Compliance Perspectives: How to Spot & Avoid Kickback Risks under New EKRA Law

A new law passed to deal with the opioid epidemic has significant ramifications for labs including but not limited to those involved in drug addiction and recovery programs. Specifically, the Eliminating Kickbacks in Recovery Act of 2018 (EKRA) impacts labs’ financial relationships with individuals or legal entities hired to generate business for the lab. Accordingly, it’s imperative to review all your current marketing compensation arrangements and make necessary modifications to ensure compliance with new EKRA rules. Here’s how.

What EKRA Says

Nobody denies that fraudulent business practices by drug addiction centers and toxicology labs have contributed to opioid drug use and distribution and that tough new rules are warranted.

In October 2018, Congress passed the Support for Patients and Communities Act setting out measures to deal with the opioid crisis. EKRA is the part of the legislation that addresses drug addiction center fraud and abuse. Specifically, EKRA imposes penalties of up to $200K and 10 years in prison for paying remuneration to induce or reward referrals to labs, clinical treatment facilities and recovery homes, including knowingly and willfully:

• Soliciting or receiving any remuneration in return for referring a patient to a lab, clinical treatment facility, or recovery home; or
• Paying or offering any remuneration to induce a referral of an individual, or in exchange for an individual using the services of a lab, clinical treatment facility, or recovery home.

What’s so bad about that, you might be thinking. After all, aren’t these practices already banned by the Anti-Kickback Statute (AKS) and Stark Law (Stark)?

The 3 Problems with EKRA

Kickback bans are nothing new. But the problem with EKRA, which took effect when it was passed in October, is that it’s so much broader than the AKS and Stark. Lab industry concerns:

• EKRA is an “all-payor” statute, i.e., it applies not just to Medicare, Medicaid and other government health programs the way AKS and Stark do but to lab services paid for by commercial insurers; and
• The EKRA covers ALL labs not just toxicology labs; and
• Among the things EKRA bans are common lab business arrangements that are currently permissible under both the Stark Law (Stark) and the Anti-Kickback Statute (AKS).

Beware Business Arrangements that Comply with AKS/Stark but Not EKRA

Perhaps the biggest practical concern for labs is that existing marketing arrangements that comply with Stark and the AKS may now be technically illegal because they don’t comply with EKRA. Common arrangements that may now be problematic:

Marketing Bonuses/Incentives: One of the arrangements made suspect by EKRA are incentive and performance bonuses paid by labs to marketing personnel. Because these payments are pegged to the value or volume of referrals, they’re also problematic under Stark and the AKS. However, both laws currently provide safe harbors (like the AKS employee-compensation and personal services and management contracts safe harbors) and exceptions for bona fide marketing employees receiving productivity bonuses, notes attorney Andrew Wachler of Wachler & Associates PC. But unlike Stark and the AKS, EKRA has no safe harbor for such arrangements. Result: Marketing incentives that comply with Stark and the AKS may violate EKRA, Wachler warns. This includes existing incentives that labs carefully vetted when they first put them into place.

Marketing Commissions: Also suspect under EKRA are independent contractor marketing arrangements paid on a commission based on volume or value of lab services billed or collected. Many labs hire independent contractor marketers on a commission basis even though there are no applicable AKS safe harbors or Stark exceptions. However, these arrangements are much more problematic under EKRA.

Doctor Offices with In-Office Labs: Stark allows for the creation of doctor’s offices with in-office labs provided that certain requirements are met. But EKRA includes no such exception or safe harbor. Although EKRA’s language isn’t completely clear, Wachler suggests that the government could argue that doctors are receiving remuneration from lab work for patient referral in violation of EKRA. “Certainly, we do not believe this was the intention of EKRA, and we would not recommend that doctors modify their in-office lab arrangements,” he adds.

Practical Impact: 3 Steps to Take

Bottom Line: Labs need to gear up for EKRA now.

Step 1: Be Aware of EKRA: The first thing to do is recognize that EKRA exists and that, technically, you may be in violation of it. It’s unclear how EKRA will be enforced. The fact that it took effect immediately after it passed with no grace period suggests that labs may get at least a temporary respite, experts suggest. Still, you can’t assume relief is coming.

Step 2: Review Your Marketing Agreements: You need to revisit the compensation provisions of your marketing agreements with employees and independent contractors to ensure they comply. This is true even if you’ve already vetted these arrangements under AKS and/or Stark requirements.

Step 3: Make Any Needed Modifications: If you identify problems, you’ll need to modify your agreements. In doing so, keep in mind that while EKRA doesn’t include any safe harbors, it does provide exceptions allowing for payments by a lab (or other employer) to an employee or independent contractor as long the payment isn’t based on:

• The number of individuals referred to a particular lab, recovery home or clinical treatment facility;
• The number of tests or procedures performed; or
• The amount billed to or received from, in part or in whole, the health care benefit program from the individuals referred to a particular lab, recovery home or clinical treatment facility.

EKRA Relief May Be on the Way

Meanwhile, there’s still a chance that EKRA may turn out to be a false alarm. “There is a great deal of lobbying going on to both amend EKRA and to get regulatory clarification,” notes attorney Charles C. Dunham, IV of Epstein Becker Green. For HHS has yet to release a proposed regulation or enforcement guidance. When it does, it may include (or call for public comments soliciting ideas for) provisions to limit the extent and reach of EKRA. Example: The EKRA statute doesn’t specifically define or cross-reference the terms “laboratory” and “laboratory services.” Accordingly, Dunham suggests that HHS could impose narrow definitions tying the terms to providers of substance abuse and addiction services to provide some relief to the wider lab industry.