Face Challenges Confidently

1099 Independent Contractor Marketing Reps

Tuesday, November 3rd, 2015

(January 2010)


Isn’t there any way for an HME company to pay commissions to a 1099 independent contractor marketing rep who generates both Medicare and commercial business for the company?


To quote from an old Patti Loveless country song: “What part of ‘no’ don’t you understand?” There are very few things in life that I am sure of. For example, I still do not know what the words are to “Louie, Louie.” However, what I am absolutely, positively sure about is that an HME company cannot pay commissions to an independent contractor who generates Medicare business to the company. The Medicare anti-kickback statute states that it is a felony for an individual or entity to knowingly or willfully offer or pay any remuneration to induce a person to refer an individual for the furnishing or arranging for the furnishing of any item for which payment may be made under a federal health care program (e.g., Medicare), or the purchase or lease or the recommendation of the purchase or lease of any item for which payment may be made under a federal health care program. The statute exempts payments made to employees. The statute is very broad and does not provide any exception for independent contractors. In the eyes of the Department of Justice and the OIG, there is a huge difference between a W2 employee and a 1099 independent contractor. Apples and oranges. Venus and Mars. There is no such thing as a “1099 employee” and there is no such thing as a “W2 independent contractor.” The plumber who comes to my house to fix the sink is an independent contractor. If he leaves my house to drive to the plumbing supply store to pick up a pipe, and in the process runs over someone, that is not my problem. A person is not responsible for the acts of an independent contractor. On the other hand, my secretary (whose office is next to mine) is my employee. If she drives to the courthouse to pick up a document for me, and in the process runs over someone, that is my problem. An employer is liable for the acts of his employee that are conducted in the course and scope of the employee’s duties. This is known as the theory of respondeat superior. An HME company can pay commissions and bonuses to its hearts delight to a bona fide (not a sham) full or part-time employee. The Medicare anti-kickback statute allows this. The reason for this allowance is that the HME company is liable if its employee lies or otherwise takes advantage of 78 year old Mrs. Smith. This means that the HME company must control, train and supervise its employee. None of this is true with an independent contractor. If an HME company uses an independent contractor for marketing, and if the contractor lies or otherwise takes advantage of Mrs. Smith, then the HME company is not liable. It is for this reason that the anti-kickback statute allows an HME company to pay commissions to employees, but not to independent contractors. The OIG has spoken to this issue on a number of occasions. In an advisory opinion, the OIG stated: “Any compensation arrangement between a Seller and an independent sales agent for the purpose of selling health care items or services that are directly or indirectly reimbursable by a Federal health care program potentially implicates the anti-kickback statute, irrespective of the methodology used to compensate the agent. Moreover, because such agents are independent contractors, they are less accountable to the Seller than an employee. For these reasons, this Office has a longstanding concern with independent sales agency arrangements.” In its response to comments submitted when the safe harbor regulations were originally proposed, the OIG stated: “[M]any commenters suggested that we broaden the exemption to apply to independent contractors paid on a commission basis. We have declined to adopt this approach because we are aware of many examples of abusive practices by sales personnel who are paid as independent contractors and who are not under appropriate supervision. We believe that if individuals and entities desire to pay a salesperson on the basis of the amount of business they generate, then to be exempt  from civil or criminal prosecution, they should make these salespersons employees where they can and should exert appropriate supervision for the individual’s acts.” The bottom line is that if an HME company wants to pay commissions (or other type of production-based compensation) to a person who will generate Medicare business for the company, then such person must be a bona fide full or part-time employee, and not an independent contractor.

This monograph is not intended to be legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only. The law pertaining to this monograph may have changed following the date of the monograph. The reader should consult his or her own attorney for legal advice concerning the contents of this monograph. Except where noted, attorneys are not certified by the Texas Board of Legal Specialization.
Prepared by:

Health Care Group
Brown & Fortunato
P.O. Box 9418
Amarillo, Texas 79105-9418
(806) 345-6300
(806) 345-6363 (fax)

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