EKRA enforcement after a year of uncertainty

In October 2018, the Eliminating Kickbacks in Recovery Act (EKRA) shook the laboratory industry by significantly restricting how sales and marketing representatives are paid. After a little over a year of uncertainty, the first enforcement action by the Department of Justice was just announced. This is confirmation that even if the application of EKRA is not clear, the government is willing to enforce EKRA as it is currently drafted in applicable cases.

Jackson Woman Pleads Guilty to Violating EKRA

On Friday, January 10, 2020, the United States Attorney’s Office for the Eastern District of Kentucky announced the first EKRA conviction. Specifically, Theresa C. Merced, an 80-year-old woman from Jackson, Kentucky, pleaded guilty to soliciting kickbacks from a toxicology laboratory in exchange for urine drug testing referrals, lying to law enforcement agents about the kickback she received, and attempting to cover up the kickback by requesting the alteration of certain financial records.

Merced was the office manager of a substance abuse treatment clinic in Jackson, Kentucky. She admitted that between December 2018 and August 2019, she solicited kickbacks from the Chief Executive Officer of a toxicology lab in exchange for urine drug test referrals. According to the press release:

in August 2019 the CEO delivered to Merced a $4,000 check as part of a larger package of promised inducements. … When questioned about the check by law enforcement agents in September 2019, she denied knowledge of it, and stated that the $4,000 was probably a loan from the lab CEO to her husband. Shortly after her interview with the agents concluded, Merced called the lab CEO and asked that he alter the lab’s financial records so that the entry for the $4,000 check would say “rent/loan,” consistent with the lie she told the agents.

Merced faces up to 20 years in prison and a maximum fine of $250,000. Her sentencing date is May 1, 2020. 

What is EKRA?

EKRA created criminal penalties for any individual who "solicits or receives any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind, in return for referring a patient or patronage to a recovery home, clinical treatment facility, or laboratory" or "pays or offers any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind, to induce a referral of an individual to a recovery home, clinical treatment facility, or laboratory or in exchange for an individual using the services of that recovery home, clinical treatment facility, or laboratory."

Among other things, EKRA prohibits payments made by an employer to an employee or independent contractor (who has a bona fide employment or contractual relationship with such employer) for employment, if the employee’s payment is determined by or varies by: 

1. The number of individuals referred to a particular recovery home, clinical treatment facility, or laboratory.
2. The number of tests or procedures performed.
3. The amount billed to or received from, in part or in whole, the health care benefit program from the individuals referred to a particular recovery home, clinical treatment facility, or laboratory.

This provision seemingly goes beyond the prohibitions under the federal Anti-Kickback Statute (AKS) and directly prohibits certain compensation that is expressly permitted under AKS. Specifically, AKS includes a safe harbor for bona fide employees that gives an employer wide discretion in how employees are paid, including permitting percentage-based compensation. EKRA  does not afford bona fide employees that same protection. Importantly, EKRA applies to all payors, and not just federal health care programs as is the case under AKS.

The language of the act itself is very broad and the term “laboratory” is not limited to just those laboratories associated with substance abuse services. Instead, laboratory is defined as "a facility for the biological, microbiological, serological, chemical, immuno-hematological, hematological, biophysical, cytological, pathological, or other examination of materials derived from the human body for the purpose of providing information for the diagnosis, prevention, or treatment of any disease or impairment of, or the assessment of the health of, human beings." Therefore, enforcement action under EKRA could potentially reach laboratories outside the scope of substance abuse treatment.

Status of EKRA

Due to the uncertainty of EKRA’s application to arrangements that historically were deemed permissible by the Office of Inspector General under AKS, it was anticipated that an amendment or legislative guidance would be released clarifying the interplay between EKRA and AKS, and whether EKRA was intended to preempt AKS. To date, however, no such amendment or guidance has been released, and it appears unlikely that any amendment or guidance will be released before the 2020 election. The Kentucky case serves as a reminder that, notwithstanding the uncertainties regarding how EKRA will be applied, the statute is in effect and enforceable, and laboratories and other affected providers should review their compensation arrangements for compliance.