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Bona Fide Employee Safe Harbor

There is an ongoing issue as to whether marketers employed as full time, W-2 employees, may be paid based on the volume or value of business that they generate.

The Anti-kickback statute is the applicable law and it provides that:

whoever knowingly and willfully solicits or receives any remuneration (including any kickback, bribe, or rebate)directly or indirectly, overtly or covertly, in cash or in kind-
(A) in return for referring an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a Federal health care program, or
(B) in return for purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program shall be guilty of a felony and upon conviction thereof, shall be fined not more than $25,000 or imprisoned for not more than five years, or both.

The Anti-kickback statute further provides for safe harbors to the statute, and if met, compliance with the Anti-kickback statute will be deemed. One of these is the “Bona Fide Employee” safe harbor.

Case law is not absolute as to whether employers may pay non-provider employees such as marketers on a per head basis for marketing activities. There are several cases involving payments for referrals, but the results are not always consistent. In one case, a federal district court upheld commission-based payments to physicians who referred Medicaid patients to the hospital that employed the physicians. See United States ex rel. Obert-Hong v. Advocate Health Care, 211 F.Supp.2d 1045 (N.D. Ill. 2002). However, in such cases doctors were providing “covered items or services.” In another case a Texas appellate court concluded that a contract between a hospital and a recruiter was not a violation of the federal anti-kickback statute because the recruiter was an employee under the safe harbor provision. See New Boston Gen. Hosp., Inc. v. Texas Workforce Comm’n, 47 S.W.3d 34 (Tx. App. 2001). Such case is particularly relevant because the recruiter was not providing covered items or services. In contrast, the Eleventh Circuit upheld anti-kickback convictions for per-patient payments made to two employees of the Florida Department of Health and Rehabilitative Services (HRS) for referring patients to a drug treatment program funded by Medicaid. See United States v. Starks, 157 F.3d 833 (11th Cir. 1998). The Eleventh Circuit concluded that the HRS employees did not fit within the employee safe harbor because they were not providing “covered items or services” as required by the statute, but were simply paid for referrals to the program; and they did not receive regular salary checks.

In conclusion, the “Bona Fide Employee” safe harbor generally protects payments an employer pays to an employee for the generation of referrals. The conservative and safe approach is to pay marketers on a minimal salary basis and bonus them on a number of factors, including production/referrals as well as other factors such as: teamwork and overall attitude so that their overall compensation is not directly tied to the amount of referrals generated.