OIG opinion sends mixed signals on sales contracts

Take the good news in OIG’s latest advisory opinion with a grain of salt, warns a top health care attorney. While it gives the green light for a salesman to receive commissions for sales to hospitals, it also casts the shadow of a possible anti-kickback prosecution over many sales arrangements, says Paul DeMuro, JD, at Latham and Watkins in San Francisco.

The opinion (No. 98-10) was requested by a sales agent who negotiates purchasing agreements between manufacturers and national hospital chains or group purchasing organizations. The agent asked whether receiving a monthly commission of 1% to 1.25% from a maker of disposable medical supplies would be treated as a kickback.

Could be, replied OIG, which reiterated its general unease with percentage-based compensation, as well as its "longstanding concern" that independent sales agents might arrange contracts where compensation is given for referrals. Because the agent’s compensation is not fixed in advance, the deal does not fall within the safe harbor for group purchasing arrangements. The contract probably is a technical violation of the anti-kickback statute, the agency concluded.

Nonetheless, OIG says it would probably not prosecute the case. Here’s what satisfied the federal regulators:

- The manufacturer did not bill any payers directly.

- The sales agent did not contact patients or physicians, nor could the agent influence any medical decisions.

- The agent dealt with sophisticated institutional buyers, who aren’t likely to order specific products for specific patients.

- Medicare doesn’t handle disposable medical supplies as a separate payment. OIG considers items that are billed outside of a DRG payment as particularly prone to overutilization.

- The agent’s commission was less than the 3% maximum allowed in the group purchasing safe harbor.

But too many providers are going to focus on the good news, DeMuro warns. The fact is that many salespeople are paid on a percentage basis, and OIG is indicating those deals could technically violate the anti-kickback statute, he contends.

Even worse, the law views all parties as potentially liable, including the salesman, the manufacturer, the group purchasing organization, and the hospital. "But a hospital isn’t going to know how a salesperson is being paid," he says. Since salespeople are usually paid a percentage commission, it’s tough to do business without technically breaking the anti-kickback statute, he notes.