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Anti-Kickback Employee Safe Harbor, Overused and Often False Sense of Security

by Juan C. Santos, LL.M.

During the past 5 years, the Department of Justice and the Office of the Inspector General (“OIG”) have been paying close attention to certain business arrangements, whereby a healthcare provider (pharmacies, labs, DME’s, hospitals, etc.) hires an “employee” to work as a sales representative to market their services and/or products. In many instances, the “employee” gets a base salary and a healthy commission for all the referrals the employee brings to the provider.

Although the Federal Anti-Kickback Statute (“AKS”) prohibits any person from “knowingly and willfully” paying, offering, soliciting or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, in exchange for or to induce the referral of any item or service covered by a federal health care program; healthcare providers are banking on a special provision of the anti-kickback statute known as the “bona fide employee” safe harbor to shield themselves from civil and criminal liability. However, many providers are unaware of the requirements to fit squarely within the “bona fide employee” anti-kickback safe harbor, specifically when it comes to the issue of what constitutes an “employee” under the anti-kickback safe harbor regulation.

The “bona fide employee” anti-kickback safe harbor excepts from its reach “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.[1]” Under this statute, an employee is any worker that satisfies the common law rules for establishing employer-employee relationship. Some of the factors for determining common law employees include employer control, supervision, and training of the employee.[2]

In addition, the courts have held that substance is more important than form and that the following factors should be considered when analyzing if an individual or entity qualifies under the bona fide employee anti-kickback safe harbor:

  1. the hiring party’s right to control the manner and means by which the product is accomplished;
  2. (ii) the skill required;
  3. the source of the instrumentalities and tools;
  4. the location of the work;
  5. the duration of the relationship between the parties;
  6. whether the hiring party has the right to assign additional projects to the hired party;
  7. the extent of the hired party’s discretion over when and how long to work;
  8. the method of payment;
  9. the hired party’s role in hiring and paying assistants;
  10. whether the work is part of the regular business of the hiring party;
  11. whether the hiring party is in business;
  12. the provision of employee benefits; and
  13. the tax treatment of the hired party. Finally, no one factor is determinative; “all of the incidents of the relationship must be assessed and weighed.”[3]

Courts have not been very consistent in analyzing the thirteen factor and deciding what constitutes an “employee” because as previously stated no one factor is determinative. In one case, a Texas appellate court concluded that a contract between a hospital and a recruiter was not a violation of the federal anti-kickback statute because the recruiter was an employee under the safe harbor provision.[4]  However, in a recent decision the Fifth Circuit held that the evidence presented did not support defendant’s affirmative defense that the individuals were bona fide employees because employer did not have sufficient control over the manner and means of the work performed by employees to characterize this as a bona fide employment relationship.[5] The court held that there was no evidence that employees: (i) received any training or direction about marketing,; (ii) kept regular office hours; (iii) didn’t have offices; and (iii) the referral sources were not provided by the DME company; instead the defendants relied on her personal and professional contacts to obtains referrals. Thus, the DME Company did not have sufficient control over the manner and means of the work performed by defendants to amount to a bona fide employment relationship.

Anti-kickback Criminal and Civil Penalties

The anti-kickback statute has a broad impact on health care providers business arrangements, specifically when it relates to marketing agreements, because it criminalizes the payment of any funds or benefits designed to encourage a party to a Medicare provider for services to be paid for by the Medicare program.  Criminal penalties include fines of up to $25,000 per violation and a prison term of up to five years per violation. OIG may also ban providers from participating in federal healthcare programs under their exclusion authorities, and it can impose additional civil monetary penalties of up to $50,000 per violation plus an assessment of up to three times the amount of the payment. If you have questions or concerns regarding any aspect of the anti-kickback statute, please call attorney Juan C. Santos at Chapman Law Group.

About Us

Chapman Law Group has the resources and expertise to represent you in any civil and/or criminal matter brought by the U.S. Department of Justice or the Office of the Inspector General for violations of the Anti-Kickback Statute and Stark Law.

Chapman Law Group is a professional health care law litigation firm, with offices in Michigan and Florida (Miami, Hollywood & Sarasota). For over 25 years CLG has defended the rights of health care professionals, providers and corporations involved in the delivery of health care at all levels. We believe the dedicated men and women who provide health care deserve an exceptional defense when their integrity and actions are called into question.

Juan C. Santos is an associate attorney at Chapman Law Group’s Hollywood, Florida office. Prior to joining the firm, Juan obtained a Master’s in Healthcare Law from Loyola University of Chicago. Juan practices in the areas of business organization, physician agreements, personal service agreements, non-competition agreements, non-disclosure agreements, mergers, acquisitions, and joint ventures, corporate and business counseling, professional licensing, Medicare/Medicaid issues, Anti-Kickback/Stark issues, DEA issues, medical management and virtually all issues facing the modern healthcare professional.


[1] Section 1128B(b)(3)(B) of the Federal Anti-Kickback Statute

[2] Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323, 112 S. Ct. 1344, 117 L. Ed. 2d 581 (1992); United States v. Robinson, 505 F. App’x 385, 387 (5th Cir. 2013)

[3] Darden, 503 U.S. at 323-24

[4] New Boston Gen. Hosp., Inc. v. Texas Workforce Comm’n, 47 S.W.3d 34 (Tx. App. 2001) [36]

[5] United States v. Robinson, 505 F. App’x 385, 387 (5th Cir. 2013)