Q&A: OIG’s Telemarketing Alert

AMARILLO, Texas — “There are very few things in life that
I am sure of. For example, I still do not know what the words are
to ‘Louie, Louie,’” says health care attorney Jeff Baird of Brown
& Fortunato. The HHS Office of Inspector General’s recent telemarketing
fraud alert also “defies logic,” Baird points out, and he
tackles its meaning in the following Q&A.

A second question Baird takes on this week has to do with
whether an HME company can pay commissions to an independent
contractor for marketing when the contractor’s efforts result in
Medicare business to the HME. “This second question has come up on
several occasions over the last couple of weeks, so I think it is
worthwhile to give a detailed answer,” says Baird.

Q: What in the world does the January 2010 Updated
Special Fraud Alert on telemarketing mean?

A: Good question. I am trying to figure that
one out myself. The telephone solicitation statute is poorly
drafted. The term “anti-solicitation” is contained in the title,
but is not found anywhere else in the statute.

The statute says that an HME company cannot call a beneficiary
unless (1) the beneficiary has given written permission; (2) the
HME company has furnished a covered item to the beneficiary and the
call pertains to that particular covered item; or (3) the HME
company has furnished a covered item to the beneficiary within the
preceding 15 months and the call pertains to another covered
item.

If you adopt a literal reading of the statute, then if a
beneficiary calls the HME and leaves a voicemail asking the company
to call him back, the HME company cannot do so because none of the
exceptions are met. Likewise, if you adopt a literal reading of the
statute, then an HME company can go door-to-door trying to sell
covered items to beneficiaries because the statute only prohibits
telephone solicitation.

It is clear that the intent of the statute is to prevent
“cold-calling” beneficiaries. Such an intent can be ascertained by
the insertion of “anti-solicitation” in the statute’s title, other
statements made by HCFA/CMS over the years and the discussion set
out in the updated fraud alert.

Let’s look at the alert. It says that the telephone solicitation
statute “prohibits suppliers of durable medical equipment (DME)
from making unsolicited telephone calls to Medicare
beneficiaries regarding the furnishing of a covered item, except in
three specific situations” (emphasis added). These three
“situations” are the three exceptions listed.

Here is where it gets bizarre. By logical extension, the alert
is saying that the telephone calls described in the three
exceptions are “unsolicited.” However, if the beneficiary gives his
written permission to be called (the first exception), then the HME
company’s phone call cannot be “unsolicited.” Make sense? Let’s
continue.

The alert further says that the OIG “has received credible
information that some DME suppliers continue to use independent
marketing firms to make unsolicited telephone calls to Medicare
beneficiaries to market DME, notwithstanding the clear statutory
prohibition.” Fair enough. I agree that such telemarketing
(cold-calling) must be shut down.

The alert continues to focus on unsolicited telephone calls by
saying: “Except in the three specific circumstances described in
the statute, [the statute] prohibits unsolicited
telemarketing by a DME supplier to Medicare beneficiaries”
(emphasis added). OK, I get it. The OIG is concerned about
telemarketing, about cold-calling, about unsolicited telephone
calls. I agree.

But then the alert includes two sentences that defy logic: “OIG
has also been made aware of instances when DME suppliers,
notwithstanding the clear statutory prohibition, contact Medicare
beneficiaries by telephone based solely on treating physicians’
preliminary written or verbal orders prescribing DME for the
beneficiaries. A physician’s preliminary written or verbal order is
not a substitute for the requisite written consent of a Medicare
beneficiary.”

Where in the world did that come from? Is the OIG really trying
to say that when Mrs. Smith (a 78-year-old Medicare beneficiary) is
seen by Dr. Jones, and Dr. Jones orders a bed for her and faxes the
order to ABC Medical Equipment, that ABC cannot call Mrs. Smith
later that morning in order to set up a time for ABC to deliver the
bed? Is the OIG trying to say that ABC’s phone call to Mrs. Smith,
in response to her physician’s order, is unsolicited? This makes no
sense.

The government might say that the easy solution is for Mrs.
Smith to sign something at Dr. Jones’s office that consents for ABC
to call her. This might work on occasion, but it is not reality.
Reality is that Dr. Jones has a position of trust with Mrs. Smith;
he is her agent; he speaks on her behalf. If Dr. Jones sends an
order to ABC, and if ABC then calls Mrs. Smith to set up a time of
delivery, then no credible argument can be made that ABC’s phone
call is somehow unsolicited.

Q: Isn’t there any way for an HME company to pay
commissions to a 1099 independent contractor marketing rep who
generates both Medicare and commercial business for the
company?

A: To quote from an old Patti Loveless country
song: “What part of ‘no’ don’t you understand?”

There are very few things in life that I am sure of. For
example, I still do not know what the words are to “Louie, Louie.”
However, what I am absolutely, positively sure about is that an HME
company cannot pay commissions to an independent contractor who
generates Medicare business to the company.

The Medicare anti-kickback statute states that it is a felony
for an individual or entity to knowingly or 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 (e.g.,
Medicare), 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.

The statute exempts payments made to employees. The statute is
very broad and does not provide any exception for independent
contractors. In the eyes of the Department of Justice and the OIG,
there is a huge difference between a W2 employee and a 1099
independent contractor. Apples and oranges. Venus and Mars. There
is no such thing as a “1099 employee” and there is no such thing as
a “W2 independent contractor.”

The plumber who comes to my house to fix the sink is an
independent contractor. If he leaves my house to drive to the
plumbing supply store to pick up a pipe, and in the process runs
over someone, that is not my problem. A person is not responsible
for the acts of an independent contractor. On the other hand, my
secretary (whose office is next to mine) is my employee. If she
drives to the courthouse to pick up a document for me, and in the
process runs over someone, that is my problem.

An employer is liable for the acts of his employee that are
conducted in the course and scope of the employee’s duties. This is
known as the theory of respondeat superior. An HME company
can pay commissions and bonuses to its heart’s delight to a bona
fide (not a sham) full- or part-time employee. The Medicare
anti-kickback statute allows this. The reason for this allowance is
that the HME company is liable if its employee lies or otherwise
takes advantage of 78-year-old Mrs. Smith.

This means that the HME company must control, train and
supervise its employee. None of this is true with an independent
contractor. If an HME company uses an independent contractor for
marketing, and if the contractor lies or otherwise takes advantage
of Mrs. Smith, then the HME company is not liable. It is for this
reason that the anti-kickback statute allows an HME company to pay
commissions to employees, but not to independent contractors.

The OIG has spoken to this issue on a number of occasions. In an
advisory opinion, the OIG stated: “Any compensation arrangement
between a Seller and an independent sales agent for the purpose of
selling health care items or services that are directly or
indirectly reimbursable by a Federal health care program
potentially implicates the anti-kickback statute, irrespective of
the methodology used to compensate the agent. Moreover, because
such agents are independent contractors, they are less accountable
to the Seller than an employee. For these reasons, this Office has
a longstanding concern with independent sales agency
arrangements.”

In its response to comments submitted when the safe harbor
regulations were originally proposed, the OIG stated: “[M]any
commenters suggested that we broaden the exemption to apply to
independent contractors paid on a commission basis. We have
declined to adopt this approach because we are aware of many
examples of abusive practices by sales personnel who are paid as
independent contractors and who are not under appropriate
supervision. We believe that if individuals and entities desire to
pay a salesperson on the basis of the amount of business they
generate, then to be exempt from civil or criminal prosecution,
they should make these salespersons employees where they can and
should exert appropriate supervision for the individual’s
acts.”

The bottom line is that if an HME company wants to pay
commissions (or other types of production-based compensation) to a
person who will generate Medicare business for the company, then
that person must be a bona fide full- or part-time employee, and
not an independent contractor.

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].

Do you have a legal question about an HME issue? Send your
questions to HomeCare
Monday for an answer from health law firm Brown &
Fortunato. (No names will be used if your question is
published.)