Recent Tenth Circuit Decision May Impact Commission-Based Sales Earnings

It is common industry practice within the medical sales field for independent contractors and salespeople to earn a base salary and a percentage of all sales finalized – known as commission-based pay. However, one recent decision out of the U.S. Court of Appeals for the Tenth Circuit may work to effectively abolish this practice under the False Claims Act. Under the Court’s recent decision in Joint Technology, Inc. v. Weaver, it upheld a finding by the District Court that allowing salespeople to collect commission for the successful sale of medical equipment was a violation of the FCA’s anti-kickback rules and actionable in a whistleblower lawsuit. The sweeping decision could result in significant industry-wide changes, as sales-based commission structures have been in use for generations.

Details of Joint Technology, Inc. v. Weaver

The Joint Technology case was decided in late May of this year and promises to create a stir within the medical community. According to the order, the Court invalidated a contractual agreement between Joint Technology, Inc. – a supplier of medical devices and equipment – and its independent contractors who receive a percentage of all sales of Joint Technology’s products.

The case commenced upon the termination of one of Joint Technology’s salespeople after he abruptly backed out of his sales contract with the company. When the company alleged breach of contract, Weaver asserted his rebuttal argument: the contract violates the False Claims Act. Joint Technologies asserted that its commissions contracts were lawful under the False Claims Act; however, their arguments could not withstand a motion for summary judgment by the ex-salesman. The Court, in its granting of the motion, reasoned that the commissions contract clearly and unequivocally violated the FCA and thus there was no genuine issue of fact between the parties for a jury to consider and the commissions contract clearly and unequivocally violated the FCA.

The details of the contract terms between the parties involved a certain percentage commission based on the volume of sales a salesperson generated within a given month. For instance, a salesperson received an 18 percent commission on sales from $0 through $24,999, 20 percent commission on sales from $25,000 through $34,999, and 22 percent commission on sales of $35,000 or greater.

Salespeople were expected to solicit referral business from doctors and medical facilities. Physicians were not paid any compensation under the contract. However, 20 percent of Joint Technologies’ billings were reimbursed by Medicare and Medicaid – thereby triggering scrutiny under the False Claims Act.

In its holding, the Court relied on the language of 42 U.S.C. § 1320a-7b(b)(2)(A), which states that a party knowingly violates the FCA when he or she “knowingly and willfully offers or pays any remuneration . . . to any person to induce such person . . . to refer an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a Federal health care program. . . .”

In reviewing the details of the contractual agreement, the Court concluded that the contract resulted in Joint Technologies essentially paying its salespeople to solicit Medicare and Medicaid referrals.

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