Disturbing trends in enforcement suggest keeping sales and marketing in-house

Many health care providers utilize independent contractors who are paid on a commission basis to assist in the sales and marketing of their health care services. However, it is important to keep in mind that the Office of Inspector General (“OIG”) of the U.S. Department of Health and Human Services has raised concerns in the past regarding commission or per click payments made to independent contractor sales and marketing representatives. In fact, the OIG suggests that sales and marketing representatives who are paid on a commission or per click basis instead be employed as W-2 employees.

In commentary to the safe harbor regulations under the Medicare and Medicaid anti-kickback law, the OIG wrote:

We continue to reject this approach [expanding the employment safe harbor to cover independent contractors paid on a commission basis] because of the existence of widespread abusive practices by salespersons who are independent contractors and, therefore, who are not under appropriate supervision and control. Although two commenters [to the proposed safe harbor regulations] asserted that they could achieve appropriate supervision and control of independent contractors by including restrictive terms in the contract, we cannot expand this [employment safe harbor] to cover such relationships unless we can predict with reasonable certainty that they will not be abusive. We are confident that the employer-employee relationship is unlikely to be abusive, in part because the employer is generally fully liable for the actions of its employees and is therefore more motivated to supervise and control them.

The use of independent contractors not illegal per se

The current position of the OIG with respect to the use of independent contractors paid on a commission or per click basis is not that such relationships are per se illegal, but rather that such arrangements are subject to heightened scrutiny. In addition, these arrangements fall outside any safe harbor protection, such as the existing safe harbor that protects relationships with W-2 employees. Health care providers who wish to utilize independent contractors should stress the importance of not only extensive compliance language in the agreement with the sales and marketing representatives, but also actual oversight and monitoring of the activities of the representatives.

Nevertheless, there have been several disturbing trends in enforcement involving independent contractor sales and marketing representatives. We are aware not only of some recent prosecutions, including one criminal prosecution, involving sales and marketing representatives of a health care entity who were paid on a commission basis, but also the revocation of billing privileges of multiple health care entities based, in part, upon what was perceived as questionable marketing activities by independent contractors. The questionable marketing includes forged physician orders, incentives to referring physicians, and pushing medically unnecessary testing.

We recognize that it is not necessarily feasible from a business standpoint for health care providers to employ their sales and marketing representatives on a W-2 basis, as there are a number of tax and employment issues that need to be considered. However, in light of these recent trends, health care providers who retain sales and marketing representatives as independent contractors should consider whether W-2 employment is a feasible option.

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