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).

Recent settlement agreements between the United States Department of Justice (the “DOJ”) and two urologist business partners suggests that the government may be focusing increased enforcement efforts on the Stark Law’s “group practice” requirements and the Stark exception for “in-office ancillary services.”  The urologists agreed to pay over $1 million to resolve the allegations.

In early January 2018, the DOJ entered into settlement agreements with Dr. Aytac Apaydin and Stephen Worsham to resolve allegations that the physicians submitted improper claims to Medicare for image-guided radiation therapy (“IGRT”) services provided between 2008 and 2014.  IGRT uses imaging to improve the accuracy of radiation therapy during cancer treatment. IGRT is reimbursable by Medicare and is considered a “designated health service” under the Stark Law.

Drs. Apaydin and Worsham jointly owned two businesses: Salinas Valley Urology Associates (“SVUA”), a California medical practice, and Advanced Radiation Oncology Center (“AROC”), a facility where IGRT services were performed.  The settlement agreements highlight two types of problematic arrangements involving these entities:

  1. SVUA, the private medical practice, billed Medicare for IGRT services performed at AROC. However, the government contends that the financial relationship between SVUA and AROC failed to comply with an applicable Stark Law exception.
  2. AROC entered into “lease arrangements” with other local urologists and urology practices (the “Lessee Urologists”) pursuant to which the Lessee Urologists billed Medicare for IGRT services performed at AROC on patients that were referred by the Lessee Urologists’ own practice.  The government contends that providing the IGRT services at AROC did not meet the Stark Law “location requirements” applicable to the Lessee Urologists’ practices, and also contends that the lease arrangements violated the Anti-Kickback Statute.

The settlement agreements provide only brief descriptions of the allegedly improper arrangements and do not specifically describe or explain the government’s theory as to why the arrangements violated the Stark Law and AKS.  However, the reference to the Stark Law “location requirements” provides a clue.

As a general matter, the Stark Law permits a physician to profit from the physician’s referral of a designated health service if the service is performed within the referring physician’s “group practice” and in a building that is used by the group practice for providing physician services or other centralized designated health services.  These services are referred to as “in-office ancillary services” and are the subject of a statutory exception to the Stark Law, as well as a more detailed exception under the Stark Law regulations.   By stating that AROC did not meet the “location requirements,” the government appears to be alleging that that the urology practices could not satisfy the requirements of the Stark “in-office ancillary services” exception, which was likely the only exception available to protect the arrangement from Stark Law liability.

Stark’s “in-office ancillary services” requires compliance with the following three requirements (codified at 42 U.S.C. § 1395nn(b)(2)):

  1. Performance. The services must be performed personally by:
    • The referring physician;
    • A physician who is a member of the same group practice as the referring physician; or
    • Individuals who are directly supervised by the referring physician or by another physician in the group practice.
  2. Location. The services must be furnished in one of the following locations:
    • In a building in which the referring physician (or another physician who is a member of the same group practice) furnishes physicians’ services unrelated to the furnishing of the designated health services; or
    • In the case of a referring physician who is a member of a group practice, in another building which is used by the group practice: (a) for the provision of some or all of the group’s clinical laboratory services, or (b) for the centralized provision of the group’s designated health services.
  3. Billing. The services must be billed by:
    • The physician performing or supervising the services;
    • A group practice of which such physician is a member under a billing number assigned to the group practice; or
    • An entity that is wholly owned by such physician or such group practice.

Before a practice can take advantage of the “in-office ancillary services” exception, it must be structured to comply with Stark’s comprehensive definition of a “group practice.” The Stark regulations at 42 C.F.R. § 411.352 set forth detailed requirements related to how the practice is owned and operated, covering topics such as:

  • Corporate structure;
  • The range of care provided by physicians within the group, as well as the amount of time such physicians spend providing services through the group;
  • Distribution of the group’s expenses and income;
  • Centralized decision-making;
  • Consolidated billing, accounting and financial reporting; and
  • Physician compensation.

This settlement is significant because there have been very few enforcement actions or settlement agreements alleging violations of the Stark Law based on a group practice’s failure to comply with the “in-office ancillary services” exception.  If you are a physician or physician group that relies on the “in-office ancillary services” exception to share profits from ancillary services that you may refer, this settlement should be a wake-up call —  make it a priority to review and confirm that: (i) your group meets the Stark definition of a “group practice” and all of its detailed requirements, and (ii) all ancillary services are provided in locations that meet the requirements of the Stark “in-office ancillary services” exception.