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A recurring question in structuring healthcare marketing arrangements is whether a marketer should be paid commissions for bringing in federally funded business such as Medicare, Medicaid, Department of Labor, or Tricare referrals. The answer depends on a number of factors. Of particular importance are the status of the marketer (independent contractor vs. W2 employee), the types of services provided, and the compensation structure.
In practice, most healthcare marketers are paid on a hybrid commission basis with a guaranteed base salary plus bonus. Commissions are designed to incentivize and motivate the marketer to develop as much business as possible. The more business the marketer creates, the greater the marketer’s income. And, that’s where the problem arises. The law views commissions in the healthcare sector critically. While the commercialization of medicine is one thing, commissions earned from federally funded patients appear to be another thing. After all, federal healthcare programs such as Medicare, Tricare, and Department of Labor coverage are, unlike commercial insurance programs, benefit programs paid by taxes.
OIG Advisory Opinion 98-10:
Guidance on the issue comes from an advisory opinion issued by the Chief Counsel to the Office of Inspector General (OIG), a branch of the Department of Justice. Although OIG advisory opinions are not binding per se, they do enjoy a high level of authority, and deviation from these opinions by law enforcement is rare. In this context, OIG Advisory Opinion No. 98-10 calls into question compensation arrangements that are based on a percentage of sales, as well as direct contact between a sales agent and physicians in a position to order items or services that are then paid for by a federal health care program.
In the opinion, the Office of Inspector General addressed the question whether the payment of a sales commission to a 1099 independent marketing contractor for generating federally funded patients violates federal law. The Office of Inspector General concluded that such arrangements could constitute illegal remuneration and, as such, could violate Section 1128B(b) of the Social Security Act (also-known as the federal anti-kickback statute). Although the OIG Opinion did not specifically comment on whether the status of a marketer as an employee rather than an independent contractor mitigates the regulatory risks, the OIG did state with reference to 56 Fed. Reg. 35952, 35981 (July 29, 1991) that “any compensation arrangement between a seller and an independent sales agent for the purpose of selling health care items or services that are directly or indirectly reimbursable by a federal health care program potentially implicates the anti-kickback statute, irrespective of the methodology used to compensate the agent.”
Rescue Through Safe Harbors?
Sometimes, anti-kickback concerns can be mitigated, reduced, or even obliterated by structuring an arrangement to fit into a safe harbor. In this context, safe harbors are specifically promulgated rules and conditions, that, if satisfied, could turn a technical violation of the anti-kickback statute into an acceptable and lawful business transaction. See 56 Fed. Reg. 35974, Sect. 1128B(b)(3) of the Social Security Act. Among the most utilized of these safe harbors is the personal services and management contracts safe harbor, see 42 C.F.R. Sect. 1001.952(d).
Nonetheless, the personal services and management contracts safe harbor is unlikely to apply to Medicare or Tricare commissions paid to 1099 contractors. First and foremost, one of the applicable safe harbor conditions is that the marketer’s aggregate compensation is calculated in advance. That condition, however, is hard to meet in an arrangement that does not predetermine the final paycheck amount, but hinges on the marketer’s future sales success.
Payment arrangements between a provider or healthcare entity and a 1099 independent contractor should not be based on commissions, at least with respect to percentages and commissions offered or paid for federally funded patients such as those under a Tricare or Medicare program plans.
The attorneys of Oberheiden & McMurrey, LLP advise healthcare clients across the country. Among the team are experienced attorneys and former Medicare Fraud Strike Force officials with a profound understanding of the rules pertinent to physicians, healthcare providers and business owners. If you are concerned about your payment arrangement or if you want to ensure that your contracts are safe, then simply contact of one the following attorneys directly for a free and confidential consultation.
- Nick Oberheiden
Attorney & Founder
- Lynette S. Byrd
Former federal healthcare prosecutor, Department of Justice
National Criminal Defense
Former Federal Prosecutors and Experienced Defense Attorneys
This information has been prepared for informational purposes only and does not constitute legal advice. This information may constitute attorney advertising in some jurisdictions. Reading of this information does not create an attorney-client relationship. Prior results do not guarantee similar future outcomes. Oberheiden & McMurrey, LLP is a Texas LLP with headquarters in Dallas. Mr. Oberheiden limits his practice to federal law.