Clinical laboratories need to review how they compensate sales personnel following the passage of the Eliminating Kickbacks in Recovery Act of 2018 (“EKRA”) (Section 8122 of the SUPPORT Act) which is effective as of October 24, 2018.  The SUPPORT Act is a combination of more than 70 bills aimed at fighting the opioid epidemic, with EKRA intended to address patient brokering in exchange for kickbacks of individuals with substance abuse disorders.  However, as written, EKRA is far more expansive.

EKRA adds an all payor (public and private) anti-kickback rule to the health care fraud laws concerning improper remuneration for patient referrals to, or in exchange for an individual using the services of, a recovery home, clinical treatment facility or clinical laboratory.  This broad language enables the federal government to monitor provider arrangements intended to generate business for any laboratory services, not only those related to individuals in treatment for substance abuse disorders, payable by a federal health care program (“FHCP”) or commercial health insurer.

The prior version of the bill entitled “Opioid Crisis Response Act” (passed in the Senate on 9/17/18) did not include EKRA provisions, and it appears that laboratories were thrown into EKRA at the last minute, as multiple House bills proposing the addition of EKRA to the SUPPORT Act did not include laboratories.  Congressman Pallone expressed his concerns with EKRA in that “[i]t did not go through regular order and was not properly vetted . . . it was added at the very last minute . . .”  He further states that: “multiple stakeholders have raised concerns that the language does not do what we think it does. It may have unintended consequences.”  This is evident in our review and analysis of the EKRA provisions.

With regard to payment arrangements with sales personnel, one statutory exemption provides that compensation paid to both W-2 employees and 1099 contractors would not violate EKRA if the payment is not determined by or does not vary by:

  • the number of individuals referred;
  • the number of tests or procedures performed; or
  • the amount billed or received

By inclusion of the statutory exemption in EKRA, Congress indicates that payments to any employee or contractor related to the business they generate is prohibited unless the laboratory can meet the specific criteria under the three-prong exception.

As a comparison, the federal Anti-Kickback Statute (“AKS”)[1] prohibits improper remuneration “in return for referring an individual” or “purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any good, facility, service, or item” directly or indirectly reimbursable by a federal health care program.  We know that the Office of the Inspector General (“OIG”) for the Department of Health and Human Services imposes a broad interpretation of the AKS (especially the phrase “arranging for or recommending”) and has taken the position that a pure marketing relationship to generate FHCP business could be a violation of the AKS.  However, compliance with the regulatory criteria under the Bona Fide Employee safe harbor[2] has been heavily relied upon in the health care industry to permit commission-based payments to sales personnel based on FHCP business they generate.[3]

On its face, EKRA would seem to make such commission-based payments to W-2 sales personnel, otherwise permissible under the AKS safe harbors, a criminal act that can carry up to $200,000 in fines and imprisonment up to (10) years for each occurrence.  However, Congress includes an exemption provision that states: “[t]his section shall not apply to conduct that is prohibited under section 1128B of the Social Security Act (42 U.S.C. 1320a–7b) [Anti-Kickback Statute].”  We are uncertain why Congress used the term “prohibited” instead of “not prohibited” or “permitted” in this provision.  This may have been a mere drafting error, but CMS will need to clarify whether it believes payments to sales personnel permitted under a AKS safe harbor are now prohibited by EKRA.  If that is the case, then the exemption should apply to the business generated by W-2 sales personnel for all payors (public and private) under EKRA.

Prior enforcement actions illustrate that the federal government takes the position that sales personnel can be deemed to induce patient referrals in violation of the federal AKS; however, to our knowledge this position has not been fully litigated and we do not believe this is a strong position.  Generally, sales personnel are in a position to solicit referrals and promote laboratory services but are not in a position to make a patient referral; exert undue influence on medical decision-making; or control an individual’s election of a laboratory service.  This distinction should be relevant to a criminal or civil prosecution; especially in the context of laboratory services where coverage requires an order by a physician or other authorized person.

Notwithstanding the above, EKRA would appear to permit a payment arrangement with sales personnel similar to the type that meets the criteria of the Personal Services and Management Contract safe harbor under the AKS.[4]  That safe harbor permits payments to sales personnel if the compensation is fixed in advance and not determined by the volume or value of the FHCP business they generate, which means commission-based payments do not qualify since there would be a nexus between the compensation and volume or value of business they generate.[5]

Finally, Congress does not address whether intent requires actual knowledge of the statute or specific intent to commit a violation, which is the standard in most criminal laws.  Multiple House bills proposing the addition of EKRA to the SUPPORT Act included intent language that did not ultimately make it into EKRA (“Neither actual knowledge of this section nor specific intent to commit a violation of this section shall be an element of an offense under this section.”)[6].  CMS will need to provide clarity.

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[1]  42 U.S.C. § 1320a-7b(b)(1)

[2] 42 C.F.R. §§ 1001952(i)

[3] 54 Fed.Reg. 3088, 3093 (1989)

[4] 42 C.F.R. §§ 1001952(d)

[5] See 64 Fed.Reg. 36360; OIG Advisory Opinion No. 98-10.

[6] See H.R. 6878 (Sept. 25, 2018).

While the opioid crisis has inspired a wave of new legislation by Congress, the U.S. Department of Justice (“DOJ”) has continued to increase its own response to the prevalent rate of opioid-related drug crimes with a number of new initiatives.  On October 17th, Deputy Attorney General Rod Rosenstein recently delivered remarks at the America’s Health Insurance Plans 2018 National Conference on Medicaid and highlighted the Department’s continued determination to tackle the opioid crisis. Rosenstein’s remarks reiterated Attorney General Jeff Sessions’ recent statements on September 25th at the Office of Justice Programs’ National Institute of Justice Opioid Research where Sessions outlined the varying ways in which DOJ’s resources are being devoted to combating the “national public health emergency.” Both remarks demonstrate DOJ’s continued approach in using “every tool” available to increase prosecution of opioid-related crime – including not only traditional criminal prosecutions but also affirmative civil enforcement actions through the “first-ever civil injunctions under the Controlled Substances Act against doctors who allegedly prescribed opioids illegally” in August, while apparently diverting resources away from more traditional white-collar investigations and prosecutions. Rosenstein and Sessions both applauded the success of Operation Synthetic Opioid Surge, which focuses not on prosecuting drug users, but on “vigorously prosecuting” suppliers of synthetic opioids, such as fentanyl. Sessions in particular noted that shifting focus from users to suppliers, regardless of the quantity of drugs found at the time of arrest, has succeeded in reducing the amount of overdose deaths in Manatee County, Florida by half since last year. Hoping to replicate these results elsewhere, Sessions touted his placement of ten prosecutors who were sent to ten districts with high rates of drug-related deaths to implement the “no amount too small” strategy for prosecuting synthetic opioid trafficking. Sessions noted that this is in addition to the more than 300 new prosecutors he dispatched around the country, as well as the designation in each of the 93 U.S. Attorney’s Offices of an “Opioid Coordinator,” whose job it to “facilitate intake of cases involving prescription opioids, heroin, and fentanyl; and to convene a task force of federal, state, local, and tribal law enforcement.”

Data analytics continues to be one of the most important tools in the Department’s toolbox. In his remarks, Sessions discussed the implementation of an innovative data analytics program that identifies opioid-related health care fraud in various “hot spot districts” around the country. The “Opioid Fraud and Abuse Detection Unit” mines “federal health care databases” and will help federal prosecutors efficiently identify “suspicious outliers,” such as doctors who prescribe opioids at a higher rate than their peers, doctors whose patients have died within sixty days of receiving an opioid prescription, and pharmacies dispensing a disproportionate amount of opioids. Indeed, in August, DOJ established the nation’s first opioid–focused Medicare Strike Force in Newark/Philadelphia region.

Rosenstein and Sessions also praised the Department’s overall health care fraud enforcement efforts and accomplishments to date, focusing on their view that “we lost proper emphasis on drug cases under the previous administration.” Rosenstein noted that since January 2017, DOJ “has charged more than 200 doctors and 220 other medical personnel for opioid-related crimes. The cases involved tens of millions of pills prescribed illegally.”

In a recent case of note, in a Southern Florida takedown this summer, which was part of the DOJ annual Health Care Fraud Takedown, four individuals were prosecuted in connection with kickbacks received from Smart Lab, LLC (“Smart Lab”), a clinical laboratory in Palm Beach Gardens, Florida, which involved alcohol and drug addiction treatment centers. Last month, Smart Lab, the corporation’s Chief Executive and Chief Operating Officers, as well as the top sales representative plead guilty to a series of heath care fraud and money laundering schemes.

The charges alleged that hoping to monetize from the increased volume of opioid-related health care services, such as confirmatory urinary analysis testing, Smart Lab and its executives entered into employment agreements with “sales representatives” to solicit bodily fluid samples from various substance abuse treatment centers. Smart Lab then conducted expensive confirmatory and medically unnecessary drug testing on the samples and submitted the claim to insurance for reimbursement, including from federal health care programs. In exchange for the referrals, Smart Lab kicked back a portion of the reimbursement to the owners, operators, or clinicians of the substance abuse treatment centers. On November 1st, the two owners of Smart Lab, one of whom was a former pitcher for the Miami Marlins, were sentenced to 46 and 63 months in prison, respectively, for their involvement in the operation, repaid almost $3.8 million to defrauded insurers and received a total of $70,000 in fines. Smart Lab, as a corporation, was sentenced to three years’ probation. Smart Lab is just one example of many cases in which the Department is prosecuting both entities and individuals seeking to profit from the opioid crisis.

Beyond just prosecuting suppliers domestically, DOJ is also focusing on sending a strong warning message   to foreign synthetic opioid manufacturers. Indeed, the Department indicted two leaders of the Zheng drug trafficking organization this August, after it determined that the company was using shell companies to ship synthetic opioids and fentanyl analogues to over 25 countries and to 37 U.S. states.

In an effort to stop the supply and distribution of all kinds of opioids, DOJ is also focusing on targeting “web-based drug trafficking” of synthetic opioids. Rosenstein applauded the establishment of the Joint Criminal Opioid Darknet Enforcement Team, under which the FBI has “doubled its investment in the fight against online drug trafficking by devoting more than 50 Special Agents, Intelligence Analysts, and professional staff to help disrupt the sale of synthetic opioids.”

Overall, the message from Sessions and Rosenstein is clear: the DOJ is leveraging its resources to focus on opioid-related health care fraud and crimes. Accordingly, we can expect an increased rate of civil and criminal enforcement actions targeting opioids as DOJ continues to devote its focus towards combating the opioid crisis.

On October 24, 2018, President Trump signed sweeping bipartisan legislation to combat the opioid epidemic. The Substance Use–Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act, or the SUPPORT for Patients and Communities Act (“H.R. 6” or “the Law”), aims to “reduce access to the supply of opioids by expanding access to prevention, treatment, and recovery services.”[1] Congress has already appropriated $8.5 billion to implement this “landmark legislation” in 2018 and 2019.

In a series of Client Alerts, Epstein Becker Green will provide an overview of key components of H.R. 6, focusing on substantive requirements impacting an array of providers, manufacturers, health care professionals, community services organizations, and other health care entities. Forthcoming topics include the impact on treatment measures for opioid use disorders, addiction prevention measures, clarifications to U.S. Food and Drug Administration and U.S. Drug Enforcement Administration regulation and enforcement authority over opioid products, Medicare and Medicaid funding provisions, enhanced health care fraud protection, new data & reporting provisions, and telehealth requirements.

H.R. 6’s breadth requires impacted entities to take careful note of the Law’s requirements and varying effective dates.

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[1] Press Release, The White House, President Donald J. Trump Signed H.R. 6 into Law (Oct. 24, 2018), available at https://www.whitehouse.gov/briefings-statements/president-donald-j-trump-signed-h-r-6-law/.

[2] Press Release, U.S. Senate Committee on Health, Education, Labor & Pensions, President Trump Signs Alexander Bill to Fight Opioid Crisis (Oct. 24), available at https://www.help.senate.gov/chair/newsroom/press/president-trump-signs-alexander-bill-to-fight-opioid-crisis.