New Warning for Health Care Providers Paying for Marketing

By: Kristen Andrews Wilson, Aleah M. Schutze

Published: March 9, 2021

A recent $100 million verdict serves as a grim reminder for health care providers of the risk of paying independent contractors to market services. In United States v. Mallory, et al., the United States Court of Appeals for the Fourth Circuit affirmed the jury’s findings and assessment of actual damages totaling more than $16 million dollars for violations of the False Claims Act (“FCA”). The United States Court of Appeals for the Fourth Circuit also affirmed the district court’s judgment which totaled over $100 million dollars after the district court trebled the actual damages and added civil monetary penalties as required by the FCA. This opinion serves as a continued warning for health care providers wishing to compensate non-employees for marketing activities.

In Mallory, a laboratory that provided blood testing for cardiovascular disease and diabetes entered into a contract with a consulting company to market and sell the blood tests. The consulting company received a base payment, in addition to a percentage of revenue based on the number of blood tests ordered. The consulting company also entered into a similar arrangement with another laboratory and hired independent salespeople. The Government argued that the volume-based commissions paid by the laboratory to the consulting company and its sales contractors violated the Anti-Kickback Statute (“AKS”).

In appealing the verdict, Defendants argued that the Government could not prove that they “knowingly and willfully” violated the AKS. However, several attorneys had expressed concerns to the Defendants regarding the legality of the arrangements. Furthermore, no Defendant could produce an opinion from counsel that the arrangement was compliant with the AKS. Defendants also argued on appeal that commissions to salespeople can never constitute kickbacks under the AKS. The Court determined that the language of the AKS did not support that conclusion, citing precedent to the contrary. The Court did note that the AKS does contain a safe harbor for bona fide employment relationships, but the safe harbor does not cover independent contractors.

For questions about this decision, or the AKS, please contact the authors of this alert.

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