It has been four years since Congress enacted the Eliminating Kickbacks in Recovery Act (“EKRA”), codified at 18 U.S.C. § 220. EKRA initially targeted patient brokering and kickback schemes within the addiction treatment and recovery spaces. However, since EKRA was expansively drafted to also apply to clinical laboratories (it applies to improper referrals for any “service”, regardless of the payor), public as well as private insurance plans and even self-pay patients fall within the reach of the statute.

Three aspects of EKRA create further concern among clinical laboratories, including: (1) potential extreme penalties for violations; (2) exceptions that are not co-terminus with the Anti-Kickback Statute (“AKS”); and (3) a lack of guidance from Congress, HHS and/or DOJ. EKRA is a criminal statute, and violations may result in up to 10 years of imprisonment and fines up to $200,000 per occurrence. For many clinical laboratories, a single enforcement action could have a disastrous effect on their business. And unlike other healthcare fraud and abuse statutes, such as the AKS, exceptions are very limited. Therefore, a lab could potentially find itself protected under an AKS safe harbor and still potentially be in violation of EKRA. This issue, and almost every other critique of EKRA, could be resolved if HHS and/or DOJ provided guidance to providers subject to EKRA.

Under EKRA, HHS and DOJ have the authority to promulgate guidance to define exceptions to the statute and safe harbors, which would undoubtedly assist laboratories in maintaining compliance. Yet, almost four years after enactment, HHS and DOJ have not provided any clarity regarding the statute. This is curious given the relatively recent updates to the AKS. Without this much needed guidance, clinical laboratories have been left wondering what they need to do to avoid liability. Compliance programs that were once appropriate, may no longer be sufficient to survive scrutiny under EKRA. Similarly, many labs have been unclear about what compensation structures for marketing and sales activities are appropriate and what constitutes a “referral” under the statute.

Without regulatory guidance, the only place clinical laboratories can look to for additional information regarding EKRA is DOJ’s recent enforcement actions. EKRA criminal actions by the U.S. Department of Justice have included the following prosecutions:

• An office manager pled guilty to soliciting kickbacks from a toxicology laboratory in exchange for urine drug testing referrals. She was sentenced to five months imprisonment, followed by 5 months of home detention, and a fine of $55,000.

• An owner of a treatment facility was sentenced to 15 months in prison for his role in a conspiracy to violate EKRA that involved paying drug addicts to enroll in drug rehabilitation.

• A former doctor and owner of two substance abuse treatment facilities was charged with conspiracy to violate EKRA for his role in illegally recruiting patients for his substance abuse treatment facilities. The case was terminated after the defendant passed away.

• A president of a California-based medical technology company was found guilty of two violations of EKRA related to paying kickbacks for referrals to a laboratory for COVID-19 and allergy testing.

• Two operators of addiction treatment facilities were sentenced to 188 months and 97 months in prison for obtaining patients through recruiters who offered illegal kickbacks to patients.

Two cases, a civil case from Hawaii and a criminal case in California, have provided the most in depth judicial analysis of EKRA to date. The District of Hawaii civil case was the first to interpret EKRA’s vague statutory language. In S&G Labs Hawaii, LLC v. Graves, a clinical laboratory brought an action alleging that a former employee breached a noncompete agreement by soliciting employees and customers to a competitor. The former employee counterclaimed that the laboratory breached the employment contract by failing to issue appropriate compensation. According to the laboratory, the former employee’s then-existing commission-based compensation structure was improper under EKRA as it was based on the volume of referrals, so the laboratory changed the compensation structure to pay a fixed salary while attempting to negotiate a new contract. When the negotiations fell through, the employee was terminated for cause and left to work for a competitor.

The District Court analyzed the compensation structure at issue under EKRA, relying on the AKS, and found that while the commission structure paid to the employee was “remuneration,” there was no inducement of a referral because the employee’s activities targeted physicians and not individuals or patients. In other words, the laboratory’s payment was to the employee for services, not to a particular physician for referrals, so the agreement at issue did not violate EKRA. It remains to be seen whether other courts will follow the S&G Labs Hawaii court’s interpretation of the statute.

While this decision is the first judicial interpretation of EKRA, it notably did not involve a criminal prosecution. Nonetheless, S&G Labs Hawaii’s courts analysis formed the basis for a criminal defendant’s recent motion to dismiss the EKRA charges in his indictment. In U.S. v. Schena, the defendant, a president of a publicly traded medical technology company, was charged with an alleged scheme to influence marketers by paying them illegal kickbacks to induce patient referrals for allergy and COVID-19 testing. In pretrial motions, Schena argued that his EKRA charges should be dismissed because the statute “does not prohibit payments to persons who do not themselves refer an individual to a clinical laboratory” as set forth by the court in S&G Labs Hawaii. In its opposition, the government pointed out that S&G Labs Hawaii failed to consider the plain meaning of “to induce” and ignored how marketers and physicians interact in obtaining orders for tests. Furthermore, the government alleged that the defendant’s position was inconsistent with interpretations of the AKS and the purpose of EKRA. In reply, the defendant focused on the lack of guidance by any federal agency interpreting EKRA as support for his position that the EKRA charges should be dismissed.

The Northern District of California denied the defendant’s motion, finding that the S&G Labs Hawaii court’s reliance on the AKS to interpret EKRA was misplaced, and that the “alleged scheme to influence marketers by paying them illegal kickbacks to induce the referral of patients” to the defendant’s business fell within EKRA. Therefore, the court found that it is irrelevant that the marketers did not convey false representations to the patients directly, because the physicians referred patients based on those allegedly fraudulent misrepresentations, and the marketers received a kickback to “influence” the referrals.

The case proceeded to trial, and on September 1, 2022, Schena was convicted on all nine counts against him, including health care fraud, securities fraud, conspiracy to commit health care fraud and wire fraud, conspiracy to pay kickbacks, and paying illegal kickbacks in violation of EKRA.

Despite the relatively minimal number of EKRA-related prosecutions to date and only one civil case that interpreted the statute, clinical laboratories should not be lulled into a false sense of security. Enforcement activity is still looming and the referral and marketing activities of clinical laboratories remain under government scrutiny. COVID-19 testing, in addition to toxicology, allergy, cardiac and genetic testing, as well as other clinical lab services, have provided DOJ plenty of fodder for potential EKRA prosecutions. That trend is only likely to increase in 2023. Taking proactive measures now and mitigating risk is recommended. Clinical laboratories should contact counsel to conduct a review, under privilege where appropriate, to evaluate:

• All existing arrangements with referral sources, independent contractors, and vendors to determine whether any potential instances of remuneration fall into AKS/EKRA exemptions;

• Current marketing arrangements;

• Employment relationships and compensation structures;

• Whether any potentially improper arrangements must be unwound;

• The development of an EKRA-specific compliance program, that includes policies, education, and identification of key personnel to manage EKRA-related issues; and

• DOJ enforcement activity and future guidance provided by DOJ/HHS.

The repercussions of sleeping on EKRA could have huge consequences, but can be avoided with proactive measures undertaken with the assistance of experienced legal counsel.