In a recent decision, the Fourth Circuit Court of Appeals for the second time in two years held that commission-based compensation arrangements with independent contractors cannot be safe harbored and do violate the Anti-Kickback Statute and FCA. See United States ex rel. Nicholson v. Medcom Carolinas, Inc., No. 21-1290 (4th Cir. July 21, 2022).

The court affirmed the district court’s dismissal of FCA claims based on relator’s allegations that the defendant paid independent contractors commission-based compensation to sell skin graft products to hospitals affiliated with the Veterans Administration, in violation of the AKS because the complaint failed to meet the heightened Rule 9(b) pleading standard. Specifically, the complaint failed to provide any details about “how the payments were split up or how representatives were paid,” other than that the payments were at least partially based on commission and included “no detail about the actual inducement of sales, whether and how representatives were supposed to push the product.” But the court nonetheless affirmed the viability of the relator’s theory of liability. The panel first noted that the compensation to independent contractors did not satisfy the safe harbor for remuneration to bona fide employees and could not meet the personal services safe harbor because it was based on the volume or value of referrals before concluding that “it would violate the Anti-Kickback Statute, and therefore violate the False Claims Act,...

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