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I was recently speaking to a friend, who was describing a situation he had with a 1099 contractor.  My friend had a project that required some independent contractor work; a limited project, for a specified amount of time, where a full-time employee was not needed.  The project lasted only a few months and was not even full-time.  An independent contractor agreement was signed, outlining the duties and responsibilities of the contractor, the amount the contractor was to be paid per hour, and the time period of the agreement.  Everything seemed to be fine, and the work was performed, as agreed.  Well, until my friend received a notification in the mail that the independent contractor was not so “independent.”  As it turns out the “independent contractor” filed for unemployment in their state, and according to letters my friend received, was going to be on the hook for unemployment benefits to be paid to the “independent contractor.”  This tale sparked me to then bring up how in many facets of the healthcare sales and marketing industry, the use of 1099 independent contractors is prevalent.  What many do not know, is that the use of these individuals can be considered a violation of the anti-kickback statute.

I first discussed this when I was a panelist at a compliance conference in Washington, DC.  I was on an enforcement panel, still employed as an OIG agent.  The other panelists consisted of attorneys working for various regulatory agencies, and our moderator was a former Assistant United States Attorney.  I had been involved in several discussions with attorneys from the OIG’s Office of Counsel to the Inspector General (OCIG) a few days before, where the use of independent contractors as a sales force was discussed; it had come up in a telemarketing/telemedicine investigation I had where the sales representatives were the driving force behind compounded medication prescriptions (a blog for another day).

When making my comments, I was immediately challenged by the General Counsel of a large pharmaceutical company, being asked to explain my foundation of knowledge.  After going back and forth several times, I ultimately suggested that if my statements were unbelievable, among other sources, the General Counsel could make a call to OCIG.  The General Counsel took me up on that offer and made the call.  The entire premise of the use of 1099 contractors is indeed, very complicated.  There are definitions that require that the agreement meet the Personal Services and Management Contracts Safe Harbor, and a few other pieces of that contractual puzzle.  It is percentage-based compensation that becomes the problem.  The OIG has actually opined several times on this issue in Advisory Opinions, noting that such agreements are problematic.

Looping back to the conversation I had with my friend on that fact that he had to deal with the unemployment issue with someone that he felt he had a solid independent contractor agreement with, highlighted the fact that we all come to conclusions (as did the General Counsel, who was actually angry that I made that statement, yet to make such an erroneous statement in front of a large compliance conference that was not accurate would have been disastrous), that was otherwise seen reasonable.  In any case where the anti-kickback statute may be implicated, things that are otherwise taken for granted in the normal course of business, may not apply, as the relationship that a provider has with the patient should not be clouded by the money and benefits that are associated with referring patterns.

Advize Health LLC is a healthcare advisory and consulting company that provides a breadth of healthcare industry services in the payer, provider, and legal communities. Contact Eric Rubenstein for more information on our Fraud Spotlight series.