AMARILLO, TX – The standard business engages in marketing to be successful. Marketing can occur in several ways, such as advertising on television or social media. Many companies can employ individuals as marketing representatives or even marketing agencies to provide these services.
However, healthcare providers, including DME suppliers, must approach the utilization of marketing representatives much more carefully than non-healthcare providers. This is because most DME suppliers receive payments from federal health care programs (FHCPs), and they must contend with federal law restrictions that govern how suppliers can use marketing representatives. The area of law we will focus on in this article is the Federal Anti-Kickback Statute (AKS).
Federal Anti-Kickback Statute
The federal AKS prohibits any person from knowingly or willfully accepting, soliciting, or paying or offering to pay, remuneration in exchange for generating referrals for items and services payable by an FHCP. Remuneration covers anything of value offered overtly or covertly, in cash or kind. DME suppliers violate this statute if they pay production-based compensation to a 1099 independent contractor (whether an individual marketing rep or marketing company) for generating FHCP patients.
Safe Harbors
Because of the breadth of the AKS, the office of Inspector General (“OIG”) published a number of safe harbors that, if met, operate to protect an arrangement from an enforcement action under the AKS. If an arrangement does not completely fit within a safe harbor, it does not mean the arrangement violates the AKS. Instead, it means that the parties to the arrangement must conduct a careful analysis in light of the language of the AKS, court decisions, and other published guidance.
One 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 safe harbor, a “bona fide employee” is any individual who meets the common law rules of an employee with respect to employer-employee relationships.
Multiple factors are used to determine whether an individual can be considered a bona fide employee. For example, the DME supplier must subject all employees to training, education, and disciplinary standards. Additionally, employees must be offered benefits on the same terms as other employees in their same category (e.g., full-time or part-time). Merely classifying an individual as a W-2 employee is insufficient if the individual is not acting as or treated as a bona fide employee.
Another safe harbor is the Personal Services and Management Contracts (PSMC) safe harbor. The PSMC safe harbor can be utilized when a DME supplier wishes to compensate a 1099 independent contractor (individual or marketing company) for generating FHCP patients for the supplier. The safe harbor has multiple 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 methodology for calculating 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 PSMC safe harbor, then the arrangement is protected from the AKS.
Conclusion
DME suppliers can have individual W-2 employees perform marketing activities. To comply with the employee safe harbor, the employee must meet the definition of a bona fide employee. Additionally, DME suppliers can use independent contractor marketing reps on the condition that the arrangement complies with the PSMC safe harbor to the AKS.
Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, 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. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization and can be reached at (806) 345-6320 or [email protected].
Jacque K. Steelman, JD is a member of the Health Care Group at Brown & Fortunato, PC, a law firm with a national health care practice based in Texas. She represents pharmacies, infusion companies, HME companies, manufacturers, and other health care providers throughout the United States. Steelman can be reached at (972) 684-5789 or [email protected].
