AMARILLO, TX – According to a November 2, 2023 press release, the U.S. Department of Justice (“DOJ”) states the following:

Clinical laboratory Genesis Reference Laboratories LLC (Genesis), of Orlando, Florida, has agreed to pay $1,195,845 to resolve False Claims Act allegations that its marketers paid illegal kickbacks to healthcare providers in violation of the Anti-Kickback Statute to induce laboratory testing referrals. Genesis has agreed to cooperate with the Justice Department’s investigations of, and litigation against, other participants in the alleged scheme.

The Anti-Kickback Statute prohibits offering, paying, soliciting or receiving remuneration to induce referrals of items or services covered by Medicare, Medicaid and other federally funded healthcare programs. The Anti-Kickback Statute is intended to ensure that medical providers’ judgments are not compromised by improper financial incentives and are instead based on the best interests of their patients.

The settlement announced today resolves allegations that from 2019 to 2021 Genesis paid marketing companies Corum Group LLC, Provisional Medical Consultants LLC and RMC Medical LLC to arrange for and recommend that healthcare providers in Missouri and Texas order Genesis’ laboratory tests, and the marketing companies kicked back a portion of those payments to referring healthcare providers, in violation of the Anti-Kickback Statute. The health care providers allegedly were paid using purported management services organizations (MSOs), which attempted to disguise the kickbacks as investment returns but actually offered the payments to health care providers to induce laboratory testing referrals to Genesis. The settlement resolves allegations that, despite knowing of the MSO kickbacks to health care providers and receiving those providers’ subsequent patient referrals, Genesis nevertheless submitted to Medicare the claims for laboratory testing ordered by those providers, in violation of the False Claims Act.

The settlement was the result of a coordinated effort between the Civil Division’s Commercial Litigation Branch, Fraud Section and the U.S. Attorney’s Office for the District of New Jersey, with assistance from HHS-OIG … The United States has recovered over $36 million relating to conduct involving MSO kickbacks to health care providers, including False Claims Act settlements with 41 physicians, two laboratories, four medical practices, three healthcare executives and one office manager.

The above press release provides a number of lessons for DME suppliers:

• Be Wary of Marketing Through 1099 Independent Contractors – If a DME supplier pays production-based compensation (e.g., commissions) to an independent contractor that generates federal health care program (“FHCP”) patients for the supplier, then the federal anti-kickback statute (“AKS”) is likely violated. The only way that a DME supplier can compensate an independent contractor for generating FHCP patients is if the arrangement complies with the Personal Services and Management Contracts (“PSMC”) safe harbor to the There are a number of requirements under the PSMC safe harbor, including the following: (i) the methodology for calculating the compensation paid to the independent contractor must be fixed one year in advance and (ii) the compensation must be the fair market value (“FMV”) equivalent of the independent contractor’s services. For example, the compensation can be fixed one year in advance ($60,000 per year or $5000 per month) or can be on an hourly basis.
• The DME Supplier Will Likely Be Liable for the Actions of its Independent Contractor – This is an interesting concept. Generally, the law states that (i) an employer is liable for the actions of its employee that occur in the ordinary course and scope of the employee’s duties for the employer and (ii) a company is not liable for the actions of its independent contractor. The rationale behind this distinction is that (i) an employer has the duty to supervise and control the activities of its employee, while (ii) a company has no such obligation regarding its independent contractor. In the Genesis settlement, marketing companies (independent contractors of Genesis) allegedly paid kickbacks to physicians. At first blush, one may argue that such actions by the marketing companies should not be imputed to Genesis. However, Genesis (i) allegedly knew of the kickback payments to the physicians and (ii) allegedly submitted claims to FHCPs in which such claims arose from the kickbacks. And so the standard rule (that a company is not liable for the actions of its independent contractor) goes out the window.
• “No Honor Among Thieves” – According to the press release, “Genesis has agreed to cooperate with the Justice Department’s investigations of, and litigation against, other participants in the alleged scheme.” Self-preservation is a powerful human emotion/motivation. Michael Cohen once said that he would “take a bullet” for Donald Trump … and we see how that turned out. Even though we do not have all of the underlying facts, it is likely that Genesis’s settlement is based, in part, on Genesis “flipping” on others involved in the alleged scheme (i.e., physicians, marketing companies and perhaps others). The lesson is that if a DME supplier finds itself aligned with unsavory players, and the relationships come under attack by government enforcement agencies, it will be “every man for himself.”
• Claims Arising Out of Kickback Arrangement Constitute “False Claims” – It is the DOJ’s position, and the courts have confirmed this position, that if a provider/supplier submits claims to an FHCP … in which the claims arise out of a kickback arrangement … then the claims become “false claims” in violation of the federal False Claims Act (“FCA”). The penalties under the FCA can be breathtaking.
• You Cannot Disguise Kickbacks – The old Charles Schwab commercial says that “you can put lipstick on a pig…but it is still a pig.” Over the decades, fraudsters have come up with creative ways to hide kickbacks. At the same time, the OIG and DOJ have become quite adept at blowing away the smoke and finding the underlying fraud. In the Genesis settlement, the alleged kickbacks to the physicians were disguised as investment returns from ownership in Management Services Organizations (“MSOs”). Other disguised kickback arrangements our law firm has seen include (i) a joint venture that is a “sweetheart deal” for an owner in the joint venture … in which such owner is a referral source to the joint venture entity; (ii) a Medical Director Agreement (“MDA”) with a referring physician in which the physician does not provide substantive services as a Medical Director, the physician is paid way beyond FMV for the services that he/she does provide, and (in reality) the DME supplier does not even need a Medical Director, (iii) lease payments to a referring physician in which such payments are above FMV, and (iv) paying a referring physician to provide education programs in which such payments are above FMV, the topic presented by the physician is relatively unimportant, and the topic presented is not particularly relevant to the attendees.

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].

AAHOMECARE’S EDUCATIONAL WEBINAR

Hospices, SNFs and Part A: Opportunities for DME Suppliers

 Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato and Blinn E. Combs, Esq., Brown & Fortunato

 Thursday, November 30, 2023

1:30-2:30 p.m. CENTRAL TIME
Because it primarily serves patients covered by Medicare, DME suppliers are accustomed to billing Medicare Part B directly (traditional Medicare) and indirectly (Medicare Advantage). There is an opportunity for DME suppliers to supplement their Part B income: this is through billing hospices and skilled nursing facilities (“SNFs”). Hospice providers and SNFs are paid under Medicare Part A for their services to Medicare patients. Hospices and SNFs are paid on a per patient per day basis. Out of the Part A reimbursement they receive, hospice providers and SNFs are required to pay health care providers (including DME suppliers) for products/services furnished by the providers to the hospice and SNF patients. This provides an opportunity for DME suppliers to enter into contracts with hospice providers and SNFs in which (i) the suppliers will furnish DME (including soft goods) to the hospice/SNF patients and (ii) the hospices/SNFs pay the suppliers for their products and services. This program will discuss the type of contact a DME supplier should enter into with a hospice provider and SNF. The program will focus on the most important provisions of the contract. The program will also focus on actions that can cause the DME supplier problems under the federal anti-kickback statute. In particular, the supplier cannot offer “anything of value” to hospices/SNFs in exchange for referrals of Part A patients. Lastly, the program will discuss the types of “value-added” services the DME supplier can provide to the hospice/SNF without expecting compensation in return … and the types of value-added services for which the hospice/SNF must compensate the DME supplier.

Register for Hospices, SNFs and Part A: Opportunities for DME Suppliers on Thursday, November 30, 2023, 1:30-2:30 p.m. CT, with Jeffrey S. Baird, Esq., and Blinn E. Combs, Esq., of  Brown & Fortunato.

Members:  $99
Non-Members:  $129