DOJ: EKRA Governs Lab Sales and Marketing Commissions

Prosecutors contend that weakening EKRA would ‘immunize’ conduct that drives up medical costs

Share on facebook
Share on twitter
Share on linkedin
Share on print
Share on email

BY FILING A MOTION IN A U.S. DISTRICT COURT RECENTLY, officials from the federal Department of Justice (DOJ) took steps to oppose an earlier ruling by a federal judge in Hawaii dealing with the way the Eliminating Kickbacks in Recovery Act of 2018 (EKRA) governs how percentage-based commissions can be paid to clinical lab sales and marketing reps. 

Laboratory directors and pathologists should continue to pay close attention to how they pay their lab sales and marketing representatives, as the issue of compensation under the EKRA law and the Anti-Kickback Statute (AKS) is confusing and fraught with risk. At the core of the matter is the question of whether reps can be paid commissions based on the volume or value of tests they refer to labs.

As The Dark Report noted previously, the U.S. District Court of Hawaii surprisingly concluded that EKRA did not prohibit labs from paying sales reps percentage-based renumeration. However, that decision went against how EKRA is viewed by many in the lab industry. (See TDR, “Labs Should Be Cautious about ‘Surprising’ EKRA Ruling,” Feb. 22, 2022.)

DOJ Focuses on Kickbacks

As expected, the DOJ does not support the ruling in the Hawaii case: S&G Labs Hawaii vs. Darren Graves.

“EKRA’s prohibition on kickback payments does extend to payments made to marketing employees or independent contractors, where those marketers’ commission-based compensation is based on the number of patients referred for testing or the number of tests performed,” the DOJ wrote. The federal agency was responding to an argument made by defendant Mark Schena, a biochemist who has been indicted on various healthcare fraud charges. 

“Criminalizing kickback payments from a clinical laboratory to a marketer, who in turn induces physicians to refer individual patients to that laboratory for testing, thus fits comfortably within EKRA’s broad statutory framework,” the DOJ added in its Feb. 28 motion. Schena filed a motion to dismiss some of the charges against him based on the Hawaii ruling. 

Violation of EKRA?

Schena is president at Arrayit, a microarray laboratory in Sunnyvale, Calif. Prosecutors allege he paid one or more marketers to recruit physicians to order blood-based allergy testing from Arrayit for their patients.

On Feb. 3, 2022, Schena’s lawyer filed a motion to have some of the counts against his client dismissed. Schena cited the Hawaii ruling in that motion, saying, “Based upon the analysis in S&G Labs [and] the text of EKRA itself … this court should dismiss counts four through six of the superseding indictment because the conduct that is alleged in those counts is not cognizable as an offense under EKRA.”

The DOJ took umbrage with Schena’s position. It responded by saying “Defendant’s contention that it is legal for a clinical laboratory owner to pay kickbacks to marketers to induce doctors to refer patients to a laboratory for testing is as astonishing as it sounds on its face,” the DOJ wrote in its motion. 

“Such a reading would immunize a vast array of conduct that Congress criminalized for good reasons: because it drives up medical costs, deprives patients of freedom of choice, leads to unfair competition that disadvantages those who do not pay kickbacks, and results in medically-unnecessary services, the very harm that allegedly resulted from defendant’s kickback payments in this case,’” stated the motion.”

A judge has yet to rule on either motion from the DOJ or Schena.

EKRA and Kickbacks

Federal prosecutors are including violations of EKRA in cases involving kickbacks paid by labs to providers in exchange for referrals of clinical laboratory tests. The first such prosecution was in January 2020. An office manager of a substance abuse treatment clinic pleaded guilty to soliciting kickbacks from a toxicology lab in exchange for referrals. 

In this case, the defendant pleaded guilty to one count of violating EKRA, along with one count of making false statements and one count of attempted tampering with records. On May 11, 2020, she was sentenced to ten months imprisonment for soliciting kickbacks and obstructing justice.

Another early EKRA prosecution happened in 2020. Two defendants in California were charged and admitted to participating in a multi-state scheme to broker patients to recovery homes in exchange for kickbacks. One man faced a maximum potential penalty of 10 years in prison and a $250,000 fine (or twice the gross gain or loss from the offense). The other man faced a maximum potential penalty of five years in prison and a $250,000 fine (or twice the gross gain or loss from the offense). 

How EKRA Creates Criminal Exposure

IT WAS IN LATE 2018 THAT CONGRESS PASSED THE ELIMINATING KICKBACKS IN RECOVERY ACT (EKRA) as part of a larger legislative package intended to address the opioid epidemic. 

It was immediately recognized by the clinical laboratory industry that the language in the EKRA law dealing with the payment of sales commission in exchange for lab test referrals was in conflict with the long-established safe harbors for payment of sales commissions under the federal Anti-Kickback Statute (AKS). (See TDR, “New Opioid Law Hits Labs Paying Sales Commissions,” Dec. 3, 2018.)

Equally troubling were the penalties written into the EKRA statue. Violations could lead to fines of $200,000 along with a maximum sentence of 10 years in prison. Like the AKS, these penalties can be applied per occurrence.

On its website, the Houston law firm of Hendershot Cowart PC describes the “common medical lab referral and compensation arrangements that could lead to criminal charges under EKRA,” such as:

    • Marketing deals that involve multiple LLCs owned by the same party or parties to get around annual compensation limits fixed in advance.
    • A physician directing patients to a particular medical testing laboratory in exchange for routinely waiving or discounting co-pays for that physician’s patients.
    • A medical lab that pays its sales team based on volume of new patients.
    • Referrals to privately paid services in exchange for fees or kickbacks.
    • Marketing arrangements that involve direct marketing to patients that do not fall within one of EKRA’s exceptions.
    • Services that are accepted at below fair market value in exchange for special consideration.

Comments

;

You are reading premium content from The Dark Report, your primary resource for running an efficient and profitable laboratory.

Get Unlimited Access to The Dark Report absolutely FREE!

You have read 0 of 1 of your complimentary articles this month

Privacy Policy: We will never share your personal information.