Federal Court Invalidates Marketing Agreement

October 2014Articles Allegheny County Medical Society Bulletin

When is a percentage-based commission an illegal kickback? A recent ruling by the U.S. Court of Appeals for the Tenth Circuit suggests that common practices in health care marketing may be illegal and unenforceable.

As in the case of a handful of earlier rulings, this decision arose from a private dispute among the parties, not from a government enforcement action or whistleblower case. An Oklahoma durable medical equipment company, Joint Technology Inc., had retained an independent contractor, Gary Weaver, as a marketing agent under an agreement which paid him a percentage of the company’s collections from business he generated. His duties involved making marketing calls on potential referring physicians, but there were no allegations that he offered or paid the physicians any improper amounts to induce their referrals.

The agreement between Weaver and Joint Technology included exclusivity and nonsolicitation provisions. After Weaver terminated his agreement, Joint Technology alleged that he violated those terms and brought suit to enforce the agreement. In his defense, Weaver asserted that the agreement was void because it violated the federal Anti-Kickback Statute (AKS). Joint Technology countered that the agreement was valid because Weaver was a “bona fide employee” and therefore the arrangement met the employment exception under the AKS. This was a risky strategy for the company since the agreement clearly identified Weaver as an independent contractor, no taxes had been withheld from his pay and he did not qualify for the company’s employee benefit programs.

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