AMARILLO, TX – For any business to be successful, it must engage in marketing. Marketing can take a number of forms:
- The company can include ads in print publications. In the age of the internet, this type of marketing is becoming a “thing of the past.”
- The company can mail out hard copy ads. This is still prevalent but it is becoming less effective.
- The company can advertise on television and on the radio.
- The company can have an easy-to-navigate website. This is a “must” for most businesses.
- The company can engage in the multiple iterations of social media. This is the primary avenue that most marketing programs are taking.
- And the company can employ individuals as marketing reps. This continues to be an important part of most business’s marketing program. At the end of the day, “humans are humans” and they like personal interaction.
Health care providers, including DME suppliers and labs, have to approach the utilization of marketing reps much more carefully than non-health care providers (e.g., an auto parts store). Because most DME suppliers and labs receive payments from federal health care programs (“FHCPs”), the suppliers and labs must contend with federal laws that restrict how the suppliers and labs can utilize marketing reps. This article will discuss two of such laws.
Federal Anti-Kickback Statute
The federal anti-kickback statute (“AKS”) prohibits any person from knowingly or willfully accepting or soliciting, or paying or offering to pay, remuneration in exchange for generating referrals for items and services that are payable by an FHCP. Remuneration includes anything of value offered overtly or covertly, in cash or in kind. The AKS applies to both DME suppliers and to labs. If a supplier/lab pays production-based compensation (e.g., commissions) to a 1099 independent contractor (e.g., individual marketing rep or marketing company) for generating FHCP patients, then the AKS is violated. On the other hand, if the individual marketing rep is a bona fide full-time or part-time employee of the supplier/lab, then the supplier/lab can pay a modest base salary plus discretionary bonuses based on a number of factors, including the generation of business. This is spelled out in a “safe harbor” to the AKS.
The Office of Inspector General (“OIG”) has published a number of safe harbors to the AKS that, if met, operate to protect an arrangement from enforcement actions by a governmental agency. If an arrangement does not completely fit within a safe harbor, it does not mean that the arrangement violates the AKS – rather – it means that the parties to the arrangement will need to conduct a careful analysis in light of the language of the AKS, court decisions, and other published guidance.
One such safe harbor is the Employee safe harbor, which states that prohibited remuneration does not include amounts paid by an employer to a bona fide employee “for employment in the furnishing of any item or service for which payment may be made in whole or in part under [federal health care programs].” For the purposes of the safe harbor, a “bona fide employee” means any individual that meets the common law rules of an employee with respect to employer-employee relationships.
Eliminating Kickbacks in Recovery Act
As previously stated, both DME suppliers and labs must adhere to the AKS. On the other hand, labs (but not DME suppliers) must also adhere to the Eliminating Kickbacks in Recovery Act (“EKRA”), which makes it a criminal offense to (1) solicit or receive any remuneration directly or indirectly, overtly or covertly, in cash or in kind, in return for referring a patient or patronage to a recovery home, clinical treatment facility, or laboratory; or (2) pay or offer any remuneration directly or indirectly, overtly or covertly, in cash or in kind to induce a referral of an individual to a recovery home, clinical treatment facility, or laboratory or in exchange for an individual using the services of that recovery home, clinical treatment facility, or laboratory.
The exceptions under EKRA that apply to employee and independent contractor compensation are limited to:
(b)(2) a payment made by an employer to an employee…[if the] employee’s payment is not determined by or does not vary by –
(A) the number of individuals referred to a particular recovery home, clinical treatment facility, or laboratory;
(B) the number of tests or procedures performed; or
(C) the amount billed to or received from, in part or in whole, the health care benefit program from the individuals referred to a particular recovery home, clinical treatment facility, or laboratory;
(b)(4) a payment made by a principal to [a 1099 independent contractor] as compensation for the services of the [independent contractor] under a personal services and management contract that meets the requirements of [the Personal Services and Management Contracts safe harbor to the AKS].
The Personal Services and Management Contracts safe harbor to the AKS has a number of elements that must be met, including the following: (i) the parties must sign a written agreement that has a term of at least one year; (ii) the compensation paid to the independent contractor must be fixed one year in advance (e.g., $48,000 over the next 12 months or $4000 per month); and (iii) the compensation must be the fair market value equivalent of the services rendered by the independent contractor. If an arrangement with an independent contractor marketing rep complies with the Personal Services and Management Contracts safe harbor, then the arrangement is protected under both the AKS and EKRA.
In order for the DME supplier and lab to avail themselves of the Employee safe harbor, and in order for the lab to avail itself of the EKRA exception, the marketing rep employees must meet the definition of a “bona fide employee.” Whether an employee meets the definition is dependent upon the facts and circumstances of each individual’s arrangement.
Generally, there are a number of factors used to determine whether an individual can be considered a bona fide employee. Employees may be engaged on a part-time or full-time basis. The DME supplier and lab must subject all employees to training, education, and disciplinary standards as well as offer benefits on the same terms as other employees. Simply classifying an individual as a W-2 employee will not be sufficient if, in practice, the individual is not acting as, or treated as, a bona fide employee.
In addition to being a bona fide employee, courts have interpreted the Employee safe harbor to require that the individuals be employed in the furnishing of items and services that are covered by FHCPs. Some courts have found that employees engaged only in marketing health care services do not qualify as being “employed in the furnishing of” covered items and services.
DME suppliers and labs can retain individuals as W-2 employees to perform marketing activities. In order to comply with the Employee safe harbor to the AKS, each individual must meet the definition of a bona fide employee that is employed in the furnishing of items and services covered by federal health care programs.
To comply with EKRA, the compensation paid by the lab should not be based on any of the EKRA Factors listed above. If a portion of the compensation is found to be dependent on EKRA Factors, it presents a risk that a regulatory agency will view the compensation as a violation of EKRA. Such risk increases as the amount of an employee’s compensation tied to the EKRA Factors increases.
Lastly, DME suppliers and labs can utilize independent contractor marketing reps on condition that the arrangement complies with the Personal Services and Management Contracts safe harbor to the AKS.
AAHOMECARE’S EDUCATIONAL WEBINAR
When it is Proper to Re-Start the 36 Month Oxygen Rental Period
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C. & Lisa K. Smith, Esq., Brown & Fortunato, P.C.
Tuesday, December 1, 2020
2:30-3:30 p.m. EASTERN TIME
COVID is a game changer. It affects all components of American life, including the DME industry. The importance of DME suppliers has come to the forefront during the pandemic. In short, DME suppliers (particularly oxygen equipment suppliers) are instrumental in keeping patients out of the hospital. This program focuses on those suppliers that provide oxygen concentrators … and in particular on when it is proper for the supplier to re-start the 36 month oxygen rental period. When a DME supplier provides an oxygen concentrator to a Medicare beneficiary, Medicare will pay the supplier for the first 36 months and then the supplier will be obligated to service the beneficiary’s oxygen needs, for very little compensation, for the next 24 months. The beneficiary’s continuous use of the concentrator may be interrupted by one of the following events: (i) the concentrator is lost, stolen, or damaged beyond repair; (ii) there is an extended break in need of greater than 60 days; (iii) the supplier sells its assets to another supplier; (iv) the supplier goes out of business; (v) the supplier files bankruptcy; or (vi) the beneficiary relocates outside the supplier’s service area. This program will discuss whether the 36 month rental period will start over when one of these interruptions occur.
Register for When it is Proper to Re-Start the 36 Month Oxygen Rental Period on Tuesday, December 1, 2020, 2:30-3:30 p.m. ET, with Jeffrey S. Baird, Esq. and Lisa K. Smith, Esq., of Brown & Fortunato, PC.
Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, PC, a law firm with a national health care practice based in Texas. He represents pharmacies, infusion companies, HME companies, manufacturers and other health care providers throughout the United States. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or email@example.com.
 42 U.S.C. §1320a-7b(b).
 42 C.F.R. §1001.952(i).
 See 26 U.S.C. §3121(d)(2).
 18 U.S.C. § 220(a)(1)-(2).
 The factors will be referred to herein as “EKRA Factors”.