Sales and marketing representatives can add tremendous value to your practice. They can generate consistent business by leveraging contacts who have services that can be referred to your practice. However, the services a sales and marketing representative provides are subject to significant scrutiny under the federal Anti-Kickback Statute (AKS) and state equivalents. For this reason, the decision to engage sales and marketing representatives is one you should make carefully, with the advice of counsel experienced with these types of arrangements.
AKS prohibits offering, paying, soliciting or receiving anything of value to induce or reward referrals or generate federal healthcare program business. Many states have their own version of AKS that similarly prohibit any payment in exchange for referrals of healthcare services. Sales and marketing representatives are engaged to secure referrals of healthcare services to the physician practice with which they are contracted. This type of arrangement implicates AKS, and to engage sales and marketing representatives in a compliant manner, the arrangement you make with them should be structured to comply with one of the AKS safe harbors. The applicable safe harbor for these types of arrangements is the one for personal services and management contracts. To receive protection under this safe harbor, the arrangement must satisfy the following elements:
- A written agreement must be signed by the parties;
- The term of the agreement must be at least one year;
- The agreement must specify aggregate payment, and such payment must be set in advance;
- The compensation must be fair market value and determined through arm’s length negotiations; it must not be determined in a manner that takes into account volume or value of referrals;
- The agreement must set forth the exact services required; and
- The arrangement must serve a commercially reasonable business purpose, not taking into consideration the referrals generated as a result of the arrangement.
If an arrangement does not meet these requirements, it falls outside the safe harbor and is subject to scrutiny by the Office of Inspector General (OIG) and could subject the parties to fines and penalties if the arrangement is determined to run afoul of AKS.
The Eliminating Kickbacks in Recovery Act (EKRA), passed October 2018, also changes how sales and marketing representatives are compensated. EKRA was passed as part of the SUPPORT Act, which was drafted to address the opioid epidemic in the U.S. However, EKRA was drafted broadly, and it has a direct impact on sales and marketing arrangements for certain healthcare entities. Specifically, EKRA applies to recovery homes, clinical treatment facilities and laboratories (regardless of whether the laboratory engages in drug testing). It applies to all payers, whereas AKS is concerned only with arrangements that result in additional claims being submitted to a federal healthcare program, such as Medicare or Medicaid.
Under EKRA, you cannot pay a W-2 employee or independent contractor in a manner determined by or that varies by:
- The number of individuals referred to the recovery home, clinical treatment facility or laboratory;
- The number of tests or procedures performed; or
- The amount billed to or received from a payer.
The language of EKRA is inconsistent with longstanding guidance issued by the OIG, and it is unclear how it is meant to coexist with AKS. For this reason, an amendment to EKRA or guidance from the OIG is likely forthcoming. However, until, and if, such amendment or guidance is issued, medical practices should comply with EKRA as it is currently written.
Structuring a Compliant Arrangement
When entering into a sales and marketing agreement, you must first determine whether you are engaging the representative as an independent contractor or as a W-2 employee. Identifying the engagement is important to set the tone for the rest of the agreement and to determine which regulatory provisions should be inserted. It’s also important to clearly set forth the duties and obligations of both the engaging entity (i.e., the provider or practice) and the sales and marketing representative.
If the representative is engaged as an independent contractor, you should reserve the right to participate in ride-alongs or other oversight activities to confirm the representative’s compliance with the terms of the agreement, applicable law, and your policies and procedures.
The sales and marketing representative should be required to comply with all applicable laws, and certain prohibitions should be expressly addressed, such as providing gifts to customers and offering reductions or waivers of patient balances.
Further, and to the extent permitted by applicable law, you should include non-solicitation and non-competition clauses to prevent the sales and marketing representative from interfering with the provider or practice’s business upon termination. Some states have clear restrictions on non-solicitation and non-competition clauses, so be sure to confirm the enforceability of such a provision prior to inserting it into any agreement.
The agreement should clearly set forth a compensation structure that is compliant under AKS, EKRA and applicable state regulations. It should obligate the sales and marketing representative to comply with applicable federal and state privacy laws and regulations.
Steven M. Harris, Esq., is a nationally recognized healthcare attorney with McDonald Hopkins LLC. Contact him via email at email@example.com.
Reprinted with permission from the American College of Rheumatology.