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Sweat Equity Arrangements in Healthcare

Many healthcare companies wish to reward their employees and associates for their hard work by allowing them to earn sweat equity in the business. However, in the healthcare industry, the Federal Anti-Kickback Statute and related state statutes may prohibit such arrangements when the benchmarks for earning equity are based on the number of referrals or a growth in the business.

This is particularly of concern when the employee or associate has a direct influence on referrals to the business. Such sweat equity arrangements present a danger that the earning of equity may be deemed a payment for the generation of referrals to the business. The Federal Anti-Kickback Statute makes it a criminal offense to, among other things, knowingly and willfully solicit or receive any remuneration to induce a person to refer an individual for services paid for under a Federal health care program.

Rewarding employees for hard work with ownership in the business is not prohibited. However, any arrangement for the award of equity with a person who has influence over referrals should not be based on the number of referrals or a monetary growth in the business. Instead, benchmarks should be based on other factors. These could include: hours worked, years dedicated to the company, or other non-referral based measures 

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