New Broad All-Payor Kickback Law Impacting Laboratories, Commission-based Compensation and more

By Danielle Sloane bio and Chris Climo bio

In a recent piece of federal legislation intended to address the opioid crisis across the United States, Congress enacted a new all-payor kickback law that applies to all clinical laboratories and seemingly eliminates laboratories’ ability to, among other things, pay commission-based compensation to employees or contractors.

On October 24, 2018, the President signed the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment (SUPPORT) for Patients and Communities Act (the “SUPPORT Act”) into law. A late addition to the SUPPORT Act, the Eliminating Kickbacks in Recovery Act of 2018 (“EKRA”) was originally intended to address the problem of “patient brokering” in the context of treatment centers and sober homes. In general, patient brokering refers to instances where a third party enrolls an addicted patient into a private health insurance plan and/or arranges for the addicted patient to enter a treatment facility or a sober home (often in another state) in exchange for a payment.

In a late addition to EKRA, clinical laboratories were added in order to capture patient brokering connected with toxicology testing. However, the breadth of statute’s language appears to criminalize payments made in exchange for referrals to all CLIA-certified[1] clinical laboratories even if the laboratory does not provide any services related to drug treatment, recovery or testing. We understand that the American Clinical Laboratory Association is looking at both legislative and regulatory resolutions to reduce the impact of EKRA on common and historically accepted clinical laboratory business practices, such as paying sales employees commission-based compensation. However, given that any sort of fix is uncertain and the prohibition became effective as of October 24, 2018, laboratories should evaluate their compliance with this new law now.

[freereport]

EKRA’s New All-Payor Anti-Kickback Statute

Effective as of October 24, 2018, EKRA makes it a federal criminal offense (punishable by a fine of up to $200,000, imprisonment for up to 10 years, or both) to pay, receive, solicit or offer a cash or in-kind kickback, bribe or rebate (directly or indirectly, overtly or covertly) in return for referring a patient or patronage to a recovery home, clinical treatment facility, or laboratory. EKRA captures kickbacks paid not only to individuals who refer patients to a recovery home, clinical treatment facility or laboratory, but also directly to potential patients. SUPPORT Act § 8122, codified at 18 U.S.C. § 220(a).

This criminal prohibition is subject to seven statutory exceptions, including discounts passed along to the payors, wage payments that do not take into account the volume or value of referrals, payments under personal services and management agreements, and good-faith, non-routine waivers of copayments. See 18 U.S.C. § 220(b). More specifically, the EKRA employment exception does not permit employees to be paid based on the number of individuals or tests referred by such employee, or the amounts billed to (or received from) payors related to individuals referred. Those same limitations apply to amounts paid to independent contractors.

EKRA permits the Attorney General, in consultation with the Secretary of Health & Human Services, to issue rules clarifying those exceptions and promulgating new exceptions. SUPPORT Act § 8122, codified at 18 U.S.C. §§ 220(b), (c).

EKRA’s Ambiguities and Overbreadth

While some of the language of the prohibition is reminiscent of the federal Anti-Kickback law (“AKS”) that already applies to services covered by federal and state healthcare programs, EKRA applies more broadly to all private and commercial insurers; and, its statutory exceptions are narrower than, and do not necessarily mirror, their AKS counterparts.

The language used to define the scope of this new private-payor liability seems to be significantly broader than what was intended at the outset. As written, the statute applies to laboratory referrals regardless of whether the laboratory services are related to addiction treatment or recovery services. EKRA cross references the CLIA definition of “laboratory” which broadly describes any “facility for the biological, microbiological, serological, chemical, immuno-hematological, hematological, biophysical, cytological, pathological, or other examination of materials derived from the human body for the purpose of providing information for the diagnosis, prevention, or treatment of any disease or impairment of, or the assessment of the health of, human beings.”[2] Under that definition, EKRA extends to any clinical laboratory. The relevant legislative history does not reveal any specific Congressional intent to adopt such an extremely broad definition of laboratories for the purposes of this opioid-focused legislation.

Perhaps most pressing, however, is EKRA’s immediate impact on common laboratory arrangements, particularly commission-based sales arrangements. The EKRA employment exception is more restrictive than the AKS employment safe harbor. Because AKS employment safe harbor has historically allowed a clinical laboratory (and other healthcare providers and suppliers) to pay bona fide employees in any manner it chooses based on the theory that the employer is vicariously liable for the acts of its employees, laboratories routinely pay commission-based compensation to employees. Laboratories often enter into similar arrangements with independent contractors, particularly with respect to private and commercial-payor business. Without clarification, EKRA seems to prohibit any sales commissions based on number of patients, tests, billings or collections, with significant potential criminal liability – a fine of up to $200,000, imprisonment for up to 10 years, or both, per occurrence.

What’s A Laboratory To Do Now?

Many well-intentioned laboratories are no doubt likely to be left feeling frustrated with once again being impacted by a law stimulated by a few bad actors. That frustration is especially acute since EKRA was passed without considering the practicalities of the industry and the potential for laboratory tests to reduce unnecessary suffering and financial burden by finding the right treatment early and often. Our laboratory clients often say that one of the hardest aspects of being a laboratory is educating practitioners and payors regarding the potential value of their testing as compared to the historically used alternatives; and doing that, may have just gotten harder. With this new legislation, laboratories must reconsider how to effectively motivate their sales staff to tell the laboratory’s story. Safeguards once viewed as sufficient, e.g., compliance training, strong policies regarding sales tactics, checks and approvals on sale’s related spending, regular auditing and discipline, are no longer adequate in the context of commission-based sales arrangements.

Laboratories will want to watch the developments related to EKRA closely and consider implementing a new or at least interim compensation policy for its sales team while Washington hammers out the details related to the meaning and applicability of EKRA. Potential alternatives to volume-based commissions may include implementing sales bonus pools based on number of calls, lead generation, the number of new clients (e.g., a new physician office, regardless of the number of tests/patient samples it sends) and other effort-based criteria unrelated to volume of tests, patients, billings or collections originating from the sales employee or contractor.

[1] Clinical Laboratory Improvement Amendments of 1988.

[2] 43 U.S.C. § 263a