Based on recent case law, one significant factor to consider in structuring such decisions is the influence of the agent over reimbursement decisions.
Pharmaceutical companies sometimes compensate sales agents per volume sold. The Fifth and Seventh Circuits have indicated that a company may structure such arrangements without running afoul of the Anti-Kickback Statute (AKS). In these cases, paying volume-based compensation to sales agents is not a per se AKS violation but should be structured with care.
The AKS (42 U.S.C. § 1320a-7b(b)) prohibits knowingly soliciting or receiving any remuneration to induce referrals of items or services reimbursable by federally financed health care programs such as Medicare, Medicaid and Tricare. Remuneration includes anything of value, including, for example, cash payments, meals and expensive hotel stays. The Department of Health and Human Services’ Office of the Inspector General (OIG) has long been concerned about marketing in the pharmaceutical space. In particular, OIG is concerned that certain marketing practices and promotional tactics could skew physicians’ clinical judgment, increase costs to federally financed healthcare programs, promote overutilization and potentially create quality of care concerns for patients. OIG has further concerns when sales agents are independent contractors. OIG views independent contractors as “less accountable to the [s]eller than an employee.”
Given this plain language, the statute is broad in scope and encompasses many traditional promotional activities. However, there are statutory and regulatory safe harbors that protect business practices from civil and criminal exposure under the AKS. To be protected by a safe harbor, an arrangement must meet each of the safe harbor’s requirements. For example, companies can structure compensation arrangements to fit within the “employee” safe harbor (42 U.S. Code § 1320a-7b(b)(3)(B)), which excludes from the definition of remuneration “any amount paid by an employer to an employee (who has a bona fide employment relationship with such employer) for employment in the provision of covered items or services.” There is additionally a “personal services” safe harbor that could apply to sales arrangements, but this safe harbor requires that compensation methodology not consider volume or value of referrals or business generated. If conduct falls outside of a safe harbor, OIG will assess the arrangement for risk of fraud and abuse on a case-by-case basis.
Based on recent case law, one significant factor to consider in structuring such decisions is the influence of the agent over reimbursement decisions.
The Fifth Circuit, in United States v. Marchetti, No. 22-40617 (5th Cir. Mar. 20, 2024), affirmed a lower court AKS conviction based on the distinction between permissibly compensating advertisers and intending to impermissibly induce referrals by influencing those who make healthcare decisions. In Marchetti, a medical laboratory paid a network of distributors a percentage of revenue from each Medicare referral in exchange for the distributor attracting referrals to the laboratory. Marchetti operated one of the distributors. Per the Fifth Circuit, “if Marchetti ‘improperly influenced’ doctors, this case is open and shut”—but a contract including volume-based compensation agreement is not sufficient evidence of an AKS violation in and of itself.
That said, the court found sufficient evidence of an AKS violation in another portion of Marchetti’s compensation scheme: Marchetti would select a service provider (laboratory) to send a patient’s samples, and his decision was never overruled. Marchetti received compensation per referral. Here, Marchetti was “the relevant decisionmaker.”
Recently, a Seventh Circuit case, United States v. Sorenson, made clear certain guidelines around the meaning of “referrals” under the AKS in volume-based compensation arrangements. In Sorenson, a Medicare-registered durable medical equipment distributor would pay a marketing firm based on the volume of reimbursements. The marketing firm would fax to providers unsigned prescriptions that contained a particular product and a patient’s information. The court found that these payments were not made for “referring” because the individuals paid were “neither physicians in a position to refer their patients nor other decisionmakers in positions to ‘leverage fluid, informal power and influence’” over purchasing decisions. Sorenson cited favorably to Marchetti and stated that Marchetti had no “special relationship” with or “influence over the relevant decisionmakers” (doctors selecting the laboratories), and here there was no evidence that Sorenson “had any special relationship with or influence over patients’ physicians” to improperly influence them. Physicians in Sorenson would more frequently not authorize the requested prescription.
The main takeaway here is that a volume-based compensation structure may not in and of itself violate the AKS, but pharmaceutical companies should take heed of the distinction between paying for advertising and sales versus paying to influence a decisionmaker to induce referrals. Pharmaceutical companies should consult legal counsel when structuring compensation arrangements with sales and marketing agents.
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