November 29, 2021

Volume XI, Number 333

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November 29, 2021

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New Warning for Health Care Providers Paying for Marketing

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.  

© Steptoe & Johnson PLLC. All Rights Reserved.National Law Review, Volume XI, Number 68
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About this Author

Kristen Wilson Steptoe Johnson Law Firm Wheeling, WV Professional Liability Litigation Attorney
Member

Clients know that Kristen Andrews Wilson will help them understand and navigate the complex and complicated healthcare landscape.  Kristen’s clients include hospitals, nursing homes, and long-term care facilities, as well as independent healthcare providers.  Kristen’s practice is a unique combination of litigation avoidance via counseling and defense via litigation, when necessary.  In addition to her medical malpractice litigation practice, Kristen has experience with federal and state healthcare regulatory compliance, as well as business transactions involving...

304-231-0444
Aleah M. Schutze Health Care Attorney Steptoe & Johnson Louisville, KY
Of Counsel

Aleah Schutze knew from a  young age that she wanted to pursue a career in healthcare and obtained a Master’s Degree in Public Health. Her decision to attend law school was born out of an altruistic desire to help more people by helping healthcare entities fulfill their individual missions.  Continuing to build her healthcare acumen, Aleah spent three years as the Associate General Counsel and Deputy General Counsel for Res-Care, Inc. (now BrightSpring Health Services), the largest diversified health and human services provider in the U.S. In that role, she gained experience in providing...

502-423-2051
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