Paying Your Marketers Properly – Revisiting the Rabbit Hole … Part 2: Health Care Laws – Anti-kickback: Employees

© 2013 Paul Hirsch

A brief note to the Readers: First, I would like to thank all of the people who have taken time to comment on this article series, and those who have taken time to email me expressing interest in this subject. I know it has been longer than I ever anticipated, but FINALLY I am posting the next part of this “series.” I appreciate everyone’s patience, we are a small office (3 people), and when we had 4 different cases in various phases of litigation simultaneous blog posting and website updates took a far backseat!

marketingPart 2: Health Care Laws – Anti-kickback: Employees

We (here at the firm) have almost always approached the issue of paying marketers form the standpoint of: “in most situations the best approach will be to treat them as an employee, rather than as an independent contractor.” Our original article articulated this in a very basic manner.

So why is this the best approach?

Please note that the term “best” is subjective, this might not be the best approach in certain instances, but we believe that more often than not it will be the simplest approach and minimize an employer’s exposure to liability.

Understanding the “why” necessarily requires looking into the history behind the federal Anti-kickback laws, the impact they had on the healthcare industry, and how the law (and accompanying regulations) adapted through the years.

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  •  The Back Story: Some readers might wonder why this is even a discussion. For those readers, and for those who have not thought about the Anti-kickback laws in some time, here is a greatly condensed explanation:

ALL healthcare providers who participate in the Medicare, Medicaid, or any other healthcare program that is funded by federal dollars are subject to the federal anti-kickback laws. In 1972 Congress responded to abusive practices by healthcare providers participating in the federal healthcare programs by enacting a law which is commonly known as the anti-kickback statute. Initially, this law simply prohibited soliciting or offering a “kick-back, bribe, or rebate.” Each violation of this law was punished as a misdemeanor, a relatively minor offense.

In 1977 Congress elevated the possible punishment for violations of the statute to a felony, and they expanded the scope of what actions were prohibited. Congress realized that the implications of continuing abusive practices of the publicly funded healthcare programs must be stopped in order to ensure effective delivery of healthcare to a growing population of participants. They expanded the reach of this statute by making its punishments apply to “any remuneration.”

In 1977 the statute essentially said the following:


◊   offers to pay, pays, receives, or asks for;
◊   ANY remuneration (including any kick-back, bribe or rebate)
◊   directly or indirectly; overtly or covertly; in cash or in any other form;
◊   in return / exchange for furnishing, purchasing, leasing, arranging for, or referral related to;
  ANY healthcare item or service which might be paid for partially or fully by the federal government
  … can be found guilty of a felony punishable by a fine of $25,000, 5 years in prison, or both for each violation.

Gavel 240 x 180

At this point, the anti-kickback statute substantially became what it is still today, and because it is SO broadly worded, it applies to an overwhelming variety of healthcare related transactions. Congress realized this when they implemented it in 1977. Congress sought to ensure that otherwise legitimate transactions would receive an ‘exception’ by  stating that this statue would not apply to a few specific transactions.

Even though this 1977 revision included specific protections for “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.” This and a few other exceptions were included in the text of the statute to help ensure that the statue was only applicable against the abusive practices it was aimed at stopping.

Only 3 years passed before Congress recognized that their revised language was so broad that it was causing a large amount of uncertainty in the healthcare industry. Healthcare providers were unsure of what transactions or relationships were a violation of the statue. Congress responded by revising the statute in 1980, inserting a “mens rea” requirement (a requirement present in most criminal statutes which means only people who have the specified level of intent may be found guilty of violating the statue). The law now requires that violations be “knowing and willful” in order to be punishable.

Congress took the time to specify that it was “concerned that criminal penalties may be imposed under current law to an individual whose conduct, while improper, was inadvertent.” Also, the 1980 changes are “to assure that only persons who knowingly and willfully engage in the proscribed conduct are to be subject to criminal sanctions.”

Best Intentions Road 240 x 160As is often the case, Congress’s best intention-ed actions did not provide the desired results (we all know what road was paved by best intentions).
By 1987 the complaints of over breadth of the wording in the statute and rising concerns about fraud and abuse in the federal healthcare industry rose to the point that Congress had to act. Congress’ response was to issue a comprehensive set of amendments to the federal healthcare system and the anti-kickback statute.

These amendments added that violators of the anti-kickback statute could also be subject to exclusion from participation in the healthcare programs if they were convicted of a criminal offense in connection with healthcare items or services. Simultaneously, Congress allowed the Department of Health and Human Services (HHS) to issue guidance and rules concerning healthcare transactions and relationships. This delegation of power is a notable point in the HHS’s history, because Congress instructed the HHS to issue “safe harbors” for certain transactions, financial relationships, and interactions. HHS was empowered to “promulgate regulations specifying payment practices that will not be subject to criminal prosecution” or otherwise be the “basis for exclusion from participation” in the federal healthcare programs.

The OIG chose to issue their guidance on the anti-kickback safe harbors through its OIG department. The OIG issued its first “Final Rule” listing certain safe harbors in 1991. Since then, these “safe harbors” have become some of the most essential guidelines for healthcare providers whenever financial transactions are concerned. Since their inception and presently these safe harbors can be found at § 1001.952 in the Code of Federal Regulations (C.F.R.).

  • The Current Rule:Please follow the Arrows

Big or small, non-profit or for profit, privately owned or publicly traded, ALL healthcare providers who participate in Medicare, Medicaid, or any other federal healthcare program MUST abide by the safe harbors in order to successfully ensure compliance with the applicable laws and regulations.

Many states have implemented their own anti-kickback laws and almost all of them have modeled their state laws off of the federal statute. Some states not only model their prohibitions after the federal law, they even adopt the federal simply by mere reference to them.

The previous description and brief history of the anti-kickback statute provides a solid frame of reference to begin looking in detail at these safe harbors, including the “Employee” safe harbor, which is in essential parts as follows:

C.F.R. § 1001.952 (“Exceptions”): “The following payment practices shall not be treated as a criminal offense … and shall not serve as the basis for an exclusion

C.F.R. § 1001.952(i) (Employees): Prohibited “remuneration” does not include any amount paid by an employer to an employee, who has a bona fide employment relationship with the employer, for employment in the furnishing of any item or service for which payment may be made in whole or in part under Medicare, Medicaid or other Federal health care programs. For purposes of… this section, the term employee [shall be defined by the IRS’ definition].

  •  Employee vs. Independent Contractor ( a Marketer as an Employee – examined)

 Now, we can finally gain some ‘traction’ understanding why marketers should be paid as employees rather than as independent contractors, beginning with an analysis of the employee safe harbor.

At the outset, the safe harbor clearly protects payments from an employer to an employee… then it goes on to specify “for employment in the furnishing of any item or service for which payment may be made in whole or in part under Medicare, Medicaid or other Federal health care programs.” …

for employment in the furnishing of”: This language is simply unclear. What is employment “in the furnishing of…”?

    • INTERPRETATION A: What is the simple answer? What is most obvious?

Couldn’t this phrase “in the furnishing of…” simply apply to the actual delivery of healthcare? Wouldn’t it be a very simple and obvious explanation to say: “this safe harbor clearly protects payments made by a healthcare company to a therapist (or nurse, aide, etc.)? Yes, the safe harbor would clearly apply to this “furnishing of” healthcare items or services.

If you are a healthcare provider entity participating in Medicare/Medicaid your business is to provide healthcare items or services and obviously payments made to employees who actually provide the hands on care should be exempt from prosecution. We would generally say OF COURSE! This particular application is not a hotly contested issue, because the answer is quite obvious.


What if we try to apply the logic from Interpretation A to a common marketer scenario? Now we are asking to apply that same wording, which so obviously applies to say… a nurse, to a person who is not licensed to provide medical services, and also whose services can NOT be paid in whole or in part by the federal healthcare program!

Now the issue can become so much more uncertain and less obvious. However, to many employers who are healthcare providers the answer should still be fairly evident…

If your business revolves around and essentially IS the provision of healthcare items or service (which may in part or in whole be paid by a federal healthcare program) how can you exist if you don’t have clients? Isn’t finding clients a necessary and integral part of furnishing those services? If clients, potential clients, or referral sources do not know that your business exists then how could you possibly ever furnish any item or services?

Of course, to a healthcare provider this seems axiomatic and the answer is obvious. Healthcare, like any other business must be marketed in order to furnish whatever items or services it offers! Therefore, employing a marketer to properly market your business is employment “in the furnishing of…”

  • OIG “GUIDANCE”… How does the OIG help “guide” the industry with regards to this issue? DO they support our general conclusions in Interpretation B?

OIG HHS badge The OIG has numerous ways of providing guidance: official ‘Advisory Opinions,’ comments posted in the Federal Register, special advisory bulletins, and their ‘Fraud and Abuse Alerts.’ All of these things are sources of explanation and guidance for healthcare providers about the safe harbors. They are extremely significant. Both state and federal courts frequently turn to these sources in order to apply or interpret what the various safe harbors mean.

Unfortunately, there is relatively little that is commonly known about specific guidance explaining how the employee safe harbor should be applied. In fact, the best piece of information is frequently overlooked. Some courts have picked up on it and seemingly understood its implications, others have chosen to bypass it for reasons unknown… what is it?

The proposed exception for employees permitted an employer to pay an employee in whatever manner he or she chose for having that employee assist in the solicitation of program business.…

To anyone looking at the anti-kickback employee safe harbor, as it might apply to paying marketers, this simple sentence should be a profound clarification!
Because, it justifies what should otherwise be obvious… that employing a marketer IS employment “in the furnishing of” applicable healthcare items or services! Thus, this is the most important sentence to explain why paying your marketer properly starts with paying them as an employee.


The explanation continues: Employee vs. Independent Contractor… Contd. (Independent Contractor as a Marketer – examined) & Employee vs. Independent Contractor… Contd. (“Bona Fide” – Who is an Employee?)

Photo Credits:

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photo credit: <a href=””>bloomsberries</a> via <a href=””>photopin</a> <a href=””>cc</a>
photo credit: <a href=””>96dpi</a> via <a href=””>photopin</a> <a href=””>cc</a>


Exclamation question mark

As a quick followup note to our earlier post about the new HIPAA final rule there is a significant, but easily overlooked, timeline for implementation of Business Associate Agreements (BAA’s)!

If you implement (draft and signed between the parties) a Business Associate Agreement BEFORE FRIDAY JANUARY 25, 2013  you will have 1 Extra Year to fully comply with various portions of the new business associate rules!

The new rule places a deadline of SEPTEMBER 23 2013 for covered entities and Business Associates to be compliant with various portions of the new requirements!!!

HOWEVER, if covered entities implement a basic form of Business Associate Agreement (BAA) by or before JANUARY 25 2013, those “basic” agreements will be considered as a sufficient step towards compliance to extend the time when the full weight of the new rules will be in effect!!!

Instead of mandatory full compliance with all the new rule requirements BY 09-23-2013 — a full year “grace period” will granted, delaying such full compliance until September 23, 2014!!!

As long as those “basic” Agreements which were in place by or before 01-25-2013 the reprieve from full compliance with the new rules will stay in place AS LONG AS the BAA’s are not changed or renewed before the end of the extended “grace period.”

If you don’t have a “basic” HIPAA-compliant agreement in place with your Business Associate by 01-25-2013, the full weight of the new rules will be in effect, and force your compliance on 09-23-2013.

This extension IS CRITICAL – to many organizations who are short on staff, time and money – an extra year to put policies and procedures in place is INVALUABLE!!!

Because we truly care about our clients and the industry we are posting BOTH:
1 – The “basic” model of BAA posted by CMS/HHS several years ago;


2– Our own BAA, which we have used for years – this form is comprehensive and generally applies between a Covered Entity and a Business Associate – but – if needed it could be easily modified to apply between BA’s and their Subcontractors (modifications are up to the end users!)

Exclamation     Because we have never posted one of our “forms” we feel that we must explain the following: This form is given free of charge and IN NO
WAY WHATSOEVER  implies or should be considered as legal advice – or the establishment of legal representation period – it
is subject to all limitations below!

Read Below Before Downloading!

No warranties of any form or sort – express or implied  – are given with this form – this means IN NO manner, variation, or theory is any sort of guarantee or warranty included with this form whatsoever!

By downloading either form mentioned here the person or entity downloading this form IS AGREEING ALL of the Following:

The form is in no way guaranteed for accuracy, content, suitability, or even usefulness –

YOU AGREE also that you are downloading it at your own risk, and the result will be as if you had picked this up off of a street corner where someone left it –

You Agree Pearson & Bernard PSC – nor any of its partners or associates are in any way responsible for your use of either document; that Pearson & Bernard PSC cannot and will not ever be responsible for how you use either document – and that neither is legal advice or in any way legal representation!

1.  To download a Microsoft Word Document version of CMS “example” click –> CMS SAMPLE Business Associate Contracts
(this was copied and pasted from CMS website into a blank word document)

2.  To download a Microsoft Word Document example version of “our” (this Firm’s) BAA click –> Blank Example BAA


CMS Announces New Application Fee for Providers 855A

DEPARTMENT OF HEALTH AND HUMAN SERVICES – NEW Provider Enrollment Application Fee Amount for Calendar Year 2013CMS – Medicare, Medicaid, and Children’s Health Insurance Programs;

cms-logo-to-use-300x270CMS has announced a $532.00 calendar year (CY) 2013 application fee for institutional providers that are initially enrolling in the Medicare or Medicaid program or the Children’s Health Insurance Program (CHIP); revalidating their Medicare, Medicaid or CHIP enrollment; or adding a new Medicare practice location.

This fee is required with any enrollment application submitted on or after January 1, 2013 and on or before December 31, 2013.

This is a slight increase from the previous fee, but none-the-less providers should be aware of the fee increase. Fortunately, no advanced fee has been attached to “basic” changes of information submitted via an 855A.

Please remember CMS must be notified promptly (usually within 30 days) of almost ALL changes in the structure, administration, and “upper-level” personnel within any provider organization!

We regularly file 855A forms for providers and have a great working relationship with CMS contractors. If you think you might need to submit an 855A or if this little note makes you wonder if you should have, but didn’t, please contact us. We can almost always give you a quick answer regarding what you need to do regarding an 855A.

Paying Your Marketers Properly – Revisiting the Rabbit Hole

© 2012 Paul Hirsch

Update: 12-06-2012 – This Article Series is not forgotten, it is still “in-the-works!” In our desire to compile an authoritative basis for our opinion on this matter we are still reviewing a massive amount of documents, from Legislative History of Congress all the way to state court litigation documents which address this topic. We have read most of it and have “digested” what we have read. However the creation process is taking a backseat to ongoing litigation. We are simply waiting for things to slow down a bit before we delve into writing this article series – after all client needs come first!

Of course, if you have specific questions about a current situation or questions about what you want to do in terms of your marketing approaches, we are more than willing to advise you on a particular circumstance! If in doubt – ASK US!-

Paying Your Marketers Properly – Revisiting the Rabbit Hole

Introduction – Part 1 (of 5)

marketingAfter updating our website recently we have noticed that our article “Paying Your Marketers – Properly” and the issues covered within it have spurned many questions and comments both here on our site and from some of our clients. The health care industry is an ever-changing world, subject to ebb and flow of legislation, agency rules / regulations, court decisions and an ever-changing labor pool. Notably, Liz wrote this article almost ten years ago!

Many changes have occurred throughout the health care industry since the original article was written. Government agencies charged with oversight of the industry and its participants work differently then they did ten years ago. In fact, almost every facet of the industry has been affected by continual changes in the laws, rules, and regulations governing how agencies do business in this marketplace. It follows that the issue of paying marketers has changed also. Ultimately the crux of the original article remains in place, but none-the-less it deserves a fresh analysis.

One illustration of this change can be seen in the government’s focus (both on the state and federal levels) on strengthening and enforcing the prohibitions on fraud and abuse within the industry. The government’s new resolve in combating fraud and abuse has developed throughout many areas. One of the most visible examples of this new focus and resolve is the DOJ-HHS’s HEAT strike-teams, which actively combines and focuses the intelligence and resources of federal and state agencies towards the single inexorable goal of prosecuting businesses and people involved in Medicaid and Medicare fraud and abuse.

Moreover, beyond the health care industry itself, almost every industry (including health care) and every business, across the country, faces the perils and pitfalls of the changing environment of employer / employee relationships and employment laws. Federal and state agencies have promulgated new rules and regulations, and have adapted their methods and strategies in dealing with employment law. The “old-hat” areas of discrimination, retaliation, and harassment are as much of a concern as ever. However as technology advances and permeates the fabric of our society new questions are being raised such as: When can you run a criminal background check on a prospective employee? Can you ask a potential employee for their password to social media websites so you can better evaluate them? What are the limits you can place on employees’ use of social media both on the clock and off the clock (there is a surprising amount of controversy in this area particularly!)?

So how does all of this effect marketing strategies and payment structures for marketers in the health care industry?

In some ways many things are unchanged, but unfortunately that is not the whole story. Certain recent developments in the health care industry and employment law should give pause to health care providers when they decide to start or continue with marketing strategies and payment structures.

We have decided to start a multi-part series of articles which will shed new light on some old concepts, highlight certain techniques and approaches to structuring marketer training and payment, identify emerging issues and areas of concern, and suggest “functional adaptation methods” which can help health care businesses avoid potential pitfalls.

Please note: Many of the emerging issues about social media and employment law could be entire articles in and of themselves. So, this series will touch on some points of these emerging issues, but if there is interest in a more in-depth look we will consider putting together an article on these issues themselves.

Here are the planned segments:

Part 1: Introduction

Part 2: Health Care Laws (Anti-kickback and other federal rules & – Employee vs. Independent Contractor considerations)

Part 3: Employment Laws ( Fair Labor and Standards Act (FLSA) – wages paid and hours worked – payment structures – necessary documentation)

Part 4: Emerging Concerns

Part 5: “Functional Adaptation Methods” ®

(Please note regarding the phrase “functional adaptation methods:” some people might be looking for “best practices,” however we detest this catch phrase and purposefully choose to avoid it. As many successful business people can attest this phrase is one of the general corporate ear candy catch phrases which are in vogue. At the outset, this phrase in particular tends to over-simplify complex issues, because what might be best a best practice in one instance might not be what is best for every situation.)

What Can I Ask An Applicant?

© Elizabeth Zink-Pearson

applicantHiring employees is no longer a simple process of elimination or selection of the best applicant. In today’s legal climate, employers need to be equally concerned about what they ask applicants as well as what they fail to ask. The prudent employer should establish a well defined procedure for employee selection that includes steps for checking references and other qualifications and reflects the restrictions imposed by both state and federal law.

Hiring An Employee No Longer Means Fitting the Applicant into a Strictly Defined Position.

Employment applications and interviews are the primary methods of screening and eliminating unqualified or ill-suited persons from consideration for a position and as such can run afoul of the various state and federal anti-discrimination laws. Types of questions that have been found to unfairly discriminate include questions concerning arrests and conviction records. Additional problem areas for employment inquiries include age, sex or marital status, physical or emotional capacity, and even religious affiliation. With all these restrictions, how can an employer legally screen applicants for employment?

The anti-discrimination laws presume that all the answers to pre-employment questions will be used in making a hiring decision. In general, these law prohibit the use of job criteria or pre-employment questioning that disproportionally disqualify minorities, members of one sex, older persons, or disabled persons. Hiring employees no longer means fitting the employee into a strictly defined position. Rather employers must maintain a degree of flexibility in hiring, a willingness to accommodate individual applicants’ limitations, either real or “perceived” and either physical or emotional.

Hiring guidelines published by the Equal Employment Opportunity Commission, the EEOC, suggests establishing a job description for each position that outlines the primary responsibilities for the job, technically referred to as the “essential functions.” Applicants should be reviewed for qualifications that meet these essential functions. Any job criteria that could screen an applicant from eligibility employees must be directly “job-related” or justified as a business-necessity. Examples of necessary job related criteria include the ability to type or use a computer for a secretary position or a truck driver’s ability to drive an eighteen-wheel vehicle for a prolonged period. Example of criteria necessary for businesses are such things as licensor requirements for nurses or state and/or federal law requirements for criminal record checks or drug testing for certain employees.

In both the application and interview process, questions should reflect only the established job requirements, such as the working hours, job criteria, or the identified essential functions. General questions concerning the applicant’s age, marital status, physical health, religion or ethnic background should be avoided unless the subject matter of the question can be established as a necessary qualification.

Specific questions concerning an applicant’s ability to do a particular function should be posed only after an initial offer of employment is made, and, then the employer must be prepared to accommodate any disability, religious need, or other limitation. The overriding duty to accommodate such limitations is lifted only if the employer can prove that the accommodation would cause the company “undue hardship.”

Employers Need to Prepare Hiring Procedures & Policies Well in Advance of Placing a Want-Ad.

On the other side of the picture, employers should ask and verify several items in the application process. Many states require criminal record verification of employees. Although the process may be costly and impose additional paperwork, employers who have people in positions of confidence, or going into clients’ homes, or employees who must be bonded likely need to obtain this information. The business necessity in such cases is demonstrated by the criminal case example of the home health aide. Any request for criminal convictions information should be accompanied by a statement that a record will no necessarily bar employment and that factors such as the seriousness and nature of the crime, along with the time of the offense will be considered and evaluated.

Also, there are several screening procedures that employers can and should conduct. First, employers should conduct reference checks and ask applicants for an explanation of any “unemployed” time. Second, applications and any subsequent employment questionnaires should establish an enforceable policy that any false information is not only grounds for disqualification for a position, but, also cause for discharge if discovered after a hiring. Also, employers can require verification of basic information, perhaps with a drivers license or professional license or certification, or a follow-up telephone call. Finally, companies should establish a procedure checking list to assure that each of these procedures are followed, and, include this information in the applicant’s file.

In the end, to avoid legal liabilities in the screening and hiring of employees, it has become very important for employers to prepare hiring procedures and policies well in advance of placing the want-ad. It is certainly more costly in time, and in money, to face a lawsuit down the road either from some disgruntled applicant who did not get hired, or from a client injured in some way by the one who did.

Information that is provided here is NOT LEGAL ADVICE !

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