AMARILLO, TX – Most of a DME supplier’s gross revenue comes from federal health care programs (FHCPs), including traditional Medicare, Medicare Advantage, TRICARE, the V.A., traditional Medicaid and Medicaid Managed Care. Because taxpayer money is used to pay DME suppliers, suppliers must adhere to a number of federal fraud laws and their state counterparts. An important federal law is the anti-kickback statute (“AKS”) which makes it a felony to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce a person or entity to refer an individual for the furnishing or arranging for the furnishing of any item or service reimbursable by an FHCP, or to induce such person/entity to purchase or lease (or recommend the purchase or lease) of any item or service reimbursable by an FHCP.
On the surface, the language of the AKS precludes a DME supplier from paying any person for marketing services. However, recognizing the breadth of the language of the AKS, the Office of Inspector General (“OIG”) has published a number of “safe harbors.”
If an arrangement meets all of the requirements of a safe harbor, then as a matter of law the arrangement does not violate the AKS. If an arrangement does not meet all of the requirements of safe harbor, it does not mean that the arrangement violates the AKS. Rather, it means that an in-depth analysis of the arrangement needs to be conducted in light of the wording of the AKS, court decisions, and other published guidance.
When it comes to paying marketing reps, there are two relevant safe harbors:
- The Employee safe harbor allows a DME supplier to compensate a bona fide employee who generates FHCP business for the supplier. Over the years, DME suppliers have felt comfortable paying W2 employee marketing reps a base salary plus commissions. However, there have recently been a few federal court decisions suggesting that to fall under the safe harbor, the marketing rep cannot be 100% engaged in marketing. Rather, he needs to have some involvement with the furnishing of a health care item or service. It does not appear that these few court decisions have been widely adopted in federal jurisdictions. It is the author’s opinion that it is relatively safe to pay bona fide employee marketing reps a base salary plus commissions. However, to reduce the risk of an AKS allegation, the safest course of action is for the DME supplier to pay the W2 employee marketing rep a base salary plus discretionary bonuses based on a number of metrics such as (i) whether the rep complies with the DME supplier’s policies and procedures, (ii) whether the rep works well with the other supplier’s employees, (iii) whether the supplier receives positive feedback from referral sources that the rep reaches out to, (iv) whether the rep submits his reports to the supplier on time, and (v) the rep’s generation of business.
- The Personal Services and Management Contracts safe harbor allows a DME supplier to pay a 1099 independent contractor, who generates FHCP business for the supplier, only if a number of requirements are met. One of the requirements is that the compensation to the rep must be fair market value (“FMV”) and cannot be tied to the generation of patients. Rather, the compensation must be the FMV equivalent of the marketing rep’s services. For example, the compensation can be fixed one year in advance (broken down into monthly payments) or it can be on an hourly basis. The marketing rep is being paid for his efforts, not the results. And so the rep will paid the same regardless of whether he generates a hundred patients…or five patients.
Let us focus on the Employee safe harbor. It is critical that the employee be a bona fide employee, not a sham employee. A bona fide employee is a person who is under the supervision and control of the DME supplier. If a DME supplier signs a written employment agreement with a marketing rep, gives him a W2, and withholds taxes, but does not exercise supervision and control, then the rep will likely be construed to be a 1099 independent contractor. If the supplier is paying compensation to the rep (based in part on his generation of business), and if the rep is in reality an independent contractor, then the AKS will likely be violated. In short, the arrangement must pass the smell test (i.e., the supplier must exercise supervision and control over the rep).
The most recent direction that the OIG has given to health care providers, regarding the Employee safe harbor, is found in the OIG’s Advisory Opinion 23-07 that was posted on October 13, 2023. The AO states, in part:
Requestor operates a multi-specialty physician practice that has approximately eleven physician employees (the “Physician Employees”). Requestor furnishes services for which payment is made by Federal health care programs. The Physician Employees receive certain employment compensation from Requestor in exchange for the services they provide on behalf of Requestor, which include services for which payment may be made under Federal health care programs.
Under the Proposed Arrangement, Requestor proposes to implement an employment compensation bonus methodology for each of the Physician Employees, in addition to their base employment compensation, which would be in exchange for the services they provide on behalf of Requestor (including services for which payment may be made under Federal health care programs). Specifically, when a Physician Employee performs outpatient surgical procedures at either of two ambulatory surgical centers (“ASCs”) operated by Requestor in a given calendar quarter, the Physician Employee would receive a bonus in the form of 30 percent of Requestor’s net profits from the ASC facility fee collections attributable to that physician’s procedures performed at the ASC for that quarter.
Requestor certified that all Physician Employees would be bona fide employees of Requestor in accordance with the definition of the term “employee” set forth at 26 U.S.C. § 3121(d)(2).
The Federal anti-kickback statute makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce, or in return for, the referral of an individual to a person for the furnishing of, or arranging for the furnishing of, any item or service reimbursable under a Federal health care program. The statute’s prohibition also extends to remuneration to induce, or in return for, the purchasing, leasing, or ordering of, or arranging for or recommending the purchasing, leasing, or ordering of, any good, facility, service, or item reimbursable by a Federal health care program. For purposes of the Federal anti-kickback statute, “remuneration” includes the transfer of anything of value, directly or indirectly, overtly or covertly, in cash or in kind.
Congress has developed several statutory exceptions to the Federal anti-kickback statute. In addition, the U.S. Department of Health and Human Services has promulgated safe harbor regulations that specify certain practices that are not treated as an offense under the Federal antikickback statute and do not serve as the basis for an exclusion. However, safe harbor protection is afforded only to those arrangements that precisely meet all of the conditions set forth in the safe harbor. Compliance with a safe harbor is voluntary. Arrangements that do not comply with a safe harbor are evaluated on a case-by-case basis.
The statutory exception and regulatory safe harbor for employees are potentially applicable to the Proposed Arrangement. The statutory exception protects “any amount paid by an employer to an employee (who has a bona fide employment relationship with such employer) for employment in the provision of covered items or services.” The safe harbor regulations provide that the term “remuneration,” as used in the Federal anti-kickback statute, does not include “any amount paid by an employer to an employee, who has a bona fide employment relationship with the employer, for employment in the furnishing of any item or service for which payment may be made in whole or in part under Medicare, Medicaid or other Federal health care programs.” For purposes of the employees safe harbor, the term “employee” has the same meaning as it does for purposes of 26 U.S.C. § 3121(d)(2).
Under the Proposed Arrangement, Requestor would offer and pay each Physician Employee remuneration in the form of a quarterly bonus equal to 30 percent of Requestor’s net profits from Requestor’s ASC facility fee collections attributable to that physician’s procedures performed at either of Requestor’s ASCs for the preceding quarter (in addition to base employment compensation). When the relevant ASC procedures are referred by the Physician Employee and are reimbursable by a Federal health care program, the Federal anti-kickback statute would be implicated.
However, we conclude that the bonus compensation under the Proposed Arrangement would be protected by the statutory exception and regulatory safe harbor for employees because:
(i) Requestor certified that the Physician Employees would be bona fide employees of Requestor in accordance with the definition of that term set forth at 26 U.S.C. § 3121(d)(2); and (ii) the bonus compensation would constitute an amount paid by an employer to an employee for employment in the furnishing of any item or service for which payment may be made in whole or in part under Medicare, Medicaid, or other Federal health care programs.
Payment structures that tie compensation to profits generated from services furnished to patients referred by the compensated party are suspect under the Federal anti-kickback statute. Here, however, because the Proposed Arrangement would satisfy the statutory exception and regulatory safe harbor for employees, the remuneration exchanged under the Proposed Arrangement would not constitute prohibited remuneration under the Federal anti-kickback statute despite the potential risks of fraud and abuse this type of compensation generally could present.
Finally, in issuing this advisory opinion, we rely on Requestor’s certification that the Proposed Arrangement would not implicate the physician self-referral law, section 1877 of the Act. Although we express no opinion with respect to the application of the physician self-referral law to the Proposed Arrangement, we note that if the Proposed Arrangement would violate that law, the request for this advisory opinion would pose a hypothetical situation and thus would not qualify as an advisory opinion request.
AO 23-07 is interesting. The profit distribution to the physicians arises from two sources: (i) the surgical procedures performed by the physicians and (ii) the initial referrals (e.g., generation of FHCP business) of the patients to the ASC. This AO lends support to the argument that if a marketing rep is truly a bona fide employee, compensation to the rep that is wholly or substantially tied to generation of FHCP patients will be protected by the Employee safe harbor.
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. 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.
AAHOMECARE’S EDUCATIONAL WEBINAR
Cash-Only Retail: How to Succeed
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato
Tuesday, October 24, 2023
1:30-2:30 p.m. CENTRAL TIME
The DME industry primarily serves the elderly. This means that most DME suppliers are dependent on traditional Medicare and Medicare Advantage for most of their revenue. But as DME suppliers know from experience, it can be challenging to be so tied to Medicare. This is where retail comes in. There are 78 million Baby Boomers who are retiring at the rate of 10,000 per day. Many Boomers are willing to pay cash for “Cadillac” items rather than being limited to the “Cavalier” items paid for by Medicare. This program will present the legal parameters within which DME suppliers can move into the retail space. The issues to be presented will include the following:
- Whether the retail business should be (i) under the supplier’s existing Tax ID # or (ii) operated by a separate legal entity.
- State DME licensure.
- Selling Medicare-covered items at a discount off the Medicare allowable.
- Obtaining physician prescriptions.
- Collection and payment of sales tax.
- Qualification as a “foreign” corporation.
- Required notification to a Medicare beneficiary even though the supplier does not have a PTAN.