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.

Eighty years ago today, President Roosevelt signed the Federal Food, Drug, and Cosmetic Act (“FD&C Act”).  In recognition of this anniversary, EBG reviews how the FD&C Act came to be, how it has evolved, and how the Food and Drug Administration (“FDA”) is enforcing its authority under the FD&C Act to address the demands of rapidly evolving technology.

I’m Just a Bill

The creation of the FD&C Act stems from a sober event in American History.  In 1937, a Tennessee drug company marketed elixir sulfanilamide for use in children as a new sulfa drug.  The diethylene glycol (“DEG”) used as a solvent for the elxir is poisonous to humans.  The untested drug killed over 100 people, including children.  The public’s response to the disaster prompted and ensured the passage of the FD&C Act in 1938, which included the creation of the process known as pre-market approval, requiring that new drugs be proven safe before going on the market.

Growing Pains and Milestones

Since 1938, FDA’s jurisdiction has expanded as various public health emergencies and other challenges faced by the health care system have caught national attention.  Among the many legislative acts passed over the years, the following are of particular relevance to current developments:

(1) Food Additives Amendment of 1958, addressing safety concerns over new food additives and implementing generally recognized as safe (“GRAS”) requirements;

(2) Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman” Act), establishing the modern generic drug approval system;

(3)  Nutrition Labeling and Education Act of 1990, granting FDA authority to require nutrition labels on most foods, and compelling FDA-compliant nutrient and health claims;

(4) Safe Medical Device Amendments of 1990, giving FDA post-market device surveillance authority and device tracking capability at the user level;

(5) Dietary Supplement Health and Education Act of 1994, defining “dietary supplement” and establishing a regulatory framework for such products;

(6) Food and Drug Administration Modernization Act of 1997, making changes to several FDA regulatory schemes, including biologics, devices, pharmacy compounding, food safety and labeling, and standards for medical products;

(7) Food and Drug Administration Amendments Act of 2007, authorizing FDA to require a Risk Evaluation and Mitigation Strategy (“REMS”) to ensure that drug benefits outweigh risks;

(8) Family Smoking Prevention and Tobacco Control Act of 2009, expanding FDA authority over manufacturing, distribution, and marketing of tobacco products;

(9) Drug Quality and Security Act of 2013, expanding FDA’s authority to regulate the manufacturing of compounded drugs as a reaction to a meningitis outbreak caused by contaminated compounded drug products; and

(10) 21st Century Cures Act of 2016, creating the Breakthrough Devices Program, the Regenerative Medicine Advanced Therapy Designation, and exempting certain software products from the definition of “medical device.”

An Old Dog Learning New Tricks

Over the last few years, FDA has felt the impact of and the need to respond to several societal developments.  The country is calling for the government to address drug prices and to gain better control over access to drugs containing controlled substances, such as opioids.  The surge in development of new technology has forced FDA to adapt its historically rigid device regulatory structure to accommodate innovations such as regenerative medicine therapies.  A renewed public focus on the nutritional value of food requires updates to nutritional labeling and food safety regulations, and the new “vaping” trend raises questions surrounding the sale and promotion of new tobacco products.  Across all of these developments, there is a trend toward more focused regulatory pathways that take into account the particular needs and challenges of specific product categories.  Many of these changes are either required or authorized by legislation, such as the 21st Century Cures Act; and statements by the agency, as well as numerous new draft and final guidance documents, give indications as to where FDA is headed in the next few years.

A. Drugs

Increasing Market Competition and Access: FDA is focused on increasing market competition for and patient access to prescription drugs. In furtherance of its Drug Competition Action Plan, the agency published a draft guidance to address the exploitation of REMS and prevent problematic pay-for-delay schemes. In the same vein, FDA implemented a Biosimilar Innovation Plan to facilitate development and approval of biosimilars, hoping to increasing patient access to costly biologics. Last week, FDA also withdrew its draft guidance on biosimilar analytical studies, announcing intent to issue a revised draft guidance in the future.

Drug Development Efficiency: Recent FDA publications also suggest that the agency is prioritizing a more streamlined drug development process. In February 2018, FDA released five guidance documents emphasizing a faster, patient-focused approach for drug development for neurological conditions. In March 2018, FDA updated its benefit-risk framework to further incorporate patient experience into the agency’s regulatory decision-making process. FDA published the first of four of its patient-focused drug development guidances on June 13, 2018.

In response to the opioid crisis, FDA is focusing heavily on changes to the drug compounding and controlled substance space. In March 2018, FDA published a draft guidance on evaluation of bulk drug substances nominated for inclusion in the 503(B) bulks list, requiring a showing of clinical need. FDA also plans to issue notice of proposed regulations for outsourcing facilities later in 2018.  FDA held a Patient-Focused Drug Development Meeting for Opioid Use Disorder in April 2018 and published an associated draft guidance on buprenorphine drug development and clinical trial design issues. We expect to see more FDA movement on drug development as the year progresses, particularly with respect to opioid use disorder treatment therapies.

B. Devices

Streamlining the Device Pathway: FDA continues to implement changes to the regulatory pathway for manufacturers to bring their devices to market.  Per a draft guidance released in April 2018, the agency is expanding the abbreviated 510(k) pathway by creating a voluntary option for manufacturers when there is no acceptable predicate for a new device, but there is another device with the same intended use.  Manufacturers will be able to use the similar device as a “predicate” and demonstrate how their product conforms to newly-developed device-specific objective performance criteria.  While these performance criteria are still under development, they will eventually pave the way for more manufacturers to bring their products to market faster.

Precision Medicine: The national focus on precision medicine has encouraged many manufacturers to develop new products that incorporate genomics-based technology.  FDA is encouraging development of next generation sequencing (“NGS”)-based tests, which analyze larger sequences of the human genome, if not the whole genome, for a variety of different genetic variants.  FDA released two final guidance documents in April 2018, making recommendations on (1) the design and development of a NGS-based test for germline diseases and (2) use of public human genetic variant databases to support clinical validity of NGS-based tests and routes for establishing and justifying algorithms for variant annotation and filtering.

FDA is also evaluating its approach to the regulation of gene therapy products. Commissioner Gottlieb stated that the agency is at “an inflection point” with gene therapy thanks to increased reliability of vectors.  The focus has shifted from the efficacy of gene therapy to its durability, i.e. the long term effects of the treatment.  Recently, Commissioner Gottlieb announced FDA’s intent to start developing gene therapy guidance for products intended to treat hemophilia.

Regenerative Medicine: In efforts to implement its comprehensive policy framework for regenerative medicine and respond to certain provisions of the 21st Century Cures Act, FDA intends to create an expedited regulatory pathway for novel regenerative medicine therapies.  FDA is also actively enforcing against stem cell clinics promoting certain regenerative medicine therapies without approval and in violation of current good manufacturing practices.

Software and Artificial Intelligence (“AI”): In acknowledgment of the current “digital age,” FDA published a Digital Health Innovation Action Plan.  In April 2018, FDA released two policy documents – (1) a working model for the Digital Health Software Pre-Certification (Pre-Cert) Program Pilot and (2) guidance on regulation of digital health products with both FDA-regulated and unregulated functions.  Also in 2018, FDA authorized the marketing of AI-based clinical decision software (“CDS”) that functions to alert specialists when computed tomography (“CT”) indicates a potential stroke, as well as an AI algorithm for detection of wrist fractures.

C. Food

Food Safety: Since the Food Safety Modernization Act (“FSMA”) was passed, sixteen rules and dozens of guidances have been released (many of which have been in the last two years), bringing the law close to full implementation. These rules and guidances address the mandatory preventive controls for food manufacturing facilities; mandatory product safety standards; FDA’s new mandatory food recall authority; and the initial required inspection of over 600 foreign facilities and the subsequent requirement to “double those inspections every year for the next five years.” In light of the recent high profile foodborne illness outbreaks at chain restaurants and attributed to romaine lettuce, the agency is hoping the full implementation of the FSMA rules, in tandem with keeping food safety as a high priority for the agency, will minimize the risk of future outbreaks.

Nutrition: In 2018, the agency launched the FDA Nutrition Innovation Strategy, which, in addition to implementing new Nutrition Facts Label and Menu Labeling requirements, demonstrates that the agency is looking for more ways to modernize food labels and standards of food product identity to help consumers make healthier decisions. FDA also plans to release short-term voluntary sodium targets for food products in 2019.

Food Labeling: FDA issued a guidance in 2016 on the use of the term “healthy” in food labeling, and continues today to seek stakeholder input on how to redefine the term in such a way as will keep up with scientific advancements and help consumers understand what is in their food products.  FDA is also reviewing stakeholder input on how to define “natural,” and indicated in March 2018 that the agency will “have more to say on the issue soon.”

Dietary Supplements: The dietary supplement industry is a growing industry, and consumers are more interested in alternative products to promote wellness lifestyles. The industry is considered by some to still be the “wild wild west” in terms of enforcement, but FDA seems to be putting its foot down on companies making unsubstantiated claims about dietary supplement products or making claims that would otherwise classify the product as a drug.

D. Tobacco Products

Using its authority to regulate all tobacco products, FDA is addressing the rise in the use of vapes, vaporizers, pens and electronic cigarettes by children.  In April 2018, Commissioner Gottlieb announced the intent to issue new enforcement actions against bad actors, as well as to implement a Youth Tobacco Prevention Plan, seeking to reduce the amount of children exposed to e-cigarettes and vapes and those manufactures who target children with enticing flavors.   In May 2018, Commissioner Gottlieb stated “If you target kids, then we’re going to target you.”  FDA is also in the process of developing guidance for the development and regulation of e-cigarettes generally, suggesting that e-cigarettes could fall into the over-the-counter pathway due to their potential role in smoking cessation, and is reviewing the toxicology of the products.

Andrew Do, a Summer Associate (not admitted to the practice of law) in the firm’s Washington, D.C. office, contributed  to the preparation of this post.