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).

The Centers for Medicare & Medicaid Services (CMS) issued a final rule on November 1, 2018 that updates physician fee schedule (PFS) payments for calendar year (CY) 2019 and finalizes several policies. The final rule includes amendments to the regulations promulgated under Section 216 of the Protecting Access to Medicare Act of 2014 (“PAMA”) intended to increase the number of clinical laboratories that qualify as an “applicable laboratory” for reporting purposes; specifically (1) removal of payments received from Medicare Advantage (MA) Plans for determining applicable laboratory status and (2) the use of the Form CMS-1450 14x Type of Bill (TOB) to define an applicable laboratory.

Before the start of the next data collection period (starting January 1, 2019) clinical laboratories will need to determine how these amendment may have impacted their applicable laboratory status.  Epstein Becker Green is working with our clients to provide counsel how to comply with these amendments and determine how to record and report its billing data to CMS.

Medicare Advantage (MA) Plan Payments. The first amendment is simple and straight forward.  CMS has removed MA Plan payments to laboratories from the calculation of total Medicare revenues.  The change would remove such Medicare revenue from the denominator of the fraction that is used to determine whether a laboratory received more than 50 percent of its revenues from PFS and Clinical Laboratory Fee Schedule (CLFS) services.  CMS explained that it was not logical to consider MA Plan payments in calculating Medicare revenues received by a laboratory, while also requiring the applicable laboratory to report such payments as an MA Plan is defined as a private payor under PAMA (42 C.F.R. § 414.502).  As such, laboratories that furnish Medicare services to a significant number of beneficiaries enrolled in MA plans may now meet the majority of Medicare revenues threshold criterion, and therefore, qualify as an applicable laboratory.

CMS 1450 14X Type of Bill (TOB).   This amendment is more complicated. The definition of an “applicable laboratory” now includes clinical laboratories that receive at least $12,500 of Medicare revenues from the CLFS for claims submitted using the CMS 1450 14X bill type, which is used by some hospital outreach laboratories to bill for laboratory services provided to non-patients.  CMS has essentially created a de facto entity (“hospital outreach laboratory”) that meets the definition of an applicable laboratory based on how the hospital laboratory bills Medicare Part B for a sub-set of test services.

The problem is that the 14X bill type is a billing mechanism for claim submission to Medicare Party B and is not used by all private payors. This poses the question of how a hospital laboratory will correctly identify and collect applicable information associated solely with this de facto entity (hospital outreach laboratory). CMS does not adequately address in the final rule how the term “non-patient” is defined for purposes of determining private payor rates that the hospital laboratory must report.  CMS needs to provide clarity in sub-regulatory guidance and provider education materials on this issue.

Interestingly, in its response to the proposed rule, the American Hospital Association included data that showed hospital outpatient claims reported using 14X bill type was only 12.20%, whereas the percentage of hospital outpatient claims billed using the 13X bill type represents was 87.37% of all hospital outpatient claims.

In 2014, CMS created narrow exceptions for circumstances when hospitals function as independent laboratories and instructed hospitals to use the 14X TOB to obtain separate payment only in the following circumstances: (1) non-patient (referred specimen), (2) hospital collects a specimen and furnishes only the outpatient labs on a given date of service; or (3) hospital conducts outpatient lab tests that are clinically unrelated to other hospital outpatient services furnished for the same day. “Unrelated” means the laboratory test is ordered by a different practitioner than the one who ordered the outpatient services and for a different diagnosis.  However, CMS permits hospitals to bill under 13X TOB in circumstances (2) and (3) above when non-referred laboratory tests are eligible for separate payment.  Most hospitals likely opt to bill under 13X TOB when eligible as those revenues are not taxed as income, as compared to revenues under a 14X TOB which are taxable income as an unrelated business expense.

Ironically, CMS has argued in a federal lawsuit and proposed rules that Congress did not intend hospital outreach laboratories to qualify as applicable laboratories.  Moreover, CMS has repeatedly argued in a federal lawsuit and the final rule that there is no reason to believe that increasing the level of participation would result in a measurable cost difference under the Medicare Part B CLFS payment rate.  In the final rule, however, CMS states “[w]e believe that we will only know the impact of the data on CLFS rates by collecting data from hospital outreach laboratories. . . . [h]owever, if it becomes apparent that data from hospital outreach laboratories do not result in a significant change in the weighted median of private payor rates, we will revisit the use of the CMS-1450 14x TOB through future rulemaking.”   Ultimately, CMS suggests that these amendments were actually made to placate stakeholder concerns regarding the number of applicable laboratories reporting applicable information from the initial data reporting period.

The Office of Inspector General (“OIG”) of the U.S. Department of Health and Human Services issued Advisory Opinion No. 18-03 in support of an arrangement where a federally qualified health center look-alike (the “Provider”) would donate free information technology-related equipment and services to a county health clinic (the “County Clinic”) to facilitate telemedicine encounters with the County Clinic’s patients (the “Proposed Arrangement”).  The OIG concluded that although the Proposed Arrangement could potentially generate prohibited remuneration under the federal Anti-Kickback Statute (“AKS”) and Civil Monetary Penalties Law (“CMPL”) with the requisite intent to induce or reward referrals of federal health care programs, the OIG would exercise its discretion and not sanction the Provider or the County Clinic (collectively the “Requestors”).

The OIG’s analysis and conclusion of the Proposed Arrangement provides new insight into the government’s position on these type of donations that facilitate telemedicine encounters.  Specifically, how the government views these type of donations with the continued expansion of coverage and reimbursement of telemedicine services under federal health care programs.  The Advisory Opinion indicates support for the development of collaborative telemedicine affiliations and that the potential remuneration from the future referrals can be outweighed by the access to health care services and benefits actually received by rural or remote communities.

Proposed Arrangement

The County Clinic is a division of the County Department of Health that furnishes certain confidential sexually transmitted infection testing, treatment and counseling. The Provider has an existing referral relationship with the County Clinic but the facilities are separated by about 80 miles making it difficult for patients to access the Provider.  Under the Proposed Arrangement, the Provider would donate information technology-related equipment and services to the County Clinic to facilitate telemedicine encounters between the Provider and the County Clinic’s patients for certain HIV prevention and treatment services.  The Provider would cover the costs of the equipment, its set up, and maintenance through grant-funding from the State Department of Health.  The Provider would bill the Medicare program for the professional services delivered in the telemedicine encounters.  The County Clinic would house the equipment and bill the state Medicaid program an originating site fee related to the telemedicine encounters. The originating site is not required to provide any personnel or equipment in order to bill for the facility fee (Q3014) (which is only a coverage requirement to provide the telehealth consult).

OIG Analysis

AKS makes it a criminal offense to knowingly and willfully offer or receive remuneration in an effort to induce or reward referrals of items or services reimbursable by federal health care programs. CMP provides for penalties against any person who offers or transfers remuneration to a Medicaid or Medicare beneficiary that the benefactor knows or should know is likely to influence the beneficiary’s selection of a specific provider, service, or item that will be paid, in whole or part, by Medicaid or Medicare.

Under the Proposed Arrangement, the County Clinic would receive remuneration of the free equipment and services and the Provider would have the opportunity to bill for the telehealth consultation referred by the County Clinic.  As such, the OIG acknowledged that the Proposed Arrangement could potentially generate prohibited remuneration under the federal AKS with the requisite intent to induce or reward referrals of services payable by a federal health care program.  However, the OIG identified the following factors as minimizing the potential risk of fraud and abuse:

  • There are safeguards in place to prevent patient steering to the Provider for treatment; namely use of technology with any other provider is not restricted and patients are given the option to have either a virtual or in-person consultation
  • Not likely to result in patient steering for prescriptions to any pharmacy operated by the Provider or County Clinic
  • There would be no increased cost to any federal health care program
  • Patients would benefit by having increased access to treatment; making it more likely that patients will seek out and receive such services

It is important to keep in mind that under the Proposed Arrangement the County Clinic would not obtain ownership of the equipment, as the Provider would use grant funds awarded by the State Department of Health to cover the costs of the equipment and services and the state agency would retain title and have the authority to recover the equipment at any time.  This could prove to be an important distinction concerning whether and how donating providers can provide information technology-related equipment and services to referring facilities in the other arrangements.

Notes and Comments

In prior Advisory Opinions (99-14, 04-07 and 11-12) concerning donations of information technology-related equipment and supplies, the OIG similarly concluded that it would not pursue sanctions; however, those proposed arrangements would not have directly resulted in a service payable by a federal health care program, but rather would only potentially result in other items or services to the patient by the donating provider. Under the Proposed Arrangement, both the County Clinic and the Provider would be in a positon to submit claims to a federal health care program as a result of the telemedicine encounter and follow-up services.  Nevertheless, the OIG concluded that there would be no increased cost to any federal health care program because the County Clinic would have performed the preliminary tests and referred clinically appropriate patients for in-person consultations and, potentially, follow-up items and services regardless of the Proposed Arrangement.

While the analysis acknowledges the additional reimbursement the County Clinic would receive for serving as the originating site (i.e., the location of the Medicaid beneficiary when the service furnished via a telecommunications system occurs), there is no actual analysis of this facility fee and why it is not considered an increased cost.  To be clear, the County Clinic does not provide the HIV preventative services to be delivered by the Provider via the telemedicine consultation, and therefore, would not have previously received any payments if and when the patient was referred to the Provider for an in-person consultation.

Again, it appears that the OIG is willing to prioritize the health benefits to patients over any secondary or tertiary benefits to the referring provider; especially when such subsequent benefits are unlikely to result in overutilization and have the potential to decrease costs to federal health care programs.

The Florida State Legislature has decided to eliminate its state licensure requirement for clinical laboratories.  Effective July 1, 2018, Florida’s recent legislation (SB 622) repeals the entirety of Chapter 483, Part I of the Florida statutes, and in doing so removes the state licensure requirement for clinical laboratories operating in-state and out-of-state.  Section 97 of SB 622, approved by the Governor on March 19, 2018, repeals the entirety of Chapter 483, Part I of the Florida statutes, and therefore, in tow, eliminates section 59A-7.024(1) and as well as all other corresponding regulations.

Currently, all clinical laboratories providing services within the state of Florida must maintain a state license unless you were either: (1) a clinical laboratory operated by the U.S. government; (2) a clinical laboratory that only performed waived tests; or (3) a clinical laboratory that was operated and maintained exclusively for research and teaching purposes that did not provide services to patients.  Furthermore, an out-of-state laboratory testing specimens derived from the state of Florida is also required to obtain Florida state licensure if: (1) the out-of-state laboratory maintains an office, specimen collection station or other facility within the state of Florida (Fla. Adm. Code 59A-7.024); or (2) receives a specimen for examination from a clinical laboratory located within the state of Florida (Fla. Stat. § 483.091).

Beginning July 1, 2018, clinical laboratories and stakeholders will be able to provide their laboratory services in Florida or to Florida healthcare providers as long as they meet federal CLIA certification requirements.  Florida’s Agency for Health Care Administration (AHCA) expects to roll-out notifications regarding the change in state licensure requirements to currently licensed clinical laboratories in approximately two weeks and will post notice on its website.