The Eliminating Kickbacks in Recovery Act Legality of Percentage-Based Compensation
Date Posted: Saturday,
March 18, 2023
The Eliminating Kickbacks in Recovery Act (EKRA), part of the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment (SUPPORT) for Patients and Communities Act, was passed in 2018. Since its passing, there has been very limited guidance as to how EKRA should be applied.
EKRA makes it unlawful to offer or solicit remuneration in exchange for patient referrals to recovery homes, clinical treatment facilities, or laboratories. Notably, this applies to all laboratories, not just those who test specifically for substance use disorders. EKRA is similar to the Antikickback Statute (AKS), except it is much broader, as it applies to all payors, rather than just federal payors such as Medicare, Medicaid, or Tricare.
Similar to the AKS, EKRA has various "safe harbors," or exceptions, that will apply in certain circumstances, precluding the implication of EKRA. However, these exceptions, again, are much broader than the AKS safe harbors, and some, while similar on their face, are much different.
There are currently only two cases that have been decided concerning employers paying marketers and/or sales personnel a percentage-based compensation for their services.
The first case that was decided was S&G Labs Haw., LLC v. Graves (2021). In this case, the United States District Court of Hawaii determined that percentage-based compensation paid to an employee working in sales did not violate EKRA, because the employee serviced client accounts for those who were not actually receiving testing. Rather, his clients were organizations that needed patients to be tested. Thus, the Court concluded that his accounts did not induce individuals to come to the lab, and therefore the compensation "was not paid to induce him to refer individuals to S&G," which would be a violation of EKRA.
However, in U.S. v. Schena, which was decided in 2022, the Defendant (Schena), the president of a medical technology company (Arrayit), was indicted for, among other things, the payment of illegal kickbacks in violation of EKRA. Essentially, the Defendant offered and paid illegal kickbacks and bribes to individuals and marketing companies in exchange for blood samples collected from patients and orders for allergy testing from healthcare providers. The Defendant then distributed false and fraudulent marketing materials that misrepresented the medical necessity of the tests that were ordered.
The Northern District of California, in this case, rejected the Court's interpretation in S&G Labs that EKRA did not apply because, while commission-based remuneration induced the employee to bring in more business, the client accounts that the employee serviced were not "individuals" whose samples were tested at the lab. Instead, this Court stated that while EKRA does provide safe harbor statutory exceptions for certain renumerations, it does not apply to all employer-employee renumerations.
Ultimately, the Court concluded, "EKRA reaches the conduct at issue in the Superseding Indictment, namely Defendant's alleged scheme to influence marketers by paying them illegal kickbacks to induce the referral of patients to Arrayit. It is irrelevant that some of the marketers caused the referral of patients by conveying Defendant's allegedly false representations about Arrayit to physicians, instead of to the patients directly. The physicians referred the patients based on the misrepresentations, and the marketers received a kickback to 'influence' the physician's referrals. This conduct squarely falls within the text of EKRA."
With limited guidance, those providers that are subject to EKRA, especially laboratories, have been hesitant to compensate employees on a percentage-based, as opposed to a flat fee. Therefore, these provider types should take precaution when establishing their compensation methodologies.
By Bryan Meek, Esq., Brennan, Manna, & Diamond
If you have any further questions regarding EKRA, please contact Bryan Meek, Healthcare Partner, with Brennan, Manna & Diamond, at email@example.com or (330) 253-5586 and/or Healthcare Attorney Rachel Stermer at firstname.lastname@example.org or (330) 253-2019.
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