Paying a Marketing Company for Referrals? Beware!

healthcare referral

If you pay independent contractors to market your healthcare services, read on.

The United States Court of Appeals for the Fourth Circuit recently upheld a verdict against the former owner of a blood testing lab and two marketers who were found to have violated the False Claims Act by paying physicians for drawing patients’ blood and processing the samples in violation of the Anti-Kickback Statute.

In May 2018, the United States District Court in the District of South Carolina entered judgment for the United States in the amounts of $111,109,655.30 against LaTonya Mallory, CEO of Health Diagnostic Laboratory Inc., (HDL) in Virginia, along with marketers Floyd Calhoun Dent III and Robert Bradford Johnson, founders of BlueWave Healthcare Consultants, Inc. The court entered an additional $3 million judgment against Johnson and Dent for violating the FCA through a similar agreement with another lab, Singulex.

It was alleged during the trial that the defendants paid physicians “processing and handling fees” of between $10 and $17 for each patient they referred to two blood testing labs. The government also introduced evidence that the kickback scheme resulted in physicians referring patients to HDL and Singulex for medically unnecessary tests, which were then billed to federal healthcare programs. 

Between 2010 and June 2014, Medicare and TRICARE (the federal healthcare plan for members of the military and their families) paid HDL approximately $538 million and HDL paid BlueWave approximately $220 million. Medicare and TRICARE paid Singulex approximately $47 million, and Singulex paid BlueWave approximately $24 million.

 The Anti-Kickback Statute prohibits “knowingly and willfully” soliciting or receiving remuneration in exchange for “arranging for the furnishing” of a healthcare service and “recommending purchasing” a healthcare service. It also prohibits “knowingly and willfully” paying remuneration to “induce” someone to take such actions.

In their appeal, the defendants argued that the government failed to prove that they “knowingly and willfully” violated the Anti-Kickback Statute. However, the government provided evidence that attorneys for both HDL and BlueWave warned the defendants that paying commissions to independent contractors might well violate the Anti-Kickback Statute.

The appellate court, in its opinion pointed out that “federal appellate courts have frequently, and indeed invariably, upheld Anti-Kickback Statute violations based on commission payments to third parties.”

While there is a safe harbor for commissions paid to salespeople who are “employee[s]” that have a “bona fide employment relationship” with their employer, the Department of Health and Human Services has expressly recognized that this safe harbor does not cover independent contractors.

The Health Law Offices of Anthony C. Vitale can advise clients on matters relating to FCA compliance and how to legally structure agreements. Give us a call at 305-358-4500 or email info@vitalehealthlaw.com.

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