© 2003 Elizabeth Zink-Pearson

Since 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.