Q&A: The 'Dos and Don'ts' of Purchasing Leads

AMARILLO, Texas — In a special Q&A for HomeCare Monday, health care attorney Jeff Baird, chairman of the Health Care Group at Brown & Fortunato, addresses the purchase of leads.

"This concept has exploded in popularity over the last six months," Baird said. "It seems like I am advising companies on the 'dos and don'ts' of purchasing leads on a daily basis. While 'purchasing leads' is OK, 'paying for referrals' is a felony. The line between 'purchasing leads' and 'paying for referrals' can be blurry."

Q: I have been approached by several companies that want to "sell leads to me." What does this mean?
A: In order to cut marketing expenses, an increasing number of HME companies are cutting back on sending sales reps into the field and are focusing on purchasing leads. Basically, what this means is that a lead generation company ("ABC") compiles a list of names, addresses, phone numbers and other information about individuals who have expressed an interest in a particular product line (e.g., diabetic supplies). Some of the prospective customers are covered by Medicare, while others are covered by commercial insurance. ABC sells the list to XYZ Medical; XYZ, in turn, calls the names on the list. The compensation paid by XYZ to ABC is on a "per lead" basis (e.g., $10 per name).

Q: How does ABC come up with the leads?
A: ABC may manage a number of Web sites that can be reviewed by prospective customers. A prospective customer can type in his/her name and contact information and check a box indicating consent to be called by a DME company. Prospective customers can cut out, sign and mail to ABC forms out of newspapers, magazines and direct mail pieces that contain their name and contact information and gives their consent to be called by a DME company. Prospective customers can call ABC on a toll-free telephone number in response to television, Internet, radio and print ads. ABC can purchase lists of leads from other companies that acquire leads.

Q: Are there any federal kickback concerns in buying leads?
A: 42 U.S.C. § 1320a-7b(b)--commonly known as the Medicare anti-kickback statute--provides that it is a felony for a person or entity to knowingly and willfully offer or pay any remuneration to induce a person to refer an individual for the furnishing or arranging for the furnishing of any item for which payment may be made under a federal health care program, or the purchase or lease or the recommendation of the purchase or lease of any item for which payment may be made under a federal health care program.

Many courts have adopted the “one purpose” test: If one purpose of a payment is to induce referrals, then the anti-kickback statute is violated regardless of whether the payment is fair market value for legitimate services rendered.

On Nov. 5, 2008, the Office of Inspector General issued Advisory Opinion 08-19 discussing Internet leads in the context of the anti-kickback statute. The proposed arrangement involved one or more Web sites to which patients interested in chiropractic services would enter their zip code. The Web site would then display assigned phone numbers and email addresses of chiropractors within the zip code indicated. When the patient calls the phone number or sends an email, the call or email is routed to the listed chiropractor (and electronically tracked by the advertiser). The advertiser is paid a “per lead” fee based on the routed call or email.

In its opinion, the OIG indicated that it would not seek enforcement action against the parties for the arrangement proposed in the opinion. We highlight some of the factors that were important to the OIG. First, the advertiser in the opinion does not collect “health care information” on the potential patient. Second, the arrangement in the opinion passively routes calls/emails initiated by the lead. Third, the arrangement in the opinion does not actively “steer” patients to a particular provider.

Looking at the anti-kickback statute and the advisory opinion together, it appears that the OIG is comfortable with a DME company paying compensation, on a per lead basis, for “unqualified” leads. Generally, an unqualified lead will consist of name, address, phone number and the prospective customer’s interest in talking to the DME company about its products.

An “unqualified” lead will start moving into the “qualified” category as ABC gathers specific information from the prospective customer, such as age, third-party coverage, diagnosis of illness/disability, products/equipment currently being used and the treating physician’s name. While the purchase of an unqualified (or “raw”) lead is exactly what it is--the purchase of a lead--the purchase of a qualified lead can be construed as the payment for a “referral.” The percentage chance of an unqualified lead becoming a paying customer of the DME company will be low; conversely, the percentage chance of a qualified lead becoming a paying customer will be much higher.

Note that a DME company can purchase qualified leads from ABC if the arrangement meets the requirements of the Personal Services and Management Contracts safe harbor to the anti-kickback statute. Among other requirements, the compensation must be fixed one year in advance (e.g., $50,000 over the next 12 months), the compensation must be the fair market value equivalent of ABC’s services, and the compensation cannot take into account the volume of referrals to be generated by ABC.