When making payments to those who perform marketing and other services or refer patients, health care providers should not only be aware of the restrictions and penalties imposed under federal anti-bribery provisions. bribe (AKS) and Stark, but also another level of concern added in 2018 with the Elimination of Bribery in Recovery Act (EKRA).
EKRA was signed into law as part of the Substance Use Disorder Prevention Act of 2018 that promotes opioid recovery and treatment for patients and communities (SUPPORT Act). The SUPPORT Act arose out of concerns that existing legislation was not broad enough to prevent certain abusive payment practices related to opioid addiction treatment providers.
EKRA imposes severe criminal penalties for soliciting, receiving, paying or offering any compensation, directly or indirectly, overtly or covertly, in cash or in kind for any referrals to nursing homes, clinical treatment facilities or laboratories. EKRA further criminalizes the payment or offer of remuneration to induce a referral to or in exchange for a person using the services of specified providers.
Also, EKRA provides far fewer exceptions or safe harbors than under Stark and the AKS, and EKRA generally disallows all referral volume or value-based payments.
Also, unlike Stark and AKS, EKRA is a fully paid law, applying to services
covered by any type of health care benefit program in or affecting interstate or foreign commerce, including commercial health insurance plans.
EKRA applies to laboratories
The EKRA is also notable for including broad definitions covering the activities of more than traditional opioid treatment providers (the stated purpose of the SUPPORT Act). Specifically, EKRA is widely accepted to apply to all laboratory testing subject to the federal Clinical Laboratory Improvement Amendments, commonly referred to as CLIA, including dispensed testing performed by physician-owned laboratories.
Due to volume/value restrictions in EKRA, most diagnostic laboratories have taken the position that payments to sales representatives or employees engaged in sales-related activities cannot vary with sample volume or value. received from referring health care providers. Laboratories that have not adjusted their compensation practices after EKRA and pay based on sample volume or value risk serious criminal penalties.
S&G Labs Hawaii vs. Graves
A recent case from the Federal District Court of Hawaii, S&G Labs Hawaii v. Graves, provides some interesting reasoning regarding EKRA’s restrictions in the context of commissioned lab employees.
The case involved a diagnostic laboratory that had hired a customer account manager. The account manager and the laboratory entered into an employment agreement which provided that he would receive an annual base salary of $50,000 and a percentage of the monthly net profits generated by his accounts receivable and the accounts receivable managed by certain other employees of the laboratory he managed.
Eventually, the account manager sued the lab and the lab owners alleging, among other things, breach of the account manager’s employment contract and violation of certain wage laws in Hawaii. As part of its defense, the lab argued that EKRA prohibited the lab from paying a percentage of profits to the account manager.
After nearly two years of contentious litigation, the court surprisingly disagreed with EKRA’s arguments from the lab, finding that EKRA had not prevented the specified payments. The court concluded that EKRA only applies to situations where a payment is made “to induce a person to approach” an EKRA-covered provider.
In this case, the court held that the percentage of profit payments should incentivize the account manager to bring more business to the lab by contacting healthcare practices to encourage them to send samples to the lab, not to encourage individuals to refer to the lab. Because the account manager’s clients were healthcare practices and not individuals, the court found that EKRA’s volume or value prohibitions did not apply.
The tenuous reasoning of the S&G decision overlooks several realities. EKRA Plain Language prohibits the knowledge and willingness to: (1) solicit or receive compensation in exchange for referring a patient “or patronage” to a laboratory; and (2) the payment or offer of any remuneration to induce a referral of an individual or in exchange for an individual using the services of a laboratory.
Given the facts of this case, it is an intellectual stretch to claim that the percentage of profit payments were not in exchange for patient referral and patronage by clients of the account manager’s healthcare practice. It is also difficult to see how the court could conclude that the payment structure was not intended to induce individuals to use the lab for testing.
It should not have mattered that the account manager had to convince the referring healthcare practices to refer individual patients to the lab, as the underlying payments from the employer clearly had to incentivize these referrals.
While some labs and those who receive variable bounties from the labs will cite S&G with favor, the case is not binding in other jurisdictions, and it will likely be criticized in other courts as well. Accordingly, the prudent and wise approach is for laboratories to continue to avoid any compensation arrangement that varies based on sample volume or value.