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Bona fide employment relationships exception

A separate exception under 42 CFR § 411.357(c) is applicable to permit compensation arrangements involving bona fide employment relationships. This exception will frequently be relied upon to permit referrals between a physician and a hospital or other organization that both employs the physician and furnishes designated health services, as well as circumstances in which a physician is deemed to stand in the shoes of his or her physician organization.  This exception may also be relied upon in the context of group practice relationships with their physician employees, although the in-office ancillary services exception is more typically used when an organization that involves a bona fide group practice but which does not have referring physician ownership is involved due to the greater flexibility provided by the in-office ancillary services exception.

Where the bona fide employment exception is used, it will apply to any amount paid by an employer to a physician (or immediate family member) who has a bona fide employment relationship with the employer for the provision of services.
The requirements for purposes of the employment exception are as follows:
  • The employment arrangement must be for identifiable services. That is, the services must be known and identified in connection with the employment arrangement;
  • The amount of the remuneration under the employment must be;
  • Consistent with the fair market value of the services;
  • Except as provided below, may not be determined in a manner that takes into account (directly or indirectly) the volume or value of any referrals by the referring physician or other business generated between the parties; and
  • The compensation is provided under an agreement that would be commercially reasonable even if no referrals were made to the employer.
In addition, the rule expressly allows the payment of a productivity bonus based on services by the physician (or immediate family member of the physician), but this will not include production that involves the services of others, such as, "incident to" services. 

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