Tuesday, April 30, 2002

Making sense of marketing

Q. I have received conflicting information about whether I can use an independent contractor for marketing to referral sources and whether I can compensate my marketing employees for their productivity. Who can I use and how can I pay them?

A. Any marketing activities directed toward Medicare/Medicaid beneficiaries, or for items or services for which Medicare/Medicaid may pay, potentially implicate the Medicare/Medicaid anti-kickback statute (42 U.S.C. § 1320a 7b(b)). This law prohibits offering, giving, requesting or receiving anything of value in exchange for the referral, or arranging for the referral, of Medicare/Medicaid business. Because the law is written in such general terms, many legitimate business activities, such as marketing, may violate the statute.

The employer-employee safe harbor provides that if an individual is a bona fide employee, the employer may compensate the employee for his productivity. Thus, an HME can compensate an employee, engaged in marketing, with commissions and bonuses. The government will utilize the 20 factor test developed by the Internal Revenue Service to determine if an individual is an employee or an independent contractor. This test determines the degree of control that the employer exercises over the individual.

On the other hand, compensation based on production (e.g., bonuses and commissions) paid to an independent contractor for marketing services violates the anti-kickback statute. An independent contractor may be used for marketing only if the requirements of the personal services and management contracts safe harbor are met. The most important requirements of this safe harbor are the existence of a written agreement, the independent contractor must be paid fair market value for services rendered, the compensation cannot take into account the volume of business generated and the compensation must be fixed one year in advance.

Jeffrey S. Baird, Esq. is chairman of the Health Care Group of Brown & Fortunato, P.C., Amarillo, Texas. Reach him at 806-345-6320 or