Paying Your Marketers – Properly

© 2003 Elizabeth Zink-Pearson

marketingSince the advent of PPS in late 2001, home health agencies have moved to openly marketing their businesses to referral sources and to the public. No longer are marketing activities taboo and necessarily buried in the duties of patient coordinators or educators. As the marketing practices become more popular and likely more necessary, salesmen unfamiliar with health care are being attracted and or recruited into the health arena. These square peg employees from the unregulated business environment require education on the rules and requirements that govern health care providers.

The change from cost reimbursement to the PPS episode payment did not change the restrictions that exist on marketing health care services. As home health owners know, many marketing tricks used in the outside business world can land a health care provider in jail. In addition, the employment law requirements for minimum wage and overtime set specific rules for outside salespeople, which must be completely satisfied. Violations of any of these laws can be very costly. This article will address both the health law and employment law issues that must be addressed in your marketing pay practices.

The Problem with Paying for Referrals

Salespeople and marketers in non-healthcare business fields traditionally receive their wages in the form of a commission or draw against commissions. In other words, they are paid on the basis of the sales they produce. In the health care business, sales are generated through referrals from other health care providers or direct solicitation of patients. In either case, there exists a strict prohibition against any payment, solicitation of payment, or receipt of payment for a referral of Medicare or Medicaid business.

The Medicare and Medicaid Anti-Kickback Act, 42 U.S.C. § 1320A-7b(b), specifically prohibits “whoever (from) knowingly and willingly soliciting or receiving any remuneration…if one purpose” of the payment is “to induce a referral of business reimbursed under the Medicare and Medicaid programs.” This law therefore impacts how you pay your marketers for the referrals generated and also raises concerns about any traditional business perks your marketers may choose to offer referral sources. Similarly, the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) included a prohibition against the use of gifts and other benefits to directly solicit patients for services. Both of these laws include criminal penalties in the form of jail sentences, huge penalties or fines, and mandatory exclusion from government program participation.

Clearly, the payment of a commission or even a sizeable bonus to your marketers has the express and exclusive purpose of inducing a referral of home health business, much of which is reimbursed by the Medicare program. As such, commission payments to your marketers violates the plain words of the Anti-Kickback Act. In addition, in the business world, salesmen often market to their prospective clients over lunches, golf games, or other perks. These are traditional business practices that in the health care field are prohibited “in kind” payments with at least one (1) purpose to induce referrals.

Several criminal prosecutions have arisen under the Anti-Kickback Act and the courts in those cases have found the law to be both constitutional and literal – that any payment, direct or indirect, in cash or in kind – is a violation if one purpose, and just one purpose, of the payment is to induce a referral of Medicare or Medicaid business. Soon after the law took effect, the OIG noted the concerns of health care providers that “many relatively innocuous or even beneficial commercial arrangements were technically covered by the statute” and were, therefore, subject to criminal prosecutions. Because of the overreaching breadth of the law, the government published rules for a few exceptions to the prohibited payment, which are intended to protect what are considered legitimate business relationships.

One of the recognized exceptions, or “safe harbors,” extends to employees. As stated in the rule, a payment to a “bona fide” employee will not be considered illegal remuneration for a referral as outlawed under the Anti-Kickback Act. 42 C.F.R. §1001.952(i). A “bona fide” employee is one for whom employment withholding and employment taxes are paid, technically an employee as defined under 26 U.S.C. §3121(d) (2) of the Internal Revenue Code. He or she does not have to be a full-time employee, but cannot be a 1099-type independent contractor. To simplify the definition, the employee must be what is called a W-2 employee. He or she must be subject to hiring and firing, supervision and other disciplinary action.

In the comments to the proposed Safe Harbor Employee rule, the OIG noted that the employer may pay the employee in any manner to “assist in the solicitation of Medicare or State health care program business.” The manner of payment may include a payment based on “the amount of business generated” as long as “these salespersons employees” are subject to “appropriate supervision. Thus, under the Employee Safe Harbor, home health agencies may pay their employee marketers on a commission, or draw against commission basis, or include wages based on productivity. Payment of this type does cross the line on the literal language of the Anti-Kickback law, but it falls squarely into the Safe Harbor and is therefore protected.

Although commission payments are protected, employers should be concerned about, and, alerted to their marketer’s sales practices on a day-to-day basis. At the time of hiring, each employee should be instructed on the prohibitions of the Anti-Kickback Act, and required to review and sign a code of conduct agreeing to not offer kickbacks or other indirect payments or benefits to referral sources. At a minimum, this requirement establishes a pattern of supervision that should be supplemented with regular performance reviews and ongoing supervision of activities. Although it is unlikely that the OIG would prosecute for a single lunch or box of donuts, the literal language of the Anti-kickback Act prohibits such conduct.

Finally, it is important to note that agencies should always scrutinize and identify any and all marketing costs, including the wages paid to marketers, to assure that no such costs are claimed on the annual cost report. Marketing costs are still unallowable on the cost report, and any claim for such costs could be construed to be a false claim.

Practical Problems with Commission Payments

There are, though, some practical problems that arise with commission payments, unrelated to fraud and abuse that must be considered and addressed before an agency enters into this type of compensation plan. First, in the realm of the PPS system, shear volume of referrals is not necessarily a good thing. Rather, it is the quality of the referral that is important. Paying a commission on an episode, which runs in the red financially, has no business advantage. Thus, any commission payment should be tied to the profitability of the actual home health episode. Creating the commission scheme therefore requires some time and considerable thought.

Although commission payments are protected, employers should be concerned about, and, alerted to their marketer’s sales practices on a day-to-day basis. At the time of hiring, each employee should be instructed on the prohibitions of the Anti-Kickback Act, and required to review and sign a code of conduct agreeing to not offer kickbacks or other indirect payments or benefits to referral sources. At a minimum, this requirement establishes a pattern of supervision that should be supplemented with regular performance reviews and ongoing supervision of activities. Although it is unlikely that the OIG would prosecute for a single lunch or box of donuts, the literal language of the Anti-kickback Act prohibits such conduct.

Finally, it is important to note that agencies should always scrutinize and identify any and all marketing costs, including the wages paid to marketers, to assure that no such costs are claimed on the annual cost report. Marketing costs are still unallowable on the cost report, and any claim for such costs could be construed to be a false claim.

As an example, the commissions could be paid quarterly or every 62 days at the close of an episode depending on the speed of your billing procedures. At this point, there should be a realm of assurance as to the value of the episode. Tracking the referral to the marketer could be managed through some internal coding process or other recordkeeping system which identifies the marketer. Another possible commission payment basis is a pure productivity bonus that scales the business generated again on a quarterly or other time period basis to the overall productivity of the agency. This type of commission compensation encourages quality referrals which overall benefits the agency most.

Under the PPS payment model and with the aggressive claims review posture of the Medicare and Medicaid programs, it is necessary to create a commission payment plan that does more than generate just referrals, but also works to enhance real profit. Such a plan should take some time and consideration in implementation. In addition, use of a commission structure must be tempered with appropriate supervision and fraud and abuse controls to assure that inexperienced marketers perform in accordance with fraud and abuse laws and your agency’s ethical standards.

The Risk of Overtime Pay Liability

The other major hurdle in structuring a marketing payment plan is consideration of the requirements for minimum wage and overtime liability. For several years the home health and other health care industries have been prime targets on the Department of Labor hit lists for overtime violations. As the home health industry moves into the business world of marketing, agencies must review any payment plan to assure compliance with the overtime pay requirements.

Traditionally, home health marketers have been nurses or other professionals who were paid a salary and wore several hats. Most of these employees could qualify for an exemption from overtime pay under the professional or management exemptions due to their status and job duties. In the current time, with the use of actual business “marketers” rather than professionals, other exemptions must be considered to avoid payment of overtime.

As a brief review, employers must pay overtime to employees for all hours worked in a workweek in excess of forty (40) hours, unless the employee is a properly classified exempt employee. Overtime pay is to be calculated and one and one half times the employees’ regular rate of pay. Hours worked include all time an employee is suffered or permitted to work, including paper work and travel time other than to and from the worksite. The use of an “approved only” overtime policy is pointless and without effect if the employee’s job duties requires him or her to work in excess of forty (40) hours a workweek. A commission-payment system encourages marketers to be out in the field, pounding on doors many hours a day. Thus, there exists a risk of overtime pay unless the marketer is properly assigned and classified into an exempt job duty status.

The Fair Labor Standards Act, which imposes the overtime pay duty, includes an exemption for “outside sales employees.” As long as a home health marketer’s job is dedicated to “making sales, or to “obtaining orders or contracts for services,” and is performed “customarily” away from the agency’s office(s), the marketer can be considered an outside salesperson and exempt from overtime pay. As noted, the job duties must be dedicated to sales, with no more than twenty percent (20%) non-sales duties in any one (1) workweek. The non-sales work does NOT include clerical or other work that would be considered “incidental to or in conjunction with the employee’s own outside sales or solicitations.” Such incidental “sales” work would include telephone follow-up or paperwork associated with the actual sales duties.

Use of the Outside Salesperson exemption is foreign to home health agencies, but should be considered to avoid overtime pay exposure. It is important for any exemption to use the actual wording of the exemption s it is the employer’s duty always to prove that the employee is properly exempt from overtime. Therefore, a marketer’s job description and actual duties should replicate the exemption language and note that the employee will be considered an exempt outside sales employee. This helps to avoid any misunderstanding or disgruntled complaints from an employee after-the-fact.

Unlike other exemptions, an outside salesperson is not required to be paid in accordance with the salary or fee requirements of the Fair Labor Standards Act. Thus, a commission payment plan is permissible, if administratively functional for an agency. There is a basement level of wages that must be paid to qualify for the exemption. Of course, salary or fee payments are not otherwise precluded for outside salespersons and can still be used along with a performance bonus as long as the employee performs the outlined job duties for the exemption. Under the current rule, the minimum wage amount for the exemption is set at $155 a week, but the regulations for all exemptions are proposed to be changed.1

A Recommended Marketer’s Compensation Plan

With years of negative rhetoric about fraud in the home health industry and the overall climate against “inducement” of referrals, any compensation plan that is designed to induce referrals may still raise the hair on some agency owner’s head. Although a commission or other traditional “sales” compensation model is clearly protected for “bona fide” employees under the employee safe harbor, there are significant practical business problems in implementation. An alternative model is to pay a base salary that allows employees some wage security along with performance and productivity bonuses that are tied to their actual sales and the profitability of the company. Any salary model must comply with the salary rules and Marketers should be identified as outside sales people to assure the exemption for overtime pay. Yet it is possible to provide the sales incentive through a well-designed bonus program tied to growth and profitable referrals.

As a final note, it is necessary to train marketers intensely both on their specific duties and the PPS payment system so that they understand the profit potential of referrals. Moreover, each and every marketing employee should be educated on Anti-Kickback prohibition and other fraud and abuse laws to assure compliant conduct. Remember it is your job to supervise and oversee their activities. Your marketers will be your public face and must present themselves as knowledgeable of your business and, even more importantly, of your ethical standards for your business.

1. The proposed changes are extensive and as now written will reduce the overtime exposure greatly. The most important change to note is that LPN’s may be properly exempted as a learned professional employee. However, there is considerable debate and opposition to the proposals that make any substantive discussion too prospective. Agencies should stay alert during the upcoming year and consult legal counsel as legislation and regulations proceed.

Dealing With Investigations

© Lucian Bernard

spyglass on mapHome care is once again the target of government efforts to reduce health care expenditures. The array of programs being used to financially and operationally confront agencies is extensive and daunting: focused medical reviews, compliance reviews, recoupments, denials, offsets, payment suspensions, ORT, program exclusion, civil monetary penalties, Wedge audits and criminal prosecutions, to name just a few. What can an agency do before, during and after an investigation?


Agencies must be prepared for unannounced investigations and audits at any time. The consequences of these investigations can be extreme, both financially and criminally. There are steps an agency can take now to minimize the potential damage of being the target in a government investigation:

Prepare for possible delays in payment or suspension of payment – review your lines of credit or other sources of cash flow to be sure they are adequate if you are caught up in the storm.

Begin to review your system of internal audit of claims to determine that there is adequate documentation of compliance with medical necessity and homebound criteria.

Maintain a separate file for your communications with legal counsel, since those documents can be protected from seizure by government agents under attorney-client privilege.

Contact your health law and criminal law attorneys now to ensure their availability to represent you when needed.

Only the reckless, daring or naive will not have a Fraud and Abuse Compliance Plan in place. A comprehensive plan may include all of the above.


If you are notified by a surveyor or a fiscal intermediary that your agency is being subjected to an audit, do not expected to be treated fairly, or with meaningful due process:

Make certain that you have copies of all documents that you provide to the surveyor so that you can conduct your own detailed audit of that case file;

Be certain that the intermediary has all of your documentation before the government renders an initial decision; and,

Contact legal counsel at the outset to achieve the greatest protection of attorney-client privilege and perhaps extend that protection to the activities of your accountant, consultant, etc.

If, however, government agents present subpoenas or search warrants, time is of the essence and you should remember to do the following:

Find out who is the agent in charge and ask to see the document. A subpoena requires the production of material, but the officer(s) presenting the documents may not search the premises and seize the material. A search warrant allows agents access to the premises and the authority to seize material described in the warrant, or accompanying affidavit.

Immediately contact your attorney and advise him or her of the situation. At this point, the call is probably being monitored and there are guards at all of the entrances to your agency. Ask the agent in charge to seal the area and delay the search until your attorney arrives. Have trusted supervisors or managers accompany agents to the areas covered by the search warrant to observe, not to interfere.

Advise your employees that they are under no obligation to answer any questions by the agents – Do not tell them that they cannot speak to agents, because that could be construed as obstruction of justice. It is the employee’s choice to answer questions or remain silent. Usually, government agents will not tell your employees that. Then send all non-essential personnel home and otherwise close the agency until the search is completed.


An agency must be very careful about agreeing to a settlement with the government without first reviewing all of the legal ramifications with its legal counsel.

Accepting an extrapolated damages claim by the government based on an audit, for example, can have many unforseen consequences. An agency that accepts a monetary settlement of an audit could still be subjected to any of the following:

Mandatory or permissive exclusion from the program;
Criminal prosecution;

Inclusion in the national database authorized by the Portability Act as an “abuser” (the so-called scarlet letter provision); and/or, Imposition of civil monetary penalties.

Remember, too, that positions your agency accepts as part of any settlement with the government can have collateral consequences under other federal laws, such as the Fair Labor Standards Act (FLSA), the False Claims Act (FCA), etc.

The government has maintained its position that Medicare/Medicaid fraud is public enemy #3, just behind drugs and violent crime, and is directing much of its efforts at home care.

504 Rehabilitation Act Grievance Policy

© Elizabeth Zink-Pearson

disability workplaceThe Rehabilitation Act of 1973 was the predecessor of the American Disabilities Act of 1990 and imposed a duty upon federal contractors, or entities that participate in federally funded programs to accommodate persons with “handicaps.” In addition, Section 504 of the law prohibits a business which participates in a program that receive federal financial assistance from discrimination which affects the receipt of the federal benefit and in employment of individuals. Thus this law applies to home health agencies which participate in Medicare or Medicaid who, as outlined in the law, employ more then fifteen (15) persons.
The regulations adopted to implement section 504 provides that “no qualified Handicapped individual shall on the basis of handicap be excluded from participation in, be denied the benefits of, or otherwise be subjected to discrimination under any program or activity which receive or benefits from federal financial assistance.” The law and regulations do not require an affirmative action policy. Yet, the regulations outline specific discriminatory actions which are prohibited including denial of a benefit or service, providing a less effective benefit of service or a different benefit or service either directly or through a contract, license or other arrangement if such acts are done on the basis of a person’s handicap. As previously stated, the prohibition extends to access to services or facilities as well as to employment opportunities.
Similar to the ADA, Section 504 of the Rehabilitation Act generally requires program participant to reasonably accommodate a qualified person with a handicap in the employment setting. Such a duty is not stated for accessibility to services. Instead, the regulations simply prohibit using the handicap as the basis of denial, restriction or limitation on services.
The regulations require that a covered entity appoint a specific person to coordinate is compliance. In addition, the covered entity must institute a grievance policy applicable complaints about possible discriminatory acts. The grievance policy should address employment grievance and patient grievance and include the following:

1. Adopt a written grievance procedure to be incorporated in clinical and employment policies. The grievance policy should be included in patient admission packets.

2. The grievance procedures should outline that complaints be in writing and addressed to a management level person and/or the identified Grievance Coordinator.

3. Establish specific time frames for filing the compliant and the investigation of the changes.

4. Outline the time frame and chain of command for decision_making on the complaint including identifying the person or the job title of the person who will oversee the investigation of the complaint.

5. Provide for a grievance hearing_ a meeting of the aggrieved party and the decision makers including the Chief Executive Officer of the company as a final step in the procedure.

Agencies also must maintain a log of grievances from patients or employee that fall under section 504, by disabled person who are either patient, applicants for employment, etc. In addition, agencies must post a notice of compliance with Section 504 of the Rehabilitation Act which includes the name of the Grievance Coordinator. Agencies who advertise, either for employees or for educational purposes, should also include reference to being non_discriminatory on the basis of race, sex, disability, religion, or ethnic background.

In light of the recent cases, home health agencies should make sure they are in compliance with Section 504 of the Rehabilitation Act and address the issues in admission policies. A grievance procedure should be adopted and incorporated in agency admission and compliance policies. Decisions on admission or discharge should be characterized as related to the agency’s ability to provide or reasonable expectation to be able to provide the care for patients, which may include whether or not the agency can afford to pay its employees to provide services.

Recordkeeping Requirements Under The Fair Labor Standards Act (29 C.F.R. PART 516)

© 2002 Lucian J. Bernard, Esq.


RecordkeepingThe Fair Labor Standards Act, (FLSA), is a federal statute which requires an employer to compensate its non_exempt employees at a stated minimum wage and overtime pay at a rate of not less than one and one half times the regular rate of pay for all hours worked in excess of forty in any one workweek. The FLSA is a remedial statute, which reflects Congressional intent to provide broad federal employment protection to workers. The Office of Inspector General (OIG) and the Department of Labor have both targeted health care employers for enforcement actions. The consequences of non_compliance can be financially devastating.

The FLSA contains many other legally enforceable obligations for employers as well. This is the first in a series of articles about the requirements of the FLSA and will concern the record keeping requirements incumbent upon all employers. Future articles will deal with subjects such as exemptions from overtime requirements, the fee basis of payment, damages for non_compliance, joint employment and the distinctions between an employee and an independent contractor, with particular emphasis on those requirements as they affect health care providers.


Under the FLSA, all covered employers are required to keep certain records on each non_exempt employee. There is no specified format for this data, but the employer is required to maintain the following information:

1. Employee’s full name and social security number
2. Address
3. Date of birth, if under 19
4. Sex and occupation
5. Time of day and day of week on which the employee’s work week begins
6. Hourly rate of pay
7. Hours worked each work day and total hours worked each work week
8. Total daily or weekly straight time earnings, exclusive of overtime
9. Total premium pay for overtime hours
10. Total additions to or deductions from wages paid each pay period
11. Total wages paid each pay period.
12. Date of payment and the pay period covered by each payment.

For exempt employees, the employer is required to keep all of the above, except for numbers 6_10, in such a manner that the employee’s entire remuneration, including fringe benefits and prerequisites, can be readily calculated. Under these provisions of the FLSA, each employer is required to display an official poster in the workplace which outlines the provisions of the Act. Note that an employer is required to keep a record of all hours worked by an exempt employee compensated by fee (#7).

An employer’s records under the FLSA must be kept in a place where they can be produced within 72 hours of a request by the Secretary of Labor, or the Administrator of the Wage and Hour Division. All of the required records are subject to inspection by the Administrator. If an employer, or group of employers, due to peculiar conditions under which they must operate, wish to modify one or more of these record keeping requirements, the employer(s) may submit a written petition to the Administrator of the Wage and Hour Division, requesting such a waiver.

Payroll records, collective bargaining agreements, plans, trusts, employment contracts and the employer’s sales and purchasing records must be kept for three years. Supplementary records, such as time cards, wage rate tables, orders, shipping and billing records must be preserved two years under the FLSA. An employee does not have the right to sue his or her employer for the employer’s failure to abide by the FLSA’s record keeping requirements. Only the Department of Labor can maintain such an action.

There are several exceptions to the record keeping requirements. Those of particular interest to health care providers include employees of hospitals and residential care facilities. Those institutions can invoke the so_called “8/80 Rule.” It does not apply to home health agencies. It is designed for employees of residential care facilities who are primarily engaged in the care of the sick, the aged, or mentally ill and whose patients reside on the premises. It permits the employer to establish a fourteen day work/reporting period, instead of the usual seven day work period required under the Act.

Consequently, the seven day record keeping requirements listed above are expanded to fourteen days in the case of residential care facilities who use the 8/80 rule. In addition, the FLSA requires that any institution using this exception to the record keeping requirements must have a written agreement which summarizes its terms and indicates how long it remains in effect.

Another exception to the general record keeping requirements is known as a “Belo contract.” A Belo contract, is designed for an employer whose employees work irregular hours and permits the employer to pay a fixed salary for a guaranteed number of hours, up to sixty, based upon an hourly rate. Employees are paid the guaranteed weekly wage regardless of the number of hours they actually work. Overtime would only be calculated during those work weeks when an employee worked in excess of sixty hours in a week. This exception requires that the wage must be set pursuant to a written employment contract.

The most common example would be a collective bargaining agreement between an employer and its unionized employees. Strict requirements that the employer keep accurate records of all hours worked are enforced because the employer must be able to demonstrate to the Department of Labor that there are fluctuations both above and below the guaranteed number of hours. Otherwise, the plan will be invalidated.

Avoiding Patient Abandonment Claims

© Elizabeth Zink-Pearson

patientRecent case law raise significant concerns about Healthcare Agency’s liability for abandoning patients who are discharged from services or have services reduced. Discharging patients is always an undesirable decision for HHAs, but agencies may discharge and avoid legal liability for abandonment if certain steps are followed.

To understand the legal concept of “patient abandonment” it must be distinguished from discharge. Abandonment, as applied in the health care setting, is a unilateral termination of services when there is a continuing need for health care services and a lack of reasonable notice to the patient. Thus there are three elements to a claim for abandonment.

  1. The termination is not subject to mutual agreement i.e. is a unilateral decision by the health care provider;
  2. The discharge occurs without reasonable notice to the patient- sufficient to allow the patient to obtain another care giver;
  3. The patient must continue to need health care services provided by the health care entity.

In the Home care setting then, the a patient abandonment claim is viable where there is not sufficient notice to the patient. Courts generally use the concept of “reasonable” notice which implies that there has been sufficient time for patient to obtain another health care provider or find alternative means of obtaining the needed care.
To facilitate “reasonable notice,” agencies should follow the following steps:

  1. Determine the patient’s need for services- as to frequency, duration, and availability of alternative care givers. If there exists an ongoing plan of care services likely should not be terminated until a normal endpoint, such as the next decertification date.
  2. Similarly, if the patient is under a plan of care, then the HHA should advise the patient physician of the intent to discharge.
  3. Provide the patient advance written notice of the intent to discharge him or her including the exact date services will end, and explanation of the reasons for the decision to discharge, and suggested alternative care givers. Notice should be sent by certified mail, return receipt requested to properly document the patient’s receipt. A copy of the notice should also be transmitted to the physician.

The procedures for patient discharge, as outline above, should be included in agencies’ clinical policies. The unilateral decision to discharge must be made in accordance with the above procedures and in light of each patients’ ongoing need. Thus the length of the notice to the patient which is “reasonable” likely will depend on the particular situation, i.e. the availability of other providers and the patient’s need for services.

In addition if the decision to discharge is based on financial hardship due to reimbursement limitations, an H.A. must be prepared to show that it can not longer reasonably expect to be able to meet the needs of the patient- i.e. can no longer pay staff to provide the care. Discharge notices should always include information on the 504 Rehabilitation Grievance Policy (See: “504 Rehabilitation Act Grievance Policy.” by Elizabeth Zink-Pearson, on this website). In the end, in these difficult situations, it is advisable to discuss the situation with your health care counsel to obtain advise on the particular issues pertaining to the proposed discharge.

Information that is provided here is NOT LEGAL ADVICE !

This website is an Advertisement.

Copyrighted Materials

All original information is the Intellectual Property of the Author.

Original works and materials may not be reproduced in any manner without prior approval.