Q&A: The ‘Dos and Don’ts’ of Purchasing Leads

AMARILLO, Texas — In a special Q&A for HomeCare
Monday, health care attorney Jeff Baird, chairman of the
Health Care Group at Brown & Fortunato, addresses the
purchase of leads.

“This concept has exploded in popularity over the last six
months,” Baird said. “It seems like I am advising companies on the
‘dos and don’ts’ of purchasing leads on a daily basis. While
‘purchasing leads’ is OK, ‘paying for referrals’ is a felony. The
line between ‘purchasing leads’ and ‘paying for referrals’ can be
blurry.”

Q: I have been approached by several companies that want
to “sell leads to me.” What does this mean?
A: In order to cut marketing expenses, an increasing number of HME
companies are cutting back on sending sales reps into the field and
are focusing on purchasing leads. Basically, what this means is
that a lead generation company (“ABC”) compiles a list of names,
addresses, phone numbers and other information about individuals
who have expressed an interest in a particular product line (e.g.,
diabetic supplies). Some of the prospective customers are covered
by Medicare, while others are covered by commercial insurance. ABC
sells the list to XYZ Medical; XYZ, in turn, calls the names on the
list. The compensation paid by XYZ to ABC is on a “per lead” basis
(e.g., $10 per name).

Q: How does ABC come up with the leads?
A: ABC may manage a number of Web sites that can be reviewed by
prospective customers. A prospective customer can type in his/her
name and contact information and check a box indicating consent to
be called by a DME company. Prospective customers can cut out, sign
and mail to ABC forms out of newspapers, magazines and direct mail
pieces that contain their name and contact information and gives
their consent to be called by a DME company. Prospective customers
can call ABC on a toll-free telephone number in response to
television, Internet, radio and print ads. ABC can purchase lists
of leads from other companies that acquire leads.

Q: Are there any federal kickback concerns in buying
leads?
A: 42 U.S.C. § 1320a-7b(b)–commonly known as the Medicare
anti-kickback statute–provides that it is a felony for a person or
entity to knowingly and willfully offer or pay any remuneration to
induce a person to refer an individual for the furnishing or
arranging for the furnishing of any item for which payment may be
made under a federal health care program, or the purchase or lease
or the recommendation of the purchase or lease of any item for
which payment may be made under a federal health care program.

Many courts have adopted the “one purpose” test: If
one purpose of a payment is to induce referrals, then the
anti-kickback statute is violated regardless of whether the payment
is fair market value for legitimate services rendered.

On Nov. 5, 2008, the Office of Inspector General issued Advisory
Opinion 08-19 discussing Internet leads in the context of the
anti-kickback statute. The proposed arrangement involved one or
more Web sites to which patients interested in chiropractic
services would enter their zip code. The Web site would then
display assigned phone numbers and email addresses of chiropractors
within the zip code indicated. When the patient calls the phone
number or sends an email, the call or email is routed to the listed
chiropractor (and electronically tracked by the advertiser). The
advertiser is paid a “per lead” fee based on the routed
call or email.

In its opinion, the OIG indicated that it would not seek
enforcement action against the parties for the arrangement proposed
in the opinion. We highlight some of the factors that were
important to the OIG. First, the advertiser in the opinion does not
collect “health care information” on the potential
patient. Second, the arrangement in the opinion passively routes
calls/emails initiated by the lead. Third, the arrangement in the
opinion does not actively “steer” patients to a
particular provider.

Looking at the anti-kickback statute and the advisory opinion
together, it appears that the OIG is comfortable with a DME company
paying compensation, on a per lead basis, for
“unqualified” leads. Generally, an unqualified lead
will consist of name, address, phone number and the prospective
customer’s interest in talking to the DME company about its
products.

An “unqualified” lead will start moving into the
“qualified” category as ABC gathers specific
information from the prospective customer, such as age, third-party
coverage, diagnosis of illness/disability, products/equipment
currently being used and the treating physician’s name. While
the purchase of an unqualified (or “raw”) lead is
exactly what it is–the purchase of a lead–the purchase of a
qualified lead can be construed as the payment for a
“referral.” The percentage chance of an unqualified
lead becoming a paying customer of the DME company will be low;
conversely, the percentage chance of a qualified lead becoming a
paying customer will be much higher.

Note that a DME company can purchase qualified leads from ABC if
the arrangement meets the requirements of the Personal Services and
Management Contracts safe harbor to the anti-kickback statute.
Among other requirements, the compensation must be fixed one year
in advance (e.g., $50,000 over the next 12 months), the
compensation must be the fair market value equivalent of
ABC’s services, and the compensation cannot take into account
the volume of referrals to be generated by ABC.

Q: Once a DME company purchases leads, are there any
restrictions on the company calling the leads?
A: The arrangement needs to be examined within the context of 42
U.S.C. § 1395m(a)(17)–commonly known as the Medicare
anti-solicitation statute–which prohibits a DME company from
contacting a Medicare beneficiary by telephone concerning the
furnishing of a covered item of DME unless (i) the beneficiary has
given “written permission” for the contact; (ii) the
DME company is contacting the beneficiary only about an item the
company has already provided to the beneficiary; or (iii) the DME
company has provided at least one covered item to the beneficiary
during the 15 months immediately preceding the contact. Exceptions
“(ii)” and “(iii)” will not apply to the
phone calls to be made by the DME company to the leads;
“(i)” is the only applicable exception.

The question, therefore, is whether the DME company has
“written permission” to call the lead. If the
prospective customer checks a box on a Web page that clearly shows
his/her consent to be called (not just “contacted”) by
a DME company, then it is unlikely that the government will assert
that the anti-solicitation statute is violated. Likewise, if a
prospective customer calls a toll-free number and, over the phone,
consents to be called by a DME company, then it is unlikely that
the government will assert that the anti-solicitation statute is
violated. The prudent course of action will be for the phone calls
to be recorded.

Q: Are there any HIPAA concerns in buying
leads?
A: The arrangement also needs to be examined within the context of
the Health Insurance Portability and Accountability Act of 1996, 42
USC § 1320d, and the corresponding regulations contained in title
45, Code of Federal Regulations, parts 160 and 164 (collectively
“HIPAA”).

A DME company is subject to the requirements of HIPAA. HIPAA
prohibits the use or disclosure of protected health information not
specifically permitted or required by HIPAA. PHI includes
information that is created or received by a health care provider
(such as a DME company) that: relates to the past, present, or
future physical or mental health or condition of an individual; the
provision of health care to an individual; or the past, present, or
future payment for the provision of health care to an individual;
and (i) that identifies the individual; or (ii) with respect to
which there is a reasonable basis to believe the information can be
used to identify the individual (45 C.F.R. § 164.103).

This definition would encompass identification and contact
information for a lead, as well as the information that relates to
the lead’s interest in DME. Therefore, the DME
company’s use of the information is subject to HIPAA.

HIPAA defines “marketing” to include “a
communication about a product or service that encourages recipients
of the communication to purchase or use the product or
service” (42 C.F.R. § 164.501). HIPAA prohibits use of PHI
for marketing, unless the covered entity (i.e., DME company)
obtains written authorization from the potential customer prior to
making such communication. The discussion above regarding the
prospective customer’s consent applies here.

Q: When a DME company purchases leads from ABC, what
protective steps should the DME company take?
A: The contract between ABC and the DME company should include the
following: (i) ABC represents to the DME company that leads it
purchases from other lead companies, and subsequently sells to the
DME company, properly gave their consent to be called by a DME
company; (ii) ABC represents that leads it obtains on its own
properly gave their consent to be called by a DME company; (iii)
the DME company has the right to audit ABC’s operations to
ascertain if the leads (sold to the DME company by ABC) properly
gave their consent to be called by a DME company; and (iv) ABC
indemnifies the DME company against any claims made against the DME
company on the basis that a lead did not give his/her consent to be
called.

Jeffrey S. Baird, Esq., is chairman of the Health Care Group
at Brown & Fortunato, P.C., a law firm based in Amarillo,
Texas. He represents pharmacies, infusion companies, home medical
equipment companies and other health care providers throughout the
United States. Baird is Board Certified in Health Law by the Texas
Board of Legal Specialization. He can be reached at 806/345-6320 or
[email protected].