AMARILLO, TX – Under the Employee safe harbor to the federal anti-kickback statute (“AKS”), it is acceptable for a DME supplier to pay salaries and discretionary bonuses to bona fide full or part time employees who directly or indirectly generate patients for the supplier who are covered by a federal health care program (“FHCP”). Normally, marketing through a bona fide employee is acceptable under state statutes. The reasoning behind the Employee safe harbor is that an employer has the duty to train, control, and supervise its employees.
It is critical that the employee be a “bona fide” employee as opposed to being a “sham” employee. The IRS has published extensive guidance that addresses whether a person is an employee or an independent contractor. In scrutinizing whether a marketing rep is an employee versus an independent contractor, the government will look at “substance over form.” Factors pertaining to a bona fide employment arrangement are whether the employer is supervising, training and controlling the employee.
If a DME supplier pays commissions, bonuses, and other production-based compensation to an independent contractor to generate FHCP business for the supplier, then the AKS will be violated. The only mechanism for a supplier to pay a 1099 independent contractor marketing rep for generating FHCP business is for the arrangement to comply with the Personal Services and Management Contracts safe harbor to the AKS.
Assume that the independent contractor wishes to market only to commercial patients and receive production-based compensation. This is acceptable unless applicable state law says otherwise.
The following two questions are commonly asked: (i) Can the supplier pay commissions to a 1099 independent contractor who generates business in which the patients are covered by Medicare Advantage, TRICARE, or other similar types of federal health care programs? (ii) If a 1099 independent contractor generates patients (covered by an FHCP) and patients (not covered by an FHCP), then can the supplier pay commissions to the 1099 independent contractor for the patients not covered by an FHCP, and pay nothing for the patients who are covered by an FHCP? The answer to both of these questions is “no.”
The AKS applies not only to all parts of Medicare, including Medicare Advantage and Medicare Part D, but also to virtually all federally-funded health care programs, including Medicaid, TRICARE, Department of Veterans Affairs health programs, the Maternal and Child Health Services Block Grant Program, and the Indian Health Service.
A DME supplier and a 1099 independent contractor marketing rep may desire to enter into an arrangement in which (i) the rep generates patients covered by an FHCP and patients covered by commercial insurance programs that have no connection whatsoever to an FHCP, (ii) the supplier pays commissions to the rep for the commercial patients, and (iii) the supplier pays nothing to the rep for the patients covered by an FHCP. The Office of Inspector General (“OIG”) has made it clear that this type of arrangement violates the AKS. According to the OIG, the commissions paid to the rep for the commercial patients are also rewarding the rep for the patients covered by an FHCP. In Advisory Opinion 11-08 (June 14, 2011), the OIG stated:
As a threshold matter, we must address whether the “carve out” of Federal business is dispositive of the question of whether the Existing Arrangement implicates the anti-kickback statute. It is not. The OIG has a long-standing concern about arrangements pursuant to which parties “carve out” Federal health care program beneficiaries or business generated by Federal health care programs from otherwise questionable financial arrangements. Such arrangements implicate and may violate the anti-kickback statute by disguising remuneration for Federal business through the payment of amounts purportedly related to non-Federal business.
If the DME supplier desires to pay commissions to the 1099 independent contractor marketing rep, then to avoid violating the AKS, the supplier engaging the rep will have to refuse to accept any FHCP referrals from physicians and other referral sources that have been called on by the rep. From a practical matter, this is almost impossible to do – the supplier will have to track every referral source the rep visited and set up a system internally where the supplier will track orders from those sources and refuse to fill orders paid for by any FHCP.
Even if an arrangement is structured to comply with the AKS, the supplier will need to examine the applicable state anti-kickback statute. Some state anti-kickback statutes apply regardless of the payor (i.e., the statute may prohibit payment of commission to a 1099 independent contractor marketing rep, even if the rep is generating only referrals of non-FHCP patients). Other state anti-kickback statutes apply only if the payor is the state’s Medicaid program.
AAHOMECARE’S EDUCATIONAL WEBINAR
Growing the DME Supplier’s Retail Business
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato
Tuesday, April 19, 2022
1:30-2:30 p.m. CENTRAL TIME
“Leave it to Beaver” has been replaced by “Modern Family.” The old way of running a DME business no longer works. With stringent documentation requirements, lower reimbursement, and post-payment audits, Medicare fee-for-service should only be a component of the supplier’s total income stream. There are 78 million Baby Boomers retiring at the rate of 10,000 per day. Boomers are accustomed to paying for things out-of-pocket. And most Boomers want the “Cadillac” product – not the “Cavalier” product – so they can have an active lifestyle well into their 80s. The successful DME supplier will be focused on selling upgrades, utilizing ABNs, and selling “Cadillac” items for cash. These retail sales may take place in a store setting, through a kiosk, or over the Internet.
When selling products for cash, there are a number of requirements that the DME supplier must meet. This program will discuss these requirements, including the following
- state licensure;
- selling Medicare-covered items at a discount off the Medicare allowable;
- obtaining a physician prescription;
- collection and payment of sales and/or use tax;
- qualification as a “foreign” corporation;
- required notification to a Medicare beneficiary even though the supplier does not have a PTAN; and
- complying with federal and state telemarketing rules.
Lastly, this program will discuss the benefits of setting up a separate legal entity through which the retail business will be operated.
Registration will soon be available for Growing the DME Supplier’s Retail Business on Tuesday, April 19, 2022, 1:30-2:30 p.m. CT, with Jeffrey S. Baird, Esq. of Brown & Fortunato.
Members: $99
Non-Members: $129
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 protected].
