First EKRA Guilty Plea Involves Lab Kickback

Only 15 months after enactment of EKRA, prosecutors win first case involving a lab and bribe

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CEO SUMMARY: Federal investigators wasted little time in using the Eliminating Kickbacks in Recovery Act of 2018 (EKRA) to prosecute fraud involving clinical laboratories and providers. The manager of an opioid treatment center in Kentucky pleaded guilty last month to three counts: soliciting a bribe, making a false statement, and attempting to tamper with evidence. Prosecutors announced the plea and conviction, but the laboratory company remained unnamed.

Word is spreading around the clinical laboratory industry that federal prosecutors recently won their first conviction under the federal Eliminating Kickbacks in Recovery Act (EKRA) of 2018. The case in Kentucky involved a provider requesting a bribe from a clinical laboratory in exchange for referring patient specimens to the lab.

The enactment of EKRA into law in October 2018 created compliance risks for all healthcare providers—especially for clinical labs and anatomic pathology groups—because the law’s language conflicts with practices historically permitted under the federal Anti-Kickback Statute (AKS). (See TDR, Dec. 3, 2018.)

In the Kentucky case, the first count was filed under EKRA, which is part of the Substance Use-Disorder Prevention That Promotes Opioid Recovery and Treatment for Patients and Communities (SUPPORT) Act signed into law on Oct. 25, 2018. The law is aimed at addressing the opioid crisis and prohibits the solicitation or receipt of kickbacks in exchange for the referral of urine drug testing services, among other acts.

On Jan. 10, Robert M. Duncan, Jr.,  the U.S. Attorney for the Eastern District of Kentucky, filed the plea agreement in which Theresa C. Merced, a manager at an opioid treatment center, pleaded guilty to three counts: soliciting a bribe, making a false statement, and attempting to alter evidence in the case, the plea agreement showed.

Possible Jail Term, Fine

Merced faces a potential prison term of 20 years, and a fine of $250,000, and restitution, if applicable.

In court documents, Duncan said Merced was a manager of St. John Neumann’s Extended Hours Clinic, in Jackson, Ky., where patients underwent urine drug testing as part of their care and Merced was involved in referring urine drug testing to clinical toxicology laboratories. Merced’s husband, a physician at the clinic, provided substance abuse treatment to clinic patients, the agreement said without naming the husband.

The Lexington Herald-Leader identified Merced’s husband as Pablo Merced, MD, a family physician.

In the first count, court documents showed Theresa Merced solicited and received remuneration in return for referring patients to a laboratory that was not named.

In the second count, documents showed Merced told an agent of the federal Department of Health and Human Services, Office of Inspector General (OIG), that a $4,000 check from a toxicology lab owner was a loan to Merced’s husband. The statement was false because Merced knew that she had solicited the $4,000 check  as  a kickback in exchange for referring urine drug testing services from the clinic to the toxicology lab, the plea agreement showed.

In the third count, Theresa Merced attempted on Sept. 12, 2019, to alter financial records relating to her receipt of a kickback, court documents explained.

Plea Agreement Facts

In the plea agreement, Duncan said the case began in December 2018 and continued through August 2019. The Lexington newspaper reported Theresa Merced wanted cash and asked the lab company’s CEO to pay for hiring clinic employees and to cover utility costs.

“On or about Dec. 13, 2018, the defendant telephonically contacted R.C., the CEO of a clinical toxicology laboratory located in Lexington, Ky.,” the plea agreement showed. “The defendant solicited kickbacks from R.C. in exchange for her referral of urine drug testing to his laboratory; the solicited kickbacks included cash payments, the hiring of employees to work in the clinic, and the payment of certain utilities.”

The lab was not named  and  R.C. was not identified. In this case, no other charges have been filed publicly. Through a spokesperson, Duncan told The Dark Report that he would not comment on whether the lab or any lab employees would be charged because the case is ongoing. The Lexington newspaper reported that Theresa Merced’s attorney, Darrell A. Herald, said it appeared R.C. cooperated in the investigation.

“Between Dec. 13, 2018, and Aug. 15, 2019, the defendant engaged in multiple conversations with R.C. in which she requested both cash and in-kind payments in exchange for the urine drug test referrals,” the plea agreement said. “The defendant knew the proposed arrangement was illegal. On at least one such phone call, the defendant cautioned R.C. to be discreet because she did not want ‘to be in trouble with the law.’”

On Aug. 15, 2019, R.C. gave Theresa Merced a $4,000 check, court documents showed. R.C. called the  check  “earnest money” toward a total payment of $14,000, the plea agreement said. In addition, court documents showed that R.C. would “hire five employees as requested by the defendant.”

On Sept. 12, 2019, agents from OIG and the Kentucky Attorney General’s Office Medicaid Fraud Control Unit (MFCU) interviewed Merced. The agents warned Merced that making false statements in the interview could result in prosecution.

“The agents asked the defendant why she or her husband cashed a $4,000 check from R.C.,” the plea agreement showed. “The defendant repeatedly denied having seen or knowing anything about the check. The defendant told the agents that her husband was careless with money  and that, in anticipation of an  upcoming vacation, he probably borrowed the money from R.C. The defendant acknowledges that these false statements  about the $4,000 check were material and were made knowingly and willfully.”

The Lab’s Involvement

One month after that interview, Theresa Merced spoke on the phone with R.C. “On Sept. 12, 2019, after being interviewed by the MFCU and HHS-OIG agents, the defendant communicated with R.C. by telephone,” the plea agreement said. “The defendant expressed concern about the investigation and told R.C. that she had explained away the check as a ‘loan.’

“When R.C. informed the defendant that the memo line of the check said ‘rent,’ and that his laboratory’s internal accounting records also classified the kickback as ‘rent,’ the defendant asked R.C. to alter the internal accounting records to say ‘rent/loan,’ the documents showed. “The defendant told R.C., ‘we’ll synchronize … so we won’t incriminate each other.’”

On Jan. 10, Merced appeared in U.S. District Court for the Eastern District of Kentucky with her lawyer and pleaded guilty. Duncan recommended releasing the defendant on an unsecured bond pending sentencing, and that she could self-report to prison if she did not violate the plea agreement or bond conditions.

Chief Judge Danny C. Reeves imposed conditions of Theresa Merced’s release pending sentencing and denied her request to modify the conditions relating to travel restrictions and possession of firearms. Sentencing was scheduled for May 1.

Labs Have Compliance Risk

Since EKRA was enacted in 2018, some of the lab industry’s marketing and sales practices, which either meet a safe harbor of the Anti-Kickback Statute or have historically presented low risk on an analysis of the facts and circumstances, now may be considered illegal.

Lawyers familiar with the law have said all clinical laboratory managers and pathologists need to be aware of provisions in EKRA that appear to eliminate the ability of laboratories to compensate sales personnel (including W-2 employees and 1099 contractors) on a commission-based formula related to any business they generate, whether covered by a government health program or a private health insurer. For this reason, the lab industry has asked federal agencies to address the conflicting language of EKRA and the Anti-Kickback Statute.

Lawyer Says More Charges Are Possible

Danielle   Sloane,  a  member  of  the law firm Bass, Berry, and Sims in Nashville, said more charges are possible in the federal criminal case involving the treatment center manager charged in Kentucky under the Eliminating Kickbacks in Recovery Act of 2018 (EKRA).

Sloane said, “I wouldn’t be surprised if we saw some charges involving the lab in the coming months.

“It’s interesting that the plea agreement doesn’t even name the laboratory company.” she continued. “In many kickback cases, federal prosecutors will go after both sides of the transaction. I don’t see why prosecutors would treat this case any differently, unless the lab thought the payments were for a legitimate purpose.

“It’s possible that the lab reported this defendant’s request for a kickback in exchange for test referrals to state or federal authorities,” she added.

One question left unresolved is how EKRA’s wording appears to conflict with the Anti-Kickback Statute.

“Federal authorities have yet to resolve discrepancies where the two laws overlap. There’s a provision in EKRA that says the statute doesn’t apply to anything prohibited by the Anti-Kickback Statute,” she added. “Given EKRA does not apply to conduct prohibited by the Anti-Kickback Statute, it’s interesting that the prosecution did not include a violation of the Anti-Kickback Statute in addition to EKRA.”

Sloane cautioned lab directors and lab staff to be aware of EKRA’s prohibitions and, with respect to sales, ensure they have an adequate compliance program in place to prevent, detect, and deter inappropriate sales tactics.

Contact Danielle Sloane at 615-742-7763 or DSloane@bassberry.com.

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