Human resources isn't an area where you want to run afoul of the law, as you'll see here
These two questions recently landed in the email inbox of Jeffrey Baird: What’s the difference between 1099 and W2 employees, and can I employ a medical director? Here’s what Baird, chairman of the Health Care Group at Amarillo, Texas-based Brown & Fortunato, had to say.
It’s all about control
The crux of the difference between 1099 independent contractors and W2 full-time and part-time employees, Baird says, is whether the HME provider has supervision and control over the employee.
“If a rep will be a W2 employee, the provider must exercise supervision and control over the employee,” he said. “The provider must train the employee. The provider must reimburse the employee for the expenses he incurs during his employment. Even if the provider has the rep sign an employment agreement, withholds taxes and issues a W2, if the supervision and control aspect and expense reimbursement aspect are not met, then the Department of Justice will construe the rep to be a 1099.”
Here’s another thing to keep in mind: If a 1099 sales rep generates Medicare/Medicaid business, the provider may not pay him on a commission basis. He can, however, do that with a W2 sales rep.
Don’t make up services
Speaking of 1099 and W2 employees, if you’re thinking of entering into a medical director agreement with a physician (yes it’s allowed, even for referring physicians!), you’ll want to make sure he’s the former, not the latter, Baird says. You’ll also want to make sure that the medical director has a term of one year, that he provides “real, substantive services” not “made up” services, and that he has a fixed annual compensation that’s based on fair market value.
“For example, assume that the physician’s time is worth $300 per hour,” he said. “Assume that the physician will give you three hours of his time each month. The fixed annual compensation will be $10,800 or $900 per month.”
Of course, the agreement must also comply with the personal services exception to the federal Stark physician self-referral statute and the personal services and management contract safe harbor to the Medicare anti-kickback statute.