New Opioid Law Hits Labs Paying Sales Commissions

ACLA requests HHS to review safe harbors under ‘Support for Patients and Communities Act’

CEO SUMMARY: At the last minute, Congress added all clinical laboratories to a far-reaching anti-kickback provision in the newly-enacted Support for Patients and Communities Act. This provision applies to all payers, both government and private. Lab experts say this new law could have a negative effect on patient care because it could make relatively innocuous and heretofore permissible practices into criminal offenses, such as placing phlebotomists in physicians’ offices.

THERE’S A NEW FEDERAL LAW applicable to both government and private health plans that could put every clinical laboratory and pathology group with commission-based sales staff at risk of compliance violations.

Within 24 hours of this legislation becoming law, the American Clinical Laboratory Association (ACLA) was communicating its concerns to officials at the federal Department of Health and Human Services (HHS). That communication came as part of its response to a request for information from the Office of Inspector General of HHS (OIG) on the Anti-Kickback Statute.

On Oct. 25, the day after the Support for Communities and Patients Act was signed into law, Sharon L. West, the ACLA’s Vice President, Legal and Regulatory Affairs, asked the Inspector General of HHS to ensure that healthcare providers would be protected under the new law.

OIG should make clear to healthcare providers and law enforcement agencies, “that conduct protected by a safe harbor under the current Anti-Kickback Statute would not be treated as a criminal offense under a different federal law,” West wrote. One point of significant confusion is because the Support Act’s anti-kickback provisions cover all payers, while the federal Anti-Kickback Statute applies just to federal healthcare programs.

Earlier this year, as the Support Act moved through Congress, the ACLA noticed that, late in the process, language was added that put certain practices at risk even though those practices are common among clinical laboratories, West said in an interview with The Dark Report. Coincidentally, the ACLA was preparing to respond to the request for information from the OIG about the federal Anti-Kickback Statute.

Implications for Clinical Labs

In the weeks since the Support Act became law, healthcare attorneys have begun to learn about its potential onerous implications for laboratories that pay commissions to sales staff, whether they are employees or independent contractors.

In a warning note to clients on Nov. 29, Charles C. Dunham IV, a healthcare attorney with Epstein Becker Green, explained that all clinical laboratory managers and pathologists need to be aware of provisions in the Support Act 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 third-party payer business they generate, whether from a government health program or a private health insurer.

Originally, the provision in question was called the Eliminating Kickbacks in Recovery Act (EKRA) before it became Section 8122 of the Support Act, he wrote.

Added at the 11th Hour

EKRA was added to the Support Act, he wrote, “at the 11th hour, along with the inclusion of laboratories, and there are a number of unclear and questionable provisions that appear to pre-empt the safe harbors under the federal Anti-Kickback Statute and certain state anti-kickback rules.” While the laboratory industry is lobbying for amendments to the statutory language, whether and when such amendments will be forthcoming is unknown, he added.

West cautioned that clinical laboratories need to be aware that the law has potentially negative effects on existing specimen collection arrangements and could make labs criminally liable for placing phlebotomists in physicians’ offices to draw patients’ blood.

Clearly, the new legislation is a significant concern. “In an effort to address the opioid crisis and some of the bad actors in that space, Congress added these far-reaching and significant anti-kickback provisions that now create confusion and potential liability for labs and those providers that refer [lab tests] to them,” West commented.

“Primarily, this language was designed to address potential bad actors working in recovery homes and addiction treatment facilities,” West added. “But then language was added to the bill extending that far beyond treatment facilities to include clinical labs. Now the new law extends to all payers and all laboratory testing services provided to patients.”

Phlebotomists in Offices

One of the ACLA’s concerns involves the Support Act’s potentially negative effect on patient care. “It’s important to note that these provisions could affect arrangements that are truly beneficial to patients and to the community,” West said. She was referring to situations in which clinical labs use phlebotomists to collect specimens in physicians’ offices—a practice that this law could make illegal.

“It’s fairly common to have a lab provide a phlebotomist in a physician’s office to draw the blood and send it to the lab,” she added. “Under the federal Anti-Kickback Statute, placing a phlebotomist in a physician’s office is not an inducement as long as the phlebotomist is not involved in other tasks that would normally be the responsibility of the physician’s office staff.

“This kind of arrangement benefits patients because it increases the chance that the patient gets the test. Not having to leave the office to get the blood work done also speeds turnaround time for physicians who need timely lab test results,” noted West.

“The OIG has already said this practice of placing phlebotomists in physicians’ offices is not an inducement when implemented correctly,” she added. “Therefore, it’s hard to imagine that these arrangements should go away. But, the breadth of the way the Support Act is written—covering both government and commercial payers—calls into question this practice.”

An issue of similar concern involves specimen collection. “Many labs provide specimen collection devices to physicians’ offices, a topic OIG has addressed,” West explained. “The OIG has said providing collection devices to physicians’ offices for the sole purpose of collecting and transporting specimens is not necessarily an inducement to refer specimens. But even though it’s permissible under the current federal Anti-Kickback Statute, there’s no language that says this is permissible in the Support Act.”

Of greatest concern to clinical labs may be how they pay sales staff. “In the federal Anti-Kickback Statute, there’s an employment exception,” noted West. “But under the Support Act, the exception applies only if the employee’s payment doesn’t vary with the number of tests or procedures performed and billed. Yet that’s a common practice for how sales personnel are compensated right now.

Lawyer: Support Act Has Broad Implications for All Healthcare Providers, Including Labs

ONE LAWYER FAMILIAR WITH THE SUPPORT ACT said the new law has wide implications for all healthcare providers.

Ken Yood, a partner with Sheppard Mullin, a law firm in Los Angeles, said the law originally was intended to apply to sober houses and addiction treatment centers. But Congress included all clinical laboratories to the legislation and not just those labs providing toxicology testing, he added.

“A broad swath of healthcare providers and suppliers should be concerned about this new law,” he said. “It’s not just recovery homes and treatment facilities. It’s clinical laboratories and physician office laboratories too. Also, healthcare providers who work with recovery homes, treatment facilities, and laboratories need to know about this law.”

The Support Act itself is complex, in part because of the way it overlaps with the federal Anti-Kickback Statute and other federal laws that target healthcare fraud. “Since the new law does not replace or amend the Anti-Kickback Statute, interpretation of the new law in a way that fits with other existing fraud and abuse laws is challenging, to say the least,” Yood commented.

“All providers should seek expert healthcare legal advice and counsel to evaluate the law’s impact on their operations and relationships,” he added. “There will be many regulations under this law, and providers will need to stay abreast as those regulations are written.”

One of the most challenging aspects about this law is that it applies to all providers and all payers, not just federal healthcare programs such as Medicare and Medicaid. “As a result, unlike the federal Anti-Kickback Statute that relates only to healthcare services reimbursed under a federal healthcare program, the new law’s application to all payers, providers, and healthcare services means that the scope of potential fraud- and abuse-related liability for laboratories has significantly expanded,” Yood cautioned.

“As we all know, the federal Anti-Kickback Statute applies to people who are subject to federal and state healthcare payer programs,” he commented. “Therefore, healthcare payers and providers already are educated to think about fraud and abuse routinely when dealing with Medicare- and Medicaid-related arrangements.

“Now, however, laboratories and other applicable providers will need to think routinely about the Support Act too,” noted Yood. “Although this will be a new hurdle for impacted providers, it won’t be entirely new for them because many state laws targeting healthcare fraud apply to all payers.”

Given that the Support Act applies to all private and government payers, fraud enforcement activities may increase, along with an increase in the volume of multimillion dollar fraud settlements, Yood warned. “After all, whereas the investigative and enforcement authority of the federal enforcement agencies were generally limited to the world of government payers, the Support Act gives enforcement agencies a whole new world in which to move,” observed Yood.

Lab Reps’ Commissions

“So how does a lab manage that?” she asked. “Must it revise all of its employment agreements? Does it have to change the sales reps’ incentive structure?

“These questions about the structure of sales compensation are some of the most difficult to answer,” continued West. “The language in the Support Act that addresses sales commissions is a perfect illustration in how overly broad the law is.

“In fact, this is one unintended consequence in the Support Act because it extends to all clinical labs, all medical services, and all payers,” said West. “Yet the law was originally intended to solve just one issue that has arisen from the opioid crisis.”

It is not known whether any federal agency will issue regulations to explain how healthcare providers can follow this new law. To date, ACLA is not aware regulations are being discussed. “Right now, the law is in effect and we don’t know whether or not guidance will be promulgated,” she said. “Such guidance is not mandatory. Because these provisions are part of the criminal code, the Attorney General can promulgate regulations in consultation with HHS. But whether that will occur we don’t know.”

For now, many of the questions lawyers are raising about the Support Act cannot be answered without guidance from OIG, some other office of HHS, or the Attorney General. In the meantime, lawyers are raising still more questions.

“What effect does the Support Act have on regulations that have been issued under other laws that might conflict with the new federal law?” asked West. “And what about other guidance that the HHS has issued that could conflict?

“ACLA continues to dig into the implications of this legislation and has identified that it could have an effect on group purchasing organizations (GPOs),” West said. “Under arrangements with GPOs, clinical labs may pay an administrative fee to make the GPO’s services available to GPO members. It’s unclear that these arrangements would be permissible under the Support Act.”

Clinical labs and other healthcare providers often donate their services to federally qualified health centers (FQHCs). “In theory, Congress would want labs to donate testing services and supplies to FQHCs currently under federal protection,” she commented. “Those donations help FQHCs to do more to help those in need, but it’s unclear whether such practices would be protected under the Support Act.”

Pathologists and clinical laboratory directors wanting advice on how to proceed should seek legal counsel. “Since the law came across our desk, we’ve been doing what we can to educate our members and raise the concerns about these issues,” West concluded. “Unfortunately, there just aren’t clear answers right now.

“Having said that, we’re seeking clarity as best we can from the administration and from Congress,” she said. “But it’s just not there yet.”

Contact Sharon West at info@acla.com or 202-637-9466; Ken Yood at kyood@sheppardmullin.com or 310-228-3708.

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