Let’s face it: healthcare is a business. As much as many of us hate to say it, it is. For example, many dedicated healthcare providers would not take up those professions if they had to work for free. And there is no shame in making money for providing healthcare services – so long as it’s done ethically and with primary concern for patient care.
And since healthcare is a business, marketing is an integral part of that business. This is no less the case for laboratories. These healthcare entities have the expertise to perform scientific testing so valuable that commercial payors and CMS have decided to reimburse for them. But labs require marketers to help bring in customers. No problem there, right? Ah, but you forget that this is healthcare – the most highly regulated industry in America. And marketing isn’t just marketing. In fact, labs can find themselves on the wrong end of federal prosecution if they don’t carefully comply with some very tricky laws. This article will discuss these laws and how best to steer clear of violating them.
Anti-Kickback Statute
The federal Anti-Kickback Statute (AKS) makes it a crime to knowingly and willfully offer, pay, solicit, or receive remuneration to induce or reward the referral of business reimbursed by federal healthcare programs such as Medicare or Medicaid. This means that compensating anyone to get them to send patient business your way is a crime, so long as the business is reimbursed by federal healthcare programs. This doesn’t sound like such a bad thing, right? After all, we want to avoid fraud, waste, and abuse of taxpayer dollars. The problem is that federal agencies have taken it upon themselves to interpret what this law means and what kinds of activities it applies to. And they have applied it to laboratory marketing.
Specifically, the Office of Inspector General for Health and Human Services (OIG) has opined that marketing for lab services is problematic and can lead to a violation of the AKS. It claims that marketers are tempted to engage in unethical or illegal activities because they are incentivized to bring in as much business as possible. Its rationale is: the more patients, the more they make, so obviously they will do whatever it takes to make the sale. This includes lying, coercing patients, encouraging unnecessary tests, and a plethora of other skullduggery.
However, knowing that labs need effective marketers to survive, the OIG has carved out a safe harbor under the AKS that permits labs to use bona fide W2 employees without violation. This includes compensation based on a percentage of business brought in as well as on a “per-patient” basis.
But what about 1099 contracted marketers? The OIG decided that 1099 contractors should not be paid based on a percentage or per-patient arrangement because they are much more likely to engage in the nefarious behavior mentioned above. In the OIG’s view, labs do not have as much control and supervision of these types of marketing agents as they do with W2 employees, so, the likelihood of fraud and abuse is far greater for 1099s. Because of this, the marketing safe harbor does not apply to contracted marketers.
The flaw in this logic is that employers don’t supervise W2 marketers much more closely than contractors. I guess the OIG isn’t aware of pharmaceutical sales reps, who are W2s and have landed pharma companies in extreme legal trouble to the tune of billions of dollars due to their shady behavior.
As silly as this all sounds, there is still hope. Just because the safe harbor does not apply to 1099s doesn’t mean that using a percentage or per-patient compensation model is automatically a violation of the AKS. But these arrangements are much riskier and must be created with skill and expertise to avoid violations. Even if no violations occur, just having these suspicious arrangements in place can invite federal investigations, which are better avoided.
EKRA
The next federal law that impacts lab marketing is the Eliminating Kickbacks in Recovery Act, or EKRA for short. EKRA makes it a crime to knowingly or willfully pay any remuneration to induce a referral of a person to a laboratory or in exchange for an individual using the services of that laboratory. Unlike the AKS, EKRA applies to services that are covered by both federal as well as commercial payors. Also unlike the AKS, It does not offer a similar safe harbor for W‑2 employees. Instead, EKRA’s safe harbor only protects flat-fee compensation arrangements, such as hourly or monthly salaries, for both W2s and 1099 contracted marketers.
What To Do
While the federal government can be overzealous in its investigations and prosecutions of labs for suspicious marketing arrangements, several bad actors have given the feds good reason. Fraud and abuse exist, especially in the laboratory space. So, with the understanding that the AKS and EKRA are the laws to comply with, what can a lab do to ensure compliance? First, all marketers can be compensated through a flat-fee model. This will eliminate any possible violation of the AKS or EKRA, at least for marketer compensation.
Given past enforcement actions by the feds, it is less likely that labs will be prosecuted under EKRA if they act within the AKS safe harbor and pay W2 employees a percentage or per-patient fee – although you never know when the feds will suddenly decide to start coming after labs for a technical violation of EKRA. But again, these types of arrangements, while holding a greater potential for fraud and abuse, do not automatically constitute a violation.
Smaller labs usually can’t feasibly employ a W2 sales and marketing force. And most 1099 marketers have little interest in a flat fee model. It is certainly the safest way to proceed, but some labs may have no choice but to use a percentage or per-patient arrangement. But again, it needs to be strategically set up to be as compliant as possible. In addition, labs need to have a vibrant compliance program in place that includes properly training the marketers. Just this alone goes a long way with federal investigators and prosecutors to show the lab takes the law seriously.
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