Editor’s Note: Opportunities to sponsor events and partner with other brands can be powerful tools for building awareness, expanding reach, and offering fresh content and experiences that capture new audiences and re-engage existing ones. Leveraging relationships with complementary brands and organizations can increase your market visibility, drive new business and put your name in front of new targets. Supporting a charitable organization can be an especially powerful path for enhancing your brand image and strengthening positive perceptions of your organization and its services.
All the benefits of co-marketing and co-promotions, however—whether with for-profit or nonprofit entities—come with potential legal and regulatory pitfalls. At a recent webinar, Manatt revealed how you can maximize the rewards while you mitigate the risks of sponsorships and co-branding. In part 1 of our article summarizing the webinar, below, we discuss applicable healthcare laws and sponsorship agreements. Watch for part 2 of our article in November, examining commercial co-ventures/cause marketing. Click here to view the full webinar free, on demand—and here to download a free copy of the presentation.
Regulatory Laws Relevant to Sponsorships and Co-Ventures
Sponsorships and commercial co-ventures are more complicated in the healthcare space. Healthcare organizations planning to engage in sponsorships and commercial co-ventures need to be cognizant of potential regulatory hurdles.
1. The Anti-Kickback Statute (AKS)
The Office of the Inspector General (OIG) has made it clear that sponsorships of charitable activities can raise concerns under the AKS. In discussing the permissibility of a potential sponsorship of a charitable golf tournament, the OIG noted that its “concern with the provision of monetary donations to actual or potential referral sources is longstanding and clear: such donations are suspect and may violate” the AKS, if one purpose is to induce or reward referrals of federal program business (OIG Adv. Op. 01-02).
What is the AKS? The AKS is a criminal statute intended to protect patients and federal healthcare programs. The statute makes it illegal to offer or pay remuneration to anyone to induce him or her to refer a patient or order a service paid for by Medicare, Medicaid or other federal healthcare program. The statute also makes it illegal to solicit or receive remuneration in return for referring a patient or ordering a service paid for by Medicaid, Medicare or other federal healthcare program.
The AKS is an extremely broad statute, with remuneration defined as anything of value, directly or indirectly, overtly or covertly (such as in the form of a donation), in cash or in-kind. The AKS also is an intent-based statute, which makes the risks of violating it a bit uncertain and difficult to eliminate fully. In addition, it is a one-purpose test. Therefore, even if there are many legitimate reasons why there might be a financial exchange between two parties, if just one of those purposes is to give or receive money in order to induce referrals between the parties, the AKS can be violated.
There are multiple policy goals underlying the AKS that make designing a compliant sponsorship and co-venture program complex. The goal of the AKS is to prevent overutilization of services, preserve patient-centered referral decisions and maintain a level playing field across competitors (recognizing that some competitors may not be able to afford to make donations or pay for referrals). Therefore, even something that seems as benign as a sponsorship or a commercial co-venture has the potential to trigger the AKS. In addition, importantly, the AKS establishes penalties for individuals and entities on both sides of the prohibited transaction.
What does all this mean in the context of a sponsorship? While the AKS does have safe harbors to protect certain kinds of relationships, sponsorships do not fit within any of them. Compliance with a safe harbor, however, is not mandatory, and the failure to fit within a safe harbor is not a per se violation of the AKS. In the event that a safe harbor is not satisfied, such as in the case of a sponsorship or a commercial co-venture, the government’s inquiry will focus on the facts and circumstances involved to analyze the intention of the parties and whether one purpose of the arrangement was to improperly induce referrals. The factors the OIG considers include ensuring that:
- The sponsorship is for a bona fide charitable event.
- There is broad community solicitation. (Sponsorships are available to anyone who wants to contribute and are not limited to a particular referral source.)
- There are a large number of nonvendors or nonreferral sources.
- Participation does not impact referrals.
- The participation level is consistent with other players in the market. (An outlier might raise the question of why it is contributing so far in excess of others.)
- The use of a charity’s mark or logo does not amount to an expressed or implied endorsement.
2. Health Insurance Portability and Accountability Act (HIPAA)
In commercial sponsorships or other sorts of relationships, a donation or a sponsorship is sometimes made to obtain access to a potential client list. For most healthcare providers, however, client lists are considered patient or member lists and are protected health information under HIPAA.
The HIPAA Privacy Rule protects patients’ protected health information (PHI) from unauthorized use, access and disclosure. PHI is any information relating to an individual’s health status, treatment or payment for health services that is created or received by a covered entity that may identify the individual. Therefore, a list of patients associated with a healthcare provider is considered PHI under HIPAA. PHI generally may only be used or disclosed pursuant to an authorization that meets very specific standards outlined in HIPAA. PHI used for marketing purposes is subject to HIPAA and would require an authorization.
The Nature and Purpose of Sponsorships
When entering into a sponsorship agreement, the first thing to determine is the nature and purpose of the sponsorship. There are critical questions to ask any potential partner when structuring a sponsorship deal. Is the sponsorship for an event? To get naming rights (i.e., Citi Field)? To support a product or service—or for a particular program, campaign or set of content? What rights are included in terms of media/content usage, access (such as tickets to the event), marketing and merchandising? How will the sponsor be designated (i.e., official partner or preferred provider)? Can the sponsor use its sponsorship to widen its distribution network, such as its social media reach or email list?
As mentioned above, healthcare entities need to be cautious about sharing any client lists as part of a sponsorship deal, because they are considered PHI under HIPAA. What about getting tickets as part of a charitable sponsorship? Would that trigger AKS concerns, because the sponsor is receiving something of value in return for its donation? In and of itself, that does not raise any additional concerns under the AKS. Since situations differ, however, the best course is to consult a healthcare regulatory attorney to ensure there are no AKS issues.
Rights and Benefits: Designations
It is important to negotiate upfront the preferred designations (such as “official sponsor”) and to incorporate them into the contract. It is also key to address the possibility of any additional designations and the process for getting them approved.
Since designations are often tied to a sponsorship category, it is critical to understand how they may change if sponsorship terms change. Organizations entering into sponsorship agreements should be sure they have full visibility into the scope of their sponsorship category and the associated designations. They should be sure the required or optional use of any designation is clearly defined in the agreement. A primary reason sponsors pay large sums is to promote and enhance their brands. One way for a sponsor to achieve that goal is by making sure its partners widely use the agreed-upon designation—and that it also has the right to use the designation broadly in its own marketing materials to optimize any promotional value.
Finally, sponsorship partners often create a logo lockup. If creating a logo for the event, make sure there is a clear approval process—and a clear definition of who owns and controls the logo.
Rights and Benefits: Marketing Rights
When negotiating agreements, it is essential for sponsors to clarify marketing rights, including:
- The right to use their agreed-upon designations, as well as their partners’ intellectual property, in marketing materials
- The right to use their partners’ assets in marketing, such as tickets for giveaways (Healthcare organizations should consult healthcare regulatory counsel if there are giveaways, to be sure they are not running afoul of any fraud and abuse laws.)
- The right to create marketing opportunities on-site, as well as through social media
- The ability to pass through marketing rights to other partners or affiliates, enabling them to take advantage of marketing opportunities and other assets
Whatever marketing rights are negotiated should be expressly included in the contract, so there is a common understanding and agreement between the parties.
Rights and Benefits: Experiential Marketing
In sponsorship deals, one partner may choose another because of the experiential marketing opportunities that partner can deliver on-site to event participants. As a sponsor, it’s important to understand any obligations to create on-site experiential marketing vs. just the right to do so. It is also key to define:
- Who is responsible for any costs involved in activating experiential marketing activities?
- Is the activity exclusive or can another partner offer a similar type of activity?
- What kind of content can be captured and licensed?
- What kind of data can be collected?
- Can there be third-party participation, and how does that process work?
Rights and Benefits: Content Marketing and Hard Assets
Content is an important part of any sponsorship. Business and legal teams should work together to ensure that all content issues are addressed and agreements included in the sponsorship contract. Key questions to answer include:
- Can sponsors take photos and videos—and what are their rights in terms of usage and licensing?
- Is content new or pre-existing? If new content is being produced, who pays for it and who owns it?
- Who is responsible for clearing third-party content rights?
- Are usage rights exclusive or nonexclusive?
Sponsors also need to think about hard assets such as tickets and passes, when negotiating agreements. Sponsors should define distribution and usage rights for any hard assets included in their packages.
Rights and Benefits: Marketing and Public Relations Support
When discussing marketing and public relations support, organizations should first determine whether that support is being provided through paid media or a proprietary channel. Then they need to decide whether they want to allocate any value to that media support that makes it part of the compensation for becoming a sponsor. They also need to determine any social media rights or obligations; whether there is a marketing fund to draw from and, if so, who controls it; and what marketing collateral and marketing data are provided. In addition, agreements should spell out how the parties will collaborate on any public relations efforts.
Marketing funds—funds put aside to cover promotional initiatives—can be problematic for healthcare organizations. It is important to be cognizant of how those funds are being spent—and how any leftover funds will be spent—to ensure costs did not exceed fair market value for the services provided. It’s critical that there can be no questions around whether the marketing fund was used to disguise payments to another party for potential referrals.
Compensation and Exclusivity
When agreeing on a sponsorship fee, make sure it is clear what the fee includes and how it is allocated across different rights and assets. In addition, it is important to understand whether any part of the fee is contingent on a particular outcome or activity at the event. Also be sure to determine if any part of the compensation will be provided in the form of an in-kind contribution—and if so, what the value is. Finally, identify any “make-goods” that would be possible if the sponsorship doesn’t deliver what was promised. For example, is there a possibility of getting a refund?
Getting make-goods and refunds would be easier if value could be allocated to different elements of the sponsorship rights and benefits. Many companies, however, won’t allocate the fee across elements but prefer one total amount—and negotiating later, if there should be any type of make-good or refund.
Exclusivity is another critical area to consider when negotiating a sponsorship. Never assume there is exclusivity. Always ask the question—and then define the scope. Is the exclusivity within a specific category or set of competitors? Is it for the complete event or just a specific session or program? Does the exclusivity extend in any way to any post-term activities? If possible, at least limited post-term exclusivity is important. Organizations spend a lot of money on creating value from their sponsorships and don’t want competitors to benefit from the “halo effect” when the sponsorship term ends.
It is important to remember, however, that when the OIG is considering whether a sponsorship violates the AKS, it considers whether there was broad community solicitation—so whether multiple entities had the opportunity to sponsor the event and were willing to meet the contribution level. Therefore, it is important to seek counsel when entering into an exclusive sponsorship agreement to ensure it doesn’t raise any AKS concerns.
Termination rights—or exit strategies—are also critical. Sponsoring organizations need to understand what will happen if an event is canceled for any reason (or without cause). They also need to identify if there are any contingencies to consider, such as a Food and Drug Administration (FDA) approval.
Termination rights need to be discussed and agreed upon upfront. One of the most important areas to consider is a morals clause. Since there are two parties involved in a sponsorship, it is critical to agree on whether the morals clause is one-sided or bilateral. What do moral clauses cover? They involve negative news coverage, including:
- Major public scandals
- Investigations of corruption, fraud or other misconduct
- Events that would result in the substantial likelihood of a material adverse effect on the public perceptions of the sponsor and its brand
Both parties agreeing to the sponsorship need to reach common ground on what level of negative news would trigger the morals clause. For example, would it be triggered by just the news in the press, or would there need to be an actual investigation? And if it is triggered, is there any kind of clawback of the funds already invested? With so much negative press that spreads so quickly, it is essential to have any questions around morals clauses resolved before finalizing a contract.
Executing sponsorships may involve hiring third parties, such as outside vendors, agencies, talent or social media influencers. When ancillary agreements come into play, it is crucial to determine who is responsible for them, who will pay for them, and what approval rights each party has over choosing and managing third-party participants.