The U.S. Department of Justice (“DOJ”), the Federal Trade Commission (“FTC”) and various other federal, state and local government agencies have focused enforcement efforts on the COVID-19 pandemic and are aggressively pursuing individuals and companies that seek to defraud the public, as detailed in previous Snell & Wilmer Legal Alerts (available here and here). In the wake of headlines and FDA warning letters seeking to crackdown on fraudulent COVID-19 antibody tests, given the surge in demand for COVID-19 testing and current shortages of testing resources, it may be likely that federal authorities will scrutinize and/or bring charges against testing referral and kickback arrangements that run afoul of federal law. This article describes potential ways in which clinical laboratories and their owners and investors may evaluate compensation structures and marketing practices related to COVID-19 testing in an effort to identify and remediate any potentially noncompliant tactics.
The Elimination of Kickbacks in Recovery Act of 2018
The Elimination of Kickbacks in Recovery Act of 2018 (“EKRA”), codified at 18 U.S.C. § 220, was signed into law on October 24, 2018 as a part of the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act (“SUPPORT Act”). Congress enacted EKRA to help bridge an enforcement gap within the substance abuse and clinical laboratory industry that was not explicitly covered by the federal Anti-Kickback Statute (“AKS”) 42 U.S. Code § 1320a–7b and Stark Law (“Stark”), codified at 42 U.S. Code § 1395nn.
Notably, EKRA broadly defines a laboratory as “a facility for the biological, microbiological, serological, chemical, immuno-hematological, hematological, biophysical, cytological, pathological, or other examination of materials derived from the human body for the purpose of providing information for the diagnosis, prevention, or treatment of any disease or impairment of, or the assessment of the health of, human beings.” While EKRA was enacted with the goal of combatting the opioid crisis, this definition likely encompasses all clinical laboratories, regardless of whether or not they provide substance abuse testing or treatment.
In many regards, EKRA mirrors the enforcement kickback objectives of the AKS. EKRA broadly prohibits soliciting, receiving, offering or paying “remuneration (including any kickback, bribe or rebate)” in return for referrals to, or in exchange for using the services of, a “recovery home,” “clinical treatment facility” or “laboratory.” Violations of EKRA are significant, and penalties per violation can include imprisonment of up to 10 years and a $200,000 fine (or both).
Where AKS only applies to items and services “for which payment may be made in whole or in part under a Federal health care program,”1 EKRA’s scope is much broader, reaching any service “covered by a health benefit program” (including private payors). As such, in addition to the familiar enforcement actions brought in connection with federal healthcare programs under the AKS, clinical laboratories should be aware that EKRA may apply to virtually any business conducted by any clinical laboratory, including financial relationships with commercial insurance and self-pay patients.
Importantly, EKRA provides eight statutory exemptions for permitted conduct that might otherwise meet the definition of remuneration, including: (1) properly disclosed discounts; (2) bona fide employment relationships without volume-based compensation; (3) the Medicare coverage gap discount program; (4) personal services and management contracts; (5) non-routine and good faith waivers or discounts of coinsurance or copayments; (6) remuneration otherwise covered under 42 U.S.C. § 1320a-7b(b)(3)(I); (7) remuneration made under an alternative payment model; and (8) any other remuneration determined by the Attorney General.
However, note that EKRA’s bona fide employee exception is far stricter than the equivalent safe harbor under the AKS. EKRA does not permit any form of volume- or value-based compensation, meaning that traditional employee sales commissions programs appear to be potentially within the scope of prohibited activities.
EKRA Enforcement
On January 10, 2020, the DOJ secured its first EKRA conviction.2 In that case, an office manager of a substance abuse treatment clinic in Kentucky pled guilty to one count of violating EKRA because she solicited kickbacks from a toxicology laboratory in exchange for urine drug testing referrals. She also pled guilty to making false statements to law enforcement agents regarding the kickback she received, and one count of attempted tampering with records for requesting that financial records be altered. The office manager is expected to be sentenced soon, and faces up to 20 years in prison and a $250,000 fine.
As clinical laboratories race to surge COVID-19 testing (including serological testing), it remains to be seen how the DOJ may utilize EKRA as a tool for prosecuting COVID-19-related fraud.
EKRA & COVID-19 Compliance Oversight
The DOJ has already begun vigorously investigating and prosecuting health care fraud related to COVID-19. On March 30, 2020, the U.S. Attorney’s Office for the District of New Jersey charged an individual with an illegal Medicare beneficiary steering scheme in an effort to obtain financial kickbacks for COVID-19 tests.3 In this case, the individual is currently charged with violating the AKS for allegedly offering kickbacks in exchange for medically unnecessary tests—including “potentially hard to obtain COVID-19 tests.”
Given the expansive scope of EKRA’s application, clinical laboratories may want to consider mitigating compliance risk by remaining diligent and familiarizing themselves with EKRA. Clinical laboratories may also want to consider developing EKRA compliance policies and training resources incorporating its provisions. An EKRA policy may include appointing a compliance person to recognize and monitor EKRA issues and educating all laboratory employees, agents and contractors of EKRA do’s and don’ts. Moreover, laboratories may want to evaluate existing and new financial relationships to ensure that any potential instance of remuneration falls into one of EKRA’s exemptions.
In light of the increasing production and availability of COVID-19 tests coupled with heightened DOJ scrutiny, clinical laboratories may want to utilize this opportunity to prioritize EKRA compliance efforts. We will continue to monitor and update any DOJ and/or legislative guidance on EKRA as it becomes available.
