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In a significant decision, United States v. Sorensen, --- F.4th ----, 2025 WL 1099080 (7th Cir. Apr. 14, 2025), the United States Court of Appeals for the Seventh Circuit reversed the conviction of Mark Sorensen, who was previously found guilty of conspiracy and kickbacks under the Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)).&nbsp;This ruling aligns with recent Fifth Circuit cases that draw a clear distinction between illegal kickbacks for face-to-face sales and lawful payments for advertising and marketing services.

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Mark Sorensen, owner of SyMed Inc., a Medicare-registered distributor of durable medical equipment, was convicted of conspiracy and offering kickbacks for payments made to advertising and marketing companies. These companies were involved in promoting orthopedic braces to Medicare patients. The government argued that these payments constituted illegal referrals under the Anti-Kickback Statute.

Business Model for Orthopedic Product Sales

The business model for selling orthopedic braces involved several steps:

Advertising Campaigns: Byte Success Marketing (“Byte”) and KPN, the marketing firms involved, published advertisements for orthopedic braces. These ads targeted potential patients who might benefit from the braces.

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Patient Engagement: Interested patients responded to the advertisements by filling out electronic forms with their personal information, including names, addresses, and doctors' contact details.

Sales Agent Interaction: The collected information was forwarded to call centers where sales agents from Byte or KPN contacted the patients to discuss ordering a brace. These agents also generated prescription forms for the braces.

Physician Approval: The sales agents, with the patients' consent, faxed the prefilled but unsigned prescription forms to the patients' physicians. These forms included SyMed's name and corporate logo and listed the devices to be ordered. Physicians had the discretion to sign and return the forms or ignore them. Notably, physicians declined 80 percent of the orders sent by KPN and regularly ignored forms sent by Byte.

Order Fulfillment: If a physician signed and approved a prescription, SyMed directed PakMed, the manufacturer, to ship the braces to the patients. Dynamic Medical Management, a billing agency, then billed Medicare on behalf of SyMed.

Revenue Sharing: SyMed paid PakMed 79 percent of the funds collected from Medicare or other insurance, keeping 21 percent as a service fee. Out of its 79 percent share, PakMed paid the advertising firms, KPN and Byte, based on the number of leads generated.

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The Seventh Circuit found insufficient evidence to support the conviction, emphasizing that the payments made by Sorensen were for advertising services and not for referrals. The Court highlighted that the physicians retained ultimate control over patient prescriptions and decisions, which is a critical factor in determining whether a payment constitutes an illegal referral.

Advertising vs. Face-to-Face Sales: The Court distinguished between payments made for advertising services and those made to induce referrals through face-to-face sales interactions. Payments to advertising companies that promote medical products do not fall under the Anti-Kickback Statute if the physicians retain independent decision-making authority. In contrast, face-to-face sales interactions, where sales representatives may exert influence over healthcare decisions, are more likely to be scrutinized under the statute.

Physician Control: The Court noted that the physicians who received the prescription forms from the marketing companies had the discretion to approve or reject the prescriptions. This autonomy is crucial in differentiating lawful advertising from illegal kickbacks. In face-to-face sales scenarios, the potential for undue influence is higher, making it essential to ensure that physicians' decisions remain independent.

Legal Precedents: The decision aligns with the Fifth Circuit's rulings in cases such as United States v. Miles and United States v. Marchetti. In these cases, the Fifth Circuit also overturned convictions where payments were made for marketing and advertising services rather than for referrals. The courts emphasized the importance of distinguishing between general advertising activities and direct sales efforts that could influence healthcare decisions.

This decision provides clarity for healthcare providers and marketers regarding the boundaries of the Anti-Kickback Statute. It underscores the legality of compensating advertising and marketing firms for their services, provided that the ultimate decision-making authority remains with the physicians. However, it also highlights the need for caution in face-to-face sales interactions, where the risk of violating the statute is higher.

The Seventh Circuit's decision in United States v. Mark Sorensen reinforces the distinction between lawful marketing activities and illegal kickbacks, particularly differentiating between general advertising and face-to-face sales efforts. Healthcare providers should ensure that their marketing practices comply with this legal framework, maintaining clear boundaries to avoid potential violations of the Anti-Kickback Statute.

For more information or assistance please contact <a href="/people/eric-s-tower/" id="18839">Eric S. Tower</a>, or another member of Blank Rome’s <a href="/services-and-industries/corporate/" id="18405">Corporate</a> group.

Seventh Circuit Decision Clarifies Distinction Between Face-to-Face Sales and Advertising Under the Anti-Kickback Statute

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Seventh Circuit Decision Clarifies Distinction Between Face-to-Face Sales and Advertising Under the Anti-Kickback Statute

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