Two Fraud and Abuse Anti-Kickback Settlements Shine the Spotlight on Marketing and Medical Director Agreements

February 28, 2019

Enforcement of fraud and abuse and anti-kickback continues throughout the country with Oklahoma now the center the attention where illegal kickback payments from OK Compounding, LLC were at the center of two recent civil settlements.  These civil settlements come on the heel of criminal grand jury indictments against 3 individuals (2 physicians) in December.

In the first settlement, the owner of a marketing company agreed to pay approximately $340,000 for allegedly accepting kickbacks from OK Compounding.  It was alleged that his marketing company was one of several third-party marketers receiving a share of the revenue generated by their referrals.  Commission arrangements with independent contractors, particularly in the marketing context, have historically raised scrutiny from the government because of the inability to meet all of the requirements of the applicable safe harbor.  This case shows that even marketers, which are neither the provider of service nor the actual referral source, can be targets of the regulatory enforcement activities.  Parties should proceed with caution when presented with marketing opportunities in the health care industry.

In the second settlement, a Tulsa physician agreed to pay approximately $85,000 for allegedly accepting kickbacks from OK Compounding.  It was alleged that the physician received kickbacks which were disguised as medical director fees based on an hourly rate.  Despite having what appeared to be a legitimate business arrangement on its face and using an hourly rate formula for compensation, the government alleged the arrangement was a sham because no actual medical director services were rendered.  Medical director agreements are legitimate agreements customarily used throughout the health care industry.  However, this case once again highlights the importance that form and substance match because the government will investigate beyond the terms of a contract.  The use of a medical director arrangement should be closely examined to ensure such arrangement is not only appropriate (and necessary!) but also that the underlying services will be actually performed.

While similar arrangements have attempted to carve-out Medicare, Medicaid, Tricare or other federally funded programs from such arrangements (another area where the government has historically scrutinized), the new Eliminating Kickbacks in Recovery Act of 2018 included within the SUPPORT Act calls such arrangements into question when involving clinical laboratories.  Additionally, the Dallas-based Forest Park Medical Center health care fraud case that began last week could also reshape the landscape if the Federal Government’s use of the Travel Act is successful.

For more information on health care regulatory compliance, please email us at

ByrdAdatto attorney Jay Reyero

Jay D. Reyero

Jay has mastered the art of communication, leaving clients with both an understanding of their business risk and the path to solution.

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