ii) the arrangement covers all of the services to be provided by the physician (or an immediate family member of such physician) to the entity,

(iii) the aggregate services contracted for do not exceed those that are reasonable and necessary for the legitimate business purposes of the arrangement,

(iv) the term of the arrangement is for at least 1 year,

(v) the compensation to be paid over the term of the arrangement is set in advance, does not exceed fair market value, and except in the case of a physician incentive plan described in subparagraph (B), is not determined in a manner that takes into account the volume or value of any referrals or other business generated between the parties,

(vi) the services to be performed under the arrangement do not involve the counseling or promotion or a business arrangement or other activity that violates any State or Federal law, and

(vii) the arrangement meets such other requirements as the Secretary may impose by regulation as needed to protect against program or patient abuse.

(B) PHYSICIAN INCENTIVE PLAN EXCEPTION--

(i) IN GENERAL -- In the case of a physician incentive plan (as defined in clause (ii)) between a physician and an entity, the compensation may be determined in a manner (through a withhold, capitation, bonus, or otherwise) that takes into account directly or indirectly the volume or value of any referrals or other business generated between the parties, if the plan meets the following requirements:

(I) No specific payment is made directly or indirectly under the plan to a physician or a physician group as an inducement to reduce or limit medically necessary services provided with respect to a specific individual enrolled with the entity.

(II) In the case of a plan that places a physician or a physician group at substantial financial risk as determined by the Secretary pursuant to section 1876(i)(8)(A)(ii), the plan complies with any requirements the Secretary may impose pursuant to such section.

(III) Upon request by the Secretary, the entity provides the Secretary with access to descriptive information regarding the plan, in order to permit the Secretary to determine whether the plan is in compliance with the requirements of this clause.

(ii) PHYSICIAN INCENTIVE PLAN DEFINED -- For purposes of this subparagraph, the term "physician incentive plan" means any compensation arrangement between an entity and a physician or physician group that may directly or indirectly have the effect of reducing or limiting services provided with respect to individuals enrolled with the entity.

(h) DEFINITIONS AND SPECIAL RULES -- For purposes of this section:

(2) EMPLOYEE -- An individual is considered to be "employed by" or an "employee" of an entity if the individual would be considered to be an employee of the entity under the usual common law rules applicable in determining the employer-employee relationship (as applied for purposes of section 3121(d)(2) of the Internal Revenue Code of 1986).

(3) FAIR MARKET VALUE -- The term "fair market value" means the value in arms length transactions, consistent with the general market value, and, with respect to rentals or leases, the value of rental property for general commercial purposes (not taking into account its intended use) and, in the case of a lease of space, not adjusted to reflect the additional value the prospective lessee or lessor would attribute to the proximity or convenience to the lessor where the lessor is a potential source of patient referrals to the lessee.