Avoid Liability for Commission-Based Marketing Arrangements

Contracts between labs and sales and marketing firms raise red flags under both the Anti-Kickback Statute (AKS) and Stark Law, especially when payment is by commission or based on the volume or value of sales generated. While acknowledging that “many advertising and marketing activities warrant safe harbor protection,” the OIG has consistently taken the position that commission-based compensation to contract sales force will not meet the personal services and management contracts safe harbor because it “is not fixed in advance and is determined in a manner that takes into account the value or volume of business generated between the parties, including federal health care program business.” Labs that fail to heed that warning do so at their own peril.

The HDL Case

If you don’t believe it, just ask Health Diagnostics Laboratory (HDL). In a case which began as a series of qui tam suits, the U.S. Department of Justice (DOJ) accused HDL and Singulex, Inc. of paying physicians sham processing fees in exchange for blood testing referrals, including medically unnecessary large multi-assay panels.

At the center of the case was the labs’ marketing arrangement with their outside sales consultant, BlueWave Consultants. The DOJ contended that the sales contract was illegal, noting that in addition to a monthly consulting fee, BlueWave received a commission up to 19.8% of lab revenue. The other problematic aspect was the marketing tactic of BlueWave’s sales force, alleged to have encouraged physicians to order medically unnecessary blood testing via panels and offering doctors a fee per blood test (up to $20 from HDL and $10 from Singulex) for processing and handling samples. The result was billing of Medicare for millions of dollars in unnecessary tests.

On April 9, 2015, HDL agreed to pay $47 million to settle the FCA claims. Roughly two months later, it filed for Chapter 11 bankruptcy.  Singulex shelled out $1.5 million to settle charges stemming from its role in the scheme. Both labs also entered into CIAs with the government.