How to Explain the Current State of EKRA to Your Lab Executives

Keeping sales and marketing operations in line with kickback laws has been a perennial challenge for lab compliance managers. But just as labs were starting to get the hang of it, Congress went and adopted a new law that totally changed the rules. The Eliminating Kickbacks in Recovery Act of 2018 (EKRA) is a scary and mysterious law.¹ But now that it has been on the books for nearly five years, we do know a little more about EKRA than we did back in 2018. So, it may be a good idea to sit down with your lab executives for a briefing on the current state of EKRA. Here’s how to put together such a briefing.

What EKRA Is All About

Start by establishing context. Explain that EKRA makes it a criminal offense to offer or receive any remuneration in an exchange to “induce” a referral to a clinical laboratory, recovery home, or clinical treatment facility. Potential penalties include fines of up to $200,000 and imprisonment of up to 20 years.

On its surface, EKRA seems to echo other laws that labs have been dealing with for decades, namely, the Anti-Kickback Statute (AKS), which criminalizes “knowingly and willfully” offering or paying kickbacks for lab tests and other medical services paid by Medicare, and the Stark Law, aka, Physician Self-Referral Law, banning physicians from referring Medicare patients to entities with which they or an immediate family member have a financial relationship.

“So, why worry about EKRA,” your executives may ask.

The answer: While there is overlap, there are also significant differences between EKRA and AKS/Stark. For one thing, while the latter cover only federal health programs, EKRA is an “all-payor” statute that applies even to referrals of patients with private insurance. More significantly, almost none of the AKS/Stark safe harbors and exceptions that labs have historically relied on to enter into otherwise problematic business arrangements apply to EKRA. The EKRA law does list some limited exceptions. The key ones:

• Certain disclosed discounts under a healthcare benefit program
• Certain payments to bona fide employees and independent contractors—the AKS includes a similar exception but the EKRA rules are different
• Payments for services that meet the AKS personal services and management contracts safe harbor
• Certain coinsurance and co-payment waivers and discounts
• Certain federally qualified health center arrangements that meet the AKS exception
• Remuneration under certain arrangements that the U.S. Department of Health and Human Services (HHS) deems necessary

The Differences between EKRA and AKS

Practical Impact of EKRA

Having explained the EKRA law, get into how it actually impacts your lab’s operations. The key point is that arrangements that are perfectly legal under AKS and/or Stark may violate EKRA. Specifically, EKRA casts doubt on three kinds of common arrangements that your lab may have structured to qualify for AKS safe harbors or exceptions (technically, Stark has exceptions but not safe harbors):

• Variable compensation packages that labs pay to sales and marketing personnel based on the value or volume of referrals they generate
• Leasing of space in the offices of referring physicians
• Participation in Accountable Care Organizations (ACOs)

Next, tell the executives about the other thing that makes EKRA so scary, namely, its lack of clarity. The EKRA statute is vague and very broadly written. It also lacks definitions of key terms like “laboratory” and “laboratory services” covered by the law. To make matters worse, there are no implementing regulations or official guidelines to flesh out the crucial details the way there are with Stark and the AKS.

Bottom Line: Almost everything we know about how EKRA applies in real-life situations comes from enforcement actions and court cases that have taken place since the law took effect. And that’s what you should cover in the next part of your briefing.

Lessons from EKRA Enforcement

Provide a quick overview of the EKRA enforcement track record. Note that there have been about a dozen prosecutions, most of them targeting toxicology labs. That’s an important point because EKRA was enacted as part of a larger piece of legislation (called the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act [SUPPORT Act]) designed to combat the opioid crisis.² So, the hope/expectation was that EKRA enforcement would be limited to toxicology labs and their referral arrangements.

However, those hopes/expectations were soon dashed. It became clear early on that the U.S. Department of Justice (DOJ) interpreted EKRA broadly as applying to all clinical labs. It started with the prosecution of Mark Schena, former president of Arrayit Corporation, a self-described “world leader in microarray technology empowering researchers and doctors in the life sciences, wellness, and health care testing markets.” Among the charges against Schena was conspiracy to pay kickbacks and bribes to doctors and marketing companies for patient blood samples and orders for allergy testing in violation of EKRA.³

More non-toxicology lab EKRA enforcement actions would follow. In May 2021, the owner of Louisiana clinical lab MedLogic, LLC, was indicted for her role in an alleged $15 million kickback scheme involving payments for referrals of specimens for COVID-19 and respiratory pathogen testing.⁴

Lessons from EKRA Caselaw

In addition to the enforcement history, explain that there have been two court cases interpreting EKRA. The problem is that those cases send conflicting messages.

S&G Labs: Sales Commissions Don’t Violate EKRA

The first court ruling interpreting EKRA began when a lab sued a former marketing employee for soliciting employees and customers for his new employer in violation of his noncompete agreement. The employee countered by claiming the lab reneged on its obligation to pay sales commissions based on volume of referrals. We made that compensation agreement before EKRA, the lab responded, and had to rework it as a fixed salary agreement to ensure compliance when the law took effect.

The Hawaii federal court sided with the employee. Commissions based on referrals is remuneration, the court acknowledged. But it found that the agreement in this case didn’t violate EKRA because the employee wasn’t referring individual patients but rather marketing to doctors. In other words, the court ruled that EKRA only bans percentage-based compensation payments to marketers based on direct patient referrals [S&G Labs Hawaii, LLC v. Graves, No. 1:19-cv-310, 2021 WL 4847430 (D. HI Oct. 18, 2021)].⁵

Schena: Sales Commissions Do Violate EKRA

The S&G Labs case raised the eyebrows of legal experts who questioned whether other courts would follow it. Those doubts were affirmed in the second EKRA court case, the prosecution of Arrayit president Mark Schena that we mentioned earlier. Schena’s attorneys asked the Northern District of California federal court to toss the government’s case, citing S&G Labs in arguing that the statute “does not prohibit payments to persons who do not themselves refer an individual to a clinical laboratory.”

But the court rejected both the motion to dismiss and the S&G Labs case on which it was based. EKRA bans both direct and indirect referrals of patients to labs, the court reasoned. That includes percentage-based compensation to recruiters, both employees and independent contractors, even if those recruiters interact only with the doctors and not the actual patients [USA v. Schena, Case No. 5:20-cr-00425-EJD-1, 2022 WL 1720083 (N.D. Cal. May 28, 2022].⁶

Where Things with EKRA Stand Now

Wrap up your briefing with a discussion of what all this means for your lab.

The first and easiest lesson is that EKRA applies to all clinical labs and not just toxicology labs that perform drug testing.

Unfortunately, the question of whether paying sales commissions to lab marketers and recruiters is permissible under EKRA is far more problematic. If you believe in the S&G Labs case—or operate in Hawaii where the case is precedent—you may be inclined to enter into marketing commissions deals with sales and marketing personnel while scrupulously ensuring that those arrangements involve interaction only with physicians and not patients like the one the S&G Labs court said was okay.

However, the consensus and conservative view, even before the Schena case, is that the Hawaii court misinterpreted the scope and purpose of EKRA. Accordingly, make it clear to your executives that relying on S&G Labs is a risky strategy that may expose your lab to liability for an EKRA violation.

Takeaway and Final Summation

To conclude your briefing, note that almost none of the mystery and unknowns surrounding EKRA have been resolved in the five years of the law’s existence. It’s still possible that HHS or the DOJ will step in and finally provide clarification in the way of regulations or guidelines. However, your executives should understand that most experts don’t expect that to happen any time soon. In the meantime, like everybody else, your lab will have to await further EKRA enforcement actions and especially case rulings to get a better read on where things stand.

At the end of the day and based on what we know now, the prudent course would seem to be to follow Schena rather than S&G Labs and avoid entering into any kinds of compensation arrangements that are based on:

• Numbers of individual referrals;
• Numbers of tests performed; and/or
• The amount billed or received from the referred individuals’ payor.

References:

1. https://www.law.cornell.edu/uscode/text/18/220
2. https://www.congress.gov/bill/115th-congress/house-bill/6
3. https://www.justice.gov/opa/pr/medical-technology-company-president-charged-scheme-defraud-investors-and-health-care-benefit
4. https://www.justice.gov/usao-mdla/pr/doj-announces-coordinated-law-enforcement-action-combat-health-care-fraud-related-covid
5. https://cases.justia.com/federal/district-courts/hawaii/hidce/1:2019cv00310/144697/148/0.pdf?ts=1616232442
6. https://casetext.com/case/us-v-schena-1