By Charles Dunham, IV, Shareholder at Greenberg Traurig, LLP
& Benjamin Nipper, Associate at Greenberg Traurig, LLP
In January 2020, the U.S. Department of Justice (DOJ) made its first public announcement of a prosecution under the Eliminating Kickbacks in Recovery Act of 2018 (EKRA) of a former manager of a substance abuse treatment clinic, who pled guilty to violating multiple federal health care fraud laws. News of the charge and guilty plea may cause concern to the laboratory industry because no regulations or guidance have been released since its enactment in October 2018, despite concerns raised by industry stakeholders to both Congress and DOJ that the statutory provisions are unclear and conflict with long-standing safe harbors under the federal Anti-Kickback Statute (AKS). While the DOJ has not secured a conviction under EKRA or defended the law in court, not all clinical laboratories subject to EKRA have the resources to challenge the application of EKRA in court should they be charged. Since there is no current effort by Congress to amend the statute or DOJ to issue any regulations or guidance, clinical laboratories remain in the position of having to comply with a law that, absent alignment (or exception) for AKS compliance or conduct, presents considerable issues for their business model and requires evaluation of how they generate referrals.
Facts of the Case
In late 2018, Theresa Merced was the office manager of a substance abuse treatment clinic in Jackson, Kentucky. As part of its treatment services, the clinic would frequently collect urine samples from its patients and refer the samples to clinical laboratories to test for the presence of drugs—a common practice in the substance abuse treatment industry. According to her plea agreement, in December 2018, roughly two months after EKRA’s passage, Mrs. Merced began negotiating a potential referral arrangement with the CEO of a toxicology laboratory located in Lexington, Kentucky. During their discussions, Mrs. Merced offered to send urine samples collected from her clinic’s patients to this particular laboratory in exchange for cash and in-kind payments, namely, the provision of employees from the laboratory to work in the clinic as well as covering some of the clinic’s utilities costs. In August 2019, the laboratory’s CEO delivered a check for $4,000 to Mrs. Merced as partial payment of the $14,000 she requested; the memo line indicated the check was for “rent.” The CEO also agreed to hire five employees to work in the clinic.
A month later, agents from the Kentucky Attorney General’s Office and the Office of Inspector General (OIG) for the United States Department of Health and Human Services (HHS) interviewed Mrs. Merced to ask about the $4,000 payment. In response, she denied knowing about the check, insinuated that it was a loan to pay for an upcoming vacation and that her husband, a physician at the clinic, would know more about it. When the interview concluded, Mrs. Merced called the lab CEO. She told him that the check was a loan and asked him to alter the lab’s internal accounting records to reflect that representation, “so we won’t incriminate each other.” In November 2019, the United States Attorney’s Office for the Eastern District of Kentucky charged Mrs. Merced with three federal crimes: one for violating EKRA, one for making false statements to federal agents, and one for attempted tampering with records. No charges were filed against either her husband or the lab CEO.
EKRA is just one provision of a much larger bill, titled the Substance Use-Disorder Prevention that Promotes Opioid Recovery Treatment for Patients and Communities Act (“SUPPORT Act”), that represented the culmination Congress’s efforts to combat the nation’s opioid crisis. EKRA, for its part, was aimed at eliminating abusive practices within the substance abuse treatment industry commonly known as “patient brokering,” wherein people suffering from addiction are steered to treatment centers or sober living homes by treating professionals or other individuals who then receive a fee for the referrals.
Specifically, EKRA, with certain exceptions, outlaws conduct by any individual who, in connection with services paid for by any health care benefit program, (1) solicits or receives any remuneration directly or indirectly, in cash or in kind, in return for referring a patient or patronage to a recovery home, clinical treatment facility, or laboratory; or (2) pays or offers any remuneration directly or indirectly, in cash or in kind, either in exchange for patient referrals to a recovery home, clinical treatment facility, or laboratory, or to a person in exchange for that person using the services of a recovery home or clinical treatment facility. Further, the EKRA prohibitions expand beyond the federal AKS by applying to services payable by any public or private program.
Prohibited remuneration can take the form of kickbacks, bribes, rebates, or similar forms of payments or discounts. Violations of EKRA can result in criminal penalties of up to a $200,000 fine and/or 10 years in prison, per occurrence.
Despite its brevity relative to the rest of the SUPPORT Act, EKRA drew criticism from the substance abuse treatment and laboratory industries before and after it was enacted into law. These industry stakeholders complained that the plain language of EKRA goes far beyond the intended goal of the SUPPORT Act; in particular, by criminalizing remuneration for referrals to and from any type of laboratory service. For example, EKRA defines the term “laboratory” as any CLIA certified laboratory, which would apply to any laboratory services even if provided in a hospital laboratory or pathology group practice which have no relation to treatment for opioid use or addiction.
Moreover, EKRA includes an exception provision in relation to the federal AKS which creates more confusion than it intends to resolve. The exception states that EKRA “shall not apply to conduct that is prohibited under [AKS].” This language does not make sense in context. It would be illogical for Congress to expressly permit a payment arrangement under one federal antikickback law, but prohibit the arrangement under another similar antikickback law; however, on its face, such an interpretation may be possible.
Interestingly, EKRA was originally introduced in the Senate by Senator Rubio of Florida and the statutory language is similar to the Florida Patient Brokering Act (“FPBA”) (F.S. § 817.505) (which was the framework for EKRA). FPBA also includes an exception for federal AKS compliance, which was amended by the Florida legislature in July 2019 after multiple court cases challenged the exception and its application. The amendment changed the exception language from (“This section shall not apply to (a) Any discount, payment, waiver of payment or payment practice not prohibited by 42 U.S.C. s. 1320a-7b(b) or regulations promulgated thereunder.”) to (“This section shall not apply to the following payment practices: (a) Any discount, payment, waiver of payment, or payment practice expressly authorized by 42 U.S.C. s. 1320a-7b(b)(3) or regulations adopted thereunder.”) (emphasis added).
The 2019 amendment to FPBA, however, was short lived. Following its enactment, industry stakeholders vociferously denounced the change in language, arguing that the federal AKS does not “expressly authorize” any payment arrangements. That is, the AKS safe harbor provisions are framed as exceptions to the AKS penal provisions which describe conduct that is outside the scope of the AKS. Therefore, the critics argued, the only practical effect of the 2019 amendment was to prevent those who are subject to FPBA from being able to comply by structuring their arrangements to satisfy an AKS safe harbor—seemingly the exact opposite intention of the Florida legislature. In response to these concerns, the Florida legislature amended FPBA yet again to revert to the previous “not prohibited” language and change the FPBA’s reference to the AKS from 42 U.S.C. § 1320a-7b(b)(3) (the safe harbor provisions) to § 1320a-7b(b) (the penal provisions) (effective July 1, 2020).
Almost every state with an anti-kickback law that includes an exception for compliance with the federal AKS uses language such as “expressly authorized by” or “permitted by” to be clear that such payment arrangements will also comply with the state anti-kickback law. Congress simply needs to amend EKRA to replace the word “prohibited” with “permitted” so that those providers who have structured their compliance programs and referral arrangements in accordance with the federal AKS can be assured they comply with EKRA.
At present, much uncertainty remains with regard to EKRA enforcement and the scope of its application. The clinical laboratory trade associations and member organizations have made clear that a statutory amendment by Congress is necessary to clarify EKRA prior to any enforcement by DOJ. While industry stakeholders had hoped for a statutory amendment or the issuance of regulations or guidance to address these concerns before enforcement of the law began, those requests were not met with a response. The DOJ prosecution of Mrs. Merced may suggest that the DOJ does not feel any clarification is warranted and there may not be any forthcoming. If so, EKRA may be cited or charged by DOJ prosecutors alongside federal AKS violations or as a conspiracy more frequently going forward. Thus, unless and until an EKRA case winds up in court and there is an interpretation by the judiciary, clinical laboratories should assume that statute will be enforced as written.