Why You Need to Address EKRA When Selling Your Lab

You’ve finally reached retirement, or perhaps you’re just looking to slow down and focus on things other than your laboratory business. Maybe running a laboratory is no longer your passion. Or maybe you’ve reached your limits regarding the industry volatility caused by the COVID-19 pandemic that still hasn’t completely resolved. Whatever the reason, you find yourself contemplating selling your laboratory. The first steps involve finding a buyer and selling your lab or parts of the business compliantly, and with that comes one key piece of legislation to consider: the Eliminating Kickbacks in Recovery Act of 2018 (EKRA).

What is EKRA?

A laboratory is like any other business: you invest time and effort into building it up, and there is still potential value to be had once you’ve decided it’s time to hang up your lab owner’s hat. Many independent reference lab owners and even some physician office laboratories are successful in finding buyers to purchase all or parts of their business. In order to remain compliant with federal code, EKRA is something you will want to consider.

EKRA criminalized the remuneration or solicitation of compensation for patient referrals for medical treatment, including diagnostic laboratory testing. How might this affect you selling your lab or looking for potential buyers?¹

Why complying with EKRA is important when selling your lab

Derek Taylor, managing vice president of Laboratory Nexus, a company that operates a marketplace for matching buyers and sellers of clinical laboratories and instrumentation, notes that it is pertinent for lab owners to consider EKRA when putting their lab up for sale.

“EKRA has a significant impact on how prospective buyers view existing revenue in a laboratory,” he says. “Prospective buyers closely scrutinize a lab’s pay structure to ensure an EKRA-compliant model. This has become a central aspect of the due diligence process in any lab sale, emphasizing the importance of regulatory compliance.” Essentially, if there are non-EKRA-compliant means of compensating any individuals for patient sample referrals to your lab, it could negatively impact your attempt to sell. Potential buyers could run the other way or, at a minimum, demand the non-compliant compensation arrangements be addressed and made EKRA-compliant ahead of the sale’s finalization.

How to comply with EKRA before selling your lab

“It’s crucial to concentrate on…and identify any potential concerns before listing your lab,” says Taylor. Therefore, collaborating with your accounting and finance team will be an important first step; you will want to completely understand your financial status and ensure all financial records are in order to streamline the sales process for your lab. Buyers can back out of deals if too many hurdles develop during this process. Addressing any concerns ahead of listing or as early as possible once they are identified, including with regard to EKRA compliance, is therefore critical to the lab sale’s success.

Taylor adds that one of the next steps when seriously considering the sale of your lab is to consult an industry expert healthcare attorney to assess your current payment structures for employees, consultants, and vendors alike to ensure EKRA compliance. This will allow time to address any concerns that arise from the legal audit ahead of listing your lab for sale. Once you enter due diligence with a prospective buyer, it is extremely likely for EKRA compliance to be evaluated, so Taylor advises that your operations be in order and compliant ahead of marketing your lab for sale in order to avoid issues or potentially scaring off interested parties.

What else, besides EKRA compliance, makes my lab more attractive to potential buyers?

A laboratory’s revenue stream boils down to its contracts with payers, both federal and private. A combination of the following arrangements is common in many laboratories:

• • Labs can be credentialed to serve beneficiaries of federal healthcare programs like Medicare and Medicaid.

• • Labs can accept private insurance such as Blue Cross Blue Shield and Aetna, among others.

• Labs can accept payments from patients directly in direct-to-consumer testing facilities.

Working closely with your billing and revenue cycle management team, whether they are in-house or outsourced, will help you compile a list of payers with whom you are in-network. You can then begin collecting information on each of these contracts, as they will most certainly be reviewed during the due diligence process of the sale.

This comprehensive list of your payer contracts is necessary for a brokerage or consulting company to advise you on the value and fair market price of your lab. It also helps you decide if applying for credentialing with additional payers or gaining in-network status with payers with whom you are currently out-of-network might be beneficial for the marketability of your laboratory. Highly sought-after payer contracts can also increase the value of your lab and what you may be able to command in terms of price.

Some states require CLIA-licensed laboratories to hold a license from that state in order to test specimens from patients residing there. Becoming licensed to accept samples from those states can also potentially increase your lab’s attractiveness to buyers, according to Taylor.

Compliant labs sell better than their counterparts, for obvious reasons

Navigating the sale of your laboratory can be tricky, and there are many factors to consider. Assessing and maintaining EKRA compliance is something all laboratories should be doing, whether they are interested in being listed for sale or not. Having those ducks in a row when it’s time to sell your lab will not only make the process more efficient, but also increase the chances of a successful sale.

See our accompanying Compliance Tool to help you navigate these steps ahead of formally listing your lab for sale.

References:

1. 1. Eliminating Kickbacks in Recovery Act of 2018. https://www.congress.gov/bill/115th-congress/senate-bill/3254