The Anti-Kickback Employee Safe Harbor: An Overused, Often False Sense of Security

Here is a familiar situation. A health care provider — such as a pharmacy, lab, DME or hospital — hires an “employee” to work as a sales representative to market their services and/or products. In many instances, the “employee” gets a base salary and a healthy commission for all the referrals he/she brings to the provider.

Over the past five years, the Department of Justice and the Office of the Inspector General (OIG) have been paying close attention to these kinds of business arrangements.

The federal Anti-Kickback Statute (AKS) prohibits any person from “knowingly and willfully” paying, offering, soliciting or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, in exchange for or to induce the referral of any item or service covered by a federal health care program.

Health care providers have been banking on a special provision of the AKS: the “bona fide employee” safe harbor, which would shield them from civil and criminal liability.

However, many providers are unaware of the requirements to fit squarely within this safe harbor — specifically, the issue of what constitutes an “employee” under the safe harbor regulation.

The Anti-Kickback Safe Harbor

The bona fide employee anti-kickback safe harbor excepts from its reach “any amount paid by an employer to an employee (who has a bona fide employment relationship with such employer) for employment in the provision of covered items or services.”

Under this statute, an employee is any worker that satisfies the common law rules for establishing employer-employee relationship. Some of the factors for determining common law employees include employer control, supervision and training of the employee.

In addition, the courts have held that substance is more important than form, and the following factors should be considered when analyzing whether an individual or entity qualifies under the bona fide employee anti-kickback safe harbor:

    • The hiring party’s right to control the manner and means by which the product is accomplished
    • The skill required
    • The source of the instrumentalities and tools
    • The location of the work
    • The duration of the relationship between the parties
    • Whether the hiring party has the right to assign additional projects to the hired party
    • The extent of the hired party’s discretion over when and how long to work
    • The method of payment
    • The hired party’s role in hiring and paying assistants
    • Whether the work is part of the regular business of the hiring party
    • Whether the hiring party is in business
    • The provision of employee benefits
    • The tax treatment of the hired party
    • Finally, no one factor is determinative; “all of the incidents of the relationship must be assessed and weighed.”

How the Courts Have Ruled

Courts have not been very consistent in analyzing the 13 factors and deciding what constitutes an “employee” — because, as previously stated, no one factor is determinative.

In one case, a Texas appellate court concluded that a contract between a hospital and a recruiter was not a violation of the federal AKS because the recruiter was an employee under the safe harbor provision.  

However, in 2013, the 5th U.S. Circuit Court of Appeals held that the evidence presented did not support defendant’s affirmative defense that the individuals were bona fide employees. The panel said that the employer did not have sufficient control over the manner and means of the work performed by employees to characterize this as a bona fide employment relationship.

The court determined there was no evidence that employees: (i) received any training or direction about marketing; (ii) kept regular office hours; (iii) didn’t have offices; and (iii) the referral sources were not provided by the DME company. Instead, the defendants relied on her personal and professional contacts to obtains referrals. Thus, the DME company did not have sufficient control over the manner and means of the work performed by defendants to amount to a bona fide employment relationship.

Anti-Kickback Criminal and Civil Penalties

The AKS has a broad impact on health care providers’ business arrangements, specifically when it relates to marketing agreements, because it criminalizes the payment of any funds or benefits designed to encourage a party to a Medicare provider for services to be paid for by the Medicare program.  

Criminal penalties include fines of up to $25,000 per violation and a prison term of up to five years per violation. The OIG may also ban providers from participating in federal health care programs under their exclusion authorities. It also can impose additional civil monetary penalties of up to $50,000 per violation plus an assessment of up to three times the amount of the payment.

At Chapman Law Group, National Healthcare-Related Criminal Law Matters Have Been Our Specialty for 35 Years

For 35 years, Chapman Law Group has defended the rights of national health care professionals, providers, and corporations involved in the delivery of health care at all levels. We have the resources and expertise to represent you in any civil and/or criminal matter brought by the U.S. Department of Justice or the OIG for violations of the AKS and Stark Law.

We at Chapman Law Group have an extensive track record in health care fraud cases, regularly representing medical professionals in courts across the U.S. Our team includes former health care fraud prosecutors who, in addition to criminal defense, work on medical practice management, compliance and provider billing matters.

Our extensive experience in key areas of regulatory compliance in healthcare include:
 

We represent licensed medical professionals, including:

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