On October 18, 2021, a U.S. District Court in Hawaii decided that providers subject to the federal Eliminating Kickbacks in Recovery Act (EKRA) are permitted to pay employees and independent contractors sales commissions for clinical laboratory sales. The suit was brought by a laboratory account manager to enforce payment of wages under his employment agreement pursuant to which his lab employer agreed to pay him a base salary plus percentages of net profits from his own client accounts and from those of lab employees he managed. The lab argued that the commission-based compensation scheme under the employment agreement would violate EKRA and was therefore illegal and unenforceable. The court, however, disagreed.
EKRA is a criminal statute that prohibits kickbacks or any other form of remuneration for referrals for services by a recovery home, clinical treatment facility, or laboratory that are paid for under any health care benefit program, including private as well as government programs. Specifically, EKRA prohibits paying or offering remuneration "(A) to induce a referral of an individual to a …laboratory; or (B) in exchange for the individual using the services of that …laboratory." 18 U.S.C. §§ 220(a)(2)(A),(B). While EKRA is a relatively new law, for which implementing regulations have yet to be published, a number of commentators have interpreted EKRA to prohibit recovery homes, clinical treatment facilities, or laboratories from paying sales commissions to employees or independent contractors. However, this recent decision departs from this view and provides a narrower interpretation of EKRA’s prohibitions.
Crucial to this finding was the court’s interpretation of “individual” in the statute. Because that term is not defined in EKRA, the court looked to the meaning of that term in the federal Anti-Kickback Statute and interpreted the word “individual” in section (A) to refer to the patient undergoing testing, and in section (B) to refer to the account manager himself. In finding that the employment agreement terms did not violate EKRA, the court reasoned that with respect to the prohibition in section (A), the manager’s sales efforts were directed towards physicians and other lab clients and, therefore, the account manager was not paid to induce referrals of individuals. Further, with respect to section (B), there was no EKRA violation, according to the court, because the remuneration was not paid in exchange for the account manager’s use of the lab’s services.
The court recognized that the commission-based compensation scheme undoubtedly induced the account manager to bring more business to the lab, and that the arrangement would not meet EKRA’s exception for payments to employees or independent contractors, which does not apply to payments based on the volume or value of tests performed or billed. These findings ended up being irrelevant, however, because the court concluded that the compensation provisions of the account manager’s employment agreement did not violate EKRA in the first instance.
The case is S&G Labs Hawaii v. Graves, Civ. No. 19-00310, 2021 WL 4847430 (D. Haw. Oct. 18, 2021). The full opinion is available here.
