Agreements between healthcare product manufacturers and independent sales agents can potentially violate federal anti-kickback laws.
These laws make it a crime to knowingly and willfully offer, pay, solicit, or receive any compensation to induce referrals of goods or services reimbursable by federal health care programs. Recently, however, the Office of Inspector General of the Department of Health and Human Services issued an advisory opinion finding that a specific agreement between a manufacturer and a sales agent did not violate the anti-kickback law.
The opinion is important because it sets forth the OIG's current thinking and establishes some guidelines that may be of use to other manufacturers and sales agents.
Under the contract, a manufacturer of adult diapers and disposable underpads agreed that a sales agent would submit bids and negotiate contracts for the sale and distribution of the products to six potential purchasers.
Each purchaser was either a multi-hospital healthcare system or a group purchasing organization representing primarily hospitals and hospital systems. In return, the manufacturer agreed to pay the sales agent a monthly commission of between 1% and 1.25% of invoiced amounts.
The sales agent's representation of the manufacturer was limited to submitting bids to and negotiating contracts with the purchasers and making routine follow-up calls to the purchasers to resolve questions and to report and reconcile group purchasing organization fees and discounts earned by the purchasers.
The sales agent interacted exclusively with centralized purchasing departments of multi-hospital systems and group purchasing organizations.
The contract between the sales agent and the manufacturer was their only financial arrangement, and the sales agent had no arrangements with any of the purchasers for or involving the manufacturer's products.
Moreover, the group purchasing organization fees paid by the manufacturer to the purchasers that were group purchasing organizations apparently were 2% or less of sales volume, and rebates offered to multi-hospital systems apparently were allocated down to each purchasing hospital and properly disclosed to the federal healthcare programs.
Neither the sales agent nor the manufacturer billed or received any payment from a federal health care program for the goods sold under the contracts negotiated by the sales agent.
In its advisory opinion upholding the agreement, the OIG pointed out that, except for the fact that the sales agent's compensation was established as a percentage of the sales made to specified accounts, there were no other troublesome factors present that would lead it to conclude that the agreement violated the anti-kickback law.
The OIG emphasized that:
- the manufacturer did not bill any payer for the items being sold;
- there was no contact between the sales agent and patients or physicians;
- the sales agent was not in a position to exert undue influence on medical decisionmaking;
- the sales agent's direct contacts were with sophisticated purchasers, either group purchasing organizations or the purchasing units of multi-hospital systems (none of which were in a position to order specific products for individual patients); and
- disposable medical supplies are not, as a general matter, separately reimbursed to hospitals by federal healthcare programs.
There were other elements to the arrangement that the OIG assumed to be in place, including that the sales agent had no commission-splitting or other arrangements with any purchaser and there was little incentive to overuse the manufacturer's products or to pay more than necessary for them.
This advisory opinion makes clear that with appropriate counseling and careful analysis of the facts of each situation, manufacturers may be able to negotiate contracts with independent sales agents that do not violate the anti-kickback law.
Michael E. McDermott, a partner with Farrell Fritz, P.C. in Long Island, N.Y., represents hospitals, physicians, managed care and other healthcare providers in general corporate, regulatory, administrative, and operational matters. He can be reached at (516) 227-0700.