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2015-07 Recent Federal Medicare Anti-Kickback Statute Cases

Recent Federal Cases – Medicare Anti-Kickback Statute

by Jeffrey S. Baird, JD • July 27, 2015

  • AMARILLO, TX – The Medicare anti-kickback statute makes it a felony to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce a person or entity to refer an individual for the furnishing or arranging for the furnishing of any item or service reimbursable by a federal health care program, or to induce such person to purchase or lease or recommend the purchase or lease of any item or service reimbursable by a federal health care program. There are an exception and safe harbor to the anti-kickback statute that state that is it permissible for a provider to pay compensation to a bona fide employee who refers government program patients to the provider. In prior Medtrade Monday articles, I have stated that a significant kickback risk arises if a DME supplier pays commissions to a 1099 independent contractor marketing rep who generates government program patients for the supplier. In the same articles, I pointed out that it is acceptable for the supplier to pay commissions to bona fide full or part time W2 employees who generates government program patients.
  • In this article, I discuss several recent federal court cases that address paying commissions to 1099 independent contractors. In U.S. v. Turner, the defendant’s conviction for “conspiring to commit health care fraud, conspiring to receive health care kickbacks, and receiving health care kickbacks? was affirmed by the Fifth Circuit Court of Appeals. In this case, the court found that Turner conspired to receive commissions by referring Medicare beneficiaries to the Family Companies. Evidence brought forward by the government revealed that under a document titled, “Independent Contractor’s 10 Percent Commission,? the Family Companies had paid commissions to Turner in exchange for Medicare referrals. The arrangement included a payment of $300 for referring a beneficiary who received an arthritis kit. Checks and emails detailing the commissions formed the evidentiary basis of the claims. Further evidence showed that Turner was aware of the anti-kickback statute and willfully violated, and lied about the violation in an attempt to cover her story. Turner argued that she fell under the Employee Safe Harbor because she was merely an employee who was paid by the hour; however, the government’s evidence showing she was an independent contractor was enough to overcome Turner’s claims that she was an employee.
  • In Joint Technology, Inc. v. Weaver, a medical equipment distributor brought a breach of contract claim against Weaver, an individual who had entered into a contract to promote the equipment. Joint Technology contended that Weaver was a bona fide employee of the company…not an independent sales agent. The court determined that the evidence of Weaver’s status was “so one-sided? in favor of him being an independent contractor because his pay was based on commission, he was ineligible for employee benefits, and the distributor did not pay employment taxes for him. As a result, the Tenth Circuit Court of Appeals held that a contract paying an independent contractor for promoting medical equipment was a violation of the Medicare anti-kickback statute and, therefore, was void under Oklahoma law.2 In U.S. v. Vernon, the Eleventh Circuit Court of Appeals upheld a conviction for violation of the anti-kickback statute. In this case, Chris and Jeff Vernon, executives of MedFusionRX, LLC, made payments to individuals and a business in exchange for referrals of hemophiliac clients to Medfusion for prescription filling. The basis of the claims involved violations of the anti-kickback statute. Evidence showed that Chris Vernon was aware of the commission-based nature of the payments from MedFusion to another defendant, Lori Brill. Additionally, Vernon knew that Lori Brill was not an employee, but merely an independent contractor. Lori Brill and her company, Hemophilia Management Specialties, were receiving 45% as detailed in a contract stating that they would receive “Representative Fee Percentage of Collected Gross Profit.? Based on the overwhelming evidence that Vernon was paying Lori Brill, an independent contractor, the conviction for violation of the anti-kickback statute was upheld.
  • U.S. v. St. Junius involves a case in which the defendant, owner of The Mobility Store (“TMS?) claims he was unaware his company had engaged in violations of the anti-kickback statute and that another employee was the mastermind. Employees of the company had allegedly met with Medicare and were briefed on health care regulations; however, the owner argued that he had no knowledge that it was improper to pay marketers commission. The Fifth Circuit Court of Appeals reiterated that the anti-kickback statute prohibits paying commissions to marketing representatives who refer Medicare patients to providers, and held that there was sufficient evidence to prove that the defendant owner had knowledge that it was improper to pay commission to a marketing representative.
  • In U.S. v. James, James owned James Medical Equipment (“JME?), a business selling respiratory equipment. Hinkle, a respiratory therapist, entered into a contract with JME agreeing that Hinkle would be compensated if he referred patients to JME to purchase equipment. The contract stipulated that Hinkle was “an independent contractor,? not an employee. Earning approximately one million dollars from the referrals, JME made compensation payments to Hinkle for $75,000. The court states: “The law is clear that both physicians and other medical healthcare providers, such as respiratory therapists, may be prosecuted for receiving kickbacks for referrals under the Anti-Kickback Statute.? While the defendant argued that he was an employee who fell under the statute’s employee exception, the James court held that there was not sufficient evidence to counter the contract which specifically stated that Hinkle was an independent contractor.
  • In U.S. v. Miles, the Fifth Circuit Court of Appeals held that “home health providers’ payments to owners of public relations (PR) firm to distribute information, including literature and business cards, regarding its services to area physicians were not illegal kickbacks under Medicare statute.? The court decided that because the PR firm had never actually referred people to the home health provider, the compensation paid to the PR firm did not constitute illegal remuneration under the anti-kickback statute. While the Court of Appeals reversed the convictions, the court made clear that there are situations in which payments to non-physicians would be considered violations under the anti-kickback statute. The message to be derived from this case is that for there to be a violation of the Medicare anti-kickback statute, there must be a referral and a payment. In Miles, the court found that while there was a payment, there was not a referral.