How EKRA and AKS impact labs and commission-based compensation | Dorsey & Whitney LLP
With the enactment of the Elimination of Bribes in Recovery Act (“EKRA”) in 2018, the eligibility of commission-based compensation to laboratory sales representatives based on volume, income or profits has been questioned, and there is still little case law interpreting the act. Although the EKRA is a relatively new law, laboratories should keep in mind the impact of the more established anti-bribery law (the “AKS”) on the eligibility of such compensation. commission-based. Under current law, commission-based payments (including commissions based on volume, revenue, profit, etc.) should be permitted when paid to employee sales representatives. However, labs should be careful when considering commission-based compensation for independent contractor sales representatives.
I. Anti-bribery law
The AKS subjects to criminal and civil penalties any person who knowingly and willfully offers, pays, solicits, or receives compensation to induce or reward the referral of out-of-pocket cases under any federal health care program. 42 USC § 1320a-7b(b). It is important to note that the AKS goes beyond paying value in exchange for direct patient referrals; it also prohibits paying compensation intended to induce or reward anyone for arranging or recommending others to purchase, lease, or order any property, facility, service, or item reimbursable by any federal health care program . See ID.
The AKS contains many safe harbors, compliance with which protects parties from breaching the AKS. One of them is the safe harbor of employment, which allows any payment to an employee if there is a bona fide employment relationship. 42 USC § 1320a-7b(b)(3)(B). This safe harbor does not extend to independent contractors. Identifier.
II. The law on the elimination of bribes in the context of recovery
EKRA subjects to criminal penalties any person who, with respect to services covered by certain public health care benefit programs, knowingly and willfully: (1) solicits or receives compensation in exchange for a referral of a patient or sponsorship to a convalescent home, clinical treatment facility, or laboratory; or (2) pays compensation to induce a person to be referred to a convalescent home, clinical treatment facility or laboratory or in exchange for a person using the services of such convalescent home, clinical treatment facility or this lab. 18 USC § 220(a). Lab is defined to include all labs, not just those that perform addiction-related testing. 18 USC § 220(e)(4). Notably, EKRA’s language appears to be limited to paying for direct referrals. Unlike AKS, EKRA does not include language that extends its prohibitions to payment for arranging or recommending others to make referrals or order services.
Additionally, EKRA does not have an Employee Safe Harbor analogous to the Employee Safe Harbor under AKS, but instead has a narrower exception allowing payments made under a bona fide employment relationship. (including with independent contractors, unlike AKS safe harbor of employment) where payment does not vary based on procedures performed or amounts billed or received from the referred person’s healthcare program. 18 USC § 220(b)(2).
In 2021, a federal district court in Hawaii issued the first and, to date, only judicial opinion interpreting EKRA in S&G Labs Haw., LLC v. Graves, 2021 US Dist. LEXIS 200365. The District Court held that while the employment agreement with Graves (a customer account manager) provided for commission-based payments that varied based on the number of tests performed by S&G, the arrangement did not violate EKRA since there was only a weak link between commission-based payments and patient referrals: “Without a doubt, Graves’ commission-based compensation structure prompted him to try to bring more business at S&G. . . However, the “customer” accounts they served were not individuals whose samples had been tested at S&G. Their ‘clients’ were ‘doctors, addiction counseling centers or other organizations that need to get people tested’. However, S&G was not compensated by these “clients”; S&G has been “compensated for testing services on a ‘per test’ basis by third-party insurers, government agencies under Medicare and Medicaid, and direct self-payment by certain individuals.” There is no evidence that Graves’ client accounts included people who paid themselves to have S&G urinalyse their samples. Identifier. at 33-34.
The district court found that since “Graves did not work with individuals, the compensation S&G paid him was not paid to induce him to refer individuals to S&G.” Identifier. at 34. In other words, the district court found that because Graves was not himself a source of lab referrals, EKRA’s bans could not reach the compensation agreement based on the volume between Graves and his lab employer.
III. Commissions to Employee Sales Representatives vs. Independent Contractor Sales Representatives
Under the current law discussed above, laboratories should generally be able to make commission-based payments (including commissions based on volume, revenue, profit, etc.) to sales representatives of employees, but should carefully consider AKS when proceeding with independent contractor sales. representatives.
A. Sales Representative Employees
Commission-based payments, including commissions based on volume, revenue, profit, etc., to employee sales representatives are permitted under the AKS. These payments would fall within the safe harbor of AKS employment as long as a bona fide employment relationship exists.
According to S&G Labs’ interpretation of EKRA, commission-based payments, including commissions based on volume, revenue, profit, etc., to employee sales representatives are also permitted under EKRA, provided that a laboratory’s employee sales representatives have a similar relationship with their customer. accounts such as those described in S&G Labs, where sales representatives work with medical clinics, hospitals, and other organizations and facilities that would use the lab, and do not work with individual patients.
B. Sales Representatives of Independent Contractors
Based on the only case law addressing the issue at this point, as long as Independent Sales Representatives work with organizations and facilities and are unable to refer individual patients, EKRA should not prohibit fee-based payments. commissions to a laboratory. independent contractor sales representatives. However, commission-based payments to independent sales representatives remain an issue under the AKS if the laboratory activity involves federal healthcare programs. Such payments fall outside the AKS safe harbor of employment, and the broad scope of the AKS prohibition against arranging or recommending others to order items and services could extend to payment arrangements with independent sales representatives. Therefore, laboratories should proceed with caution when considering compensating independent contractor sales personnel based in whole or in part on a volume or value-based methodology.
We will continue to closely monitor the status of EKRA and AKS for guidance, law reviews and enforcement.