First Guilty Plea Under 2018 Eliminating Kickbacks in Recovery Act

The first guilty plea under The Eliminating Kickbacks in Recovery Act (EKRA) may come as a surprise to many in the lab industry hoping federal authorities would not enforce the new criminal statute until after Congress corrected (likely) drafting mistakes or until the DOJ or the OIG clarified the scope and meaning of the EKRA statute.

Criminal Prosecution and Guilty Plea

On January 10, 2020, the manager of a substance abuse treatment clinic pleaded guilty to one count of violating EKRA. Theresa Merced, 80, also pleaded guilty to one count of violating federal law prohibiting the making of false statements, and one count of violating federal law prohibiting the tampering with documents or proceedings.

Sentencing is scheduled for May 1, 2020. Notably, there were no charges for violating the federal anti-kickback statute (the AKS).

The plea agreement describes the following activities by Ms. Merced and a urine drug-testing laboratory, resulting in the felony criminal charges against Ms. Merced, as well as her guilty plea:

Ms. Merced was the manager of St. John Neumann’s Extended Hours Clinic in Breathitt County, Kentucky. Ms. Merced’s husband, Pablo Merced, MD, was a physician at the clinic and provided substance abuse treatment to its patients. As part of the substance abuse treatment, patient urine samples were frequently referred to clinical laboratories for urine drug testing.

Between December 13, 2018, and August 15, 2019, Ms. Merced engaged in multiple conversations with the CEO of a urine drug-testing laboratory located in Lexington, Kentucky. During these conversations, Ms. Merced requested that the lab's CEO provide both cash and in-kind payments in exchange for referrals of urine drug tests.

• Specifically, Ms. Merced asked for cash payments, the hiring of employees to work in the St. John Neumann's Extended Hours clinic, and the payment of certain of the clinic’s utilities.
• The government alleges that Ms. Merced knew the arrangement was illegal because, during at least one of the phone calls, Ms. Merced asked the lab’s CEO to be discreet because she did not want "to be in trouble with the law." 

On August 15, 2019, the lab’s CEO met with Ms. Merced and delivered to her a $4,000 check, described to be part of a larger $14,000 payment, and agreed to hire five employees to work at the St. John Neumann's Extended Hours Clinic.

On September 12, 2019, Ms. Merced was interviewed by agents of the Kentucky Attorney General’s Office Medicaid Fraud Control Unit and the Office of Inspector General (OIG) for the United States Department of Health and Human Services (HHS).

• When asked why she or her husband had cashed a check for $4,000 from the lab's CEO, Ms. Merced denied seeing or knowing anything about the check, but also said that her physician husband was careless with money and probably had borrowed the money from the lab's CEO to help pay for an upcoming vacation. 

Shortly after her interview by law enforcement officials, Ms. Merced called the lab’s CEO expressing concern about the investigation and telling him that she had claimed the check was a loan.

• When the lab's CEO reminded Ms. Merced that the memo line on the lab’s check specified "rent," and that his lab’s internal accounting records also classified the check as "rent," Ms. Merced asked the lab’s CEO to alter the accounting records to say "rent/loan." Ms. Merced told the lab's CEO, "we’ll synchronize … so we won’t incriminate each other."

The Law

EKRA is part of the Substance-Use Disorder Prevention that Promotes Opioid Recovery and Treatment (SUPPORT) for Patients and Communities Act, signed into law by Congress on October 25, 2018. EKRA broadly prohibits the knowing and willful:

1. Solicitation or receipt of any remuneration 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 clinical laboratory; or


2. Payment or offering of any remuneration 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 clinical laboratory, or in exchange for an individual using the services of that recovery home, clinical treatment facility, or clinical laboratory. 18 U.S.C. § 220(a).

EKRA applies to services covered by any "health care benefit program," not just federal health care programs (e.g., Medicare, Medicaid, and TRICARE). Thus, EKRA enables the federal government to investigate and prosecute payment arrangements involving services reimbursed by any health plan.

• Violation of EKRA is a felony punishable by a maximum fine of $200,000, prison for up to 10 years, or both, for each occurrence. 18 U.S.C. § 220(a). The DOJ and the Department of Health and Human Services (through its office of inspector general) are the agencies charged with enforcement of EKRA.

EKRA is an entirely new federal criminal law distinct from the federal AKS. It is narrower than the AKS, in some respects, because it applies only to specific entities – recovery homes, clinical treatment facilities, and clinical laboratories. Yet, in significant respects, it is much broader than the AKS. Namely, EKRA applies to services paid by any health care benefit program and has fewer and narrower exceptions than the AKS.

Industry Concern and Uncertainty

Since its passage in October 2018, EKRA has raised a number of concerns within the clinical laboratory industry. As early as November 2018, the American Clinical Laboratory Association (ACLA) requested Congress to amend EKRA to make clear that conduct that complies with an AKS safe harbor would be exempt under EKRA.¹

The College of American Pathologists (CAP), among others, has engaged with the DOJ to seek clarification and guidance regarding compliance with the statute.² Yet, despite such efforts, no further legislative or regulatory clarifications to EKRA have been forthcoming, and the industry remains concerned with the breadth and ambiguity of the statute.

• First, there is a general concern that EKRA applies to all clinical laboratories and all types of laboratory tests, not only drug-testing labs and drug tests, even though the SUPPORT for Patients and Communities Act is focused on health care providers treating substance use disorders.
• Second, EKRA states that it does “not apply to conduct that is prohibited under Section 1128B of the Social Security Act” (i.e., the AKS). 18 U.S.C. § 220(d). There is significant industry confusion as to why Congress used the term "prohibited" instead of "not prohibited" or "permitted," particularly because several of the exceptions to EKRA incorporate, by reference, specific AKS safe harbors and exceptions.
  
  It would have made more sense for the sentence to read that EKRA does "not apply to conduct that is not prohibited under" the AKS, as this would mean the existing AKS safe harbors would apply. Adding to the confusion is that language in an earlier draft of the statute read that nothing in EKRA should be interpreted to supersede or preempt other applicable federal or state laws including, but not limited to, the AKS.

• Third, as written, the law potentially serves to criminalize business practices that are common in the clinical lab industry and that long have been viewed as permissible under the AKS and other federal fraud and abuse laws, including paying sales commissions to employed sales representatives, placing specimen collectors in physician client offices, and giving free specimen collection supplies and equipment to physician clients.

Indeed, the OIG has issued both safe harbor regulations, model compliance program guidance, special fraud alerts, advisory opinions, and other commentary applicable to the business practices of clinical laboratories including, with respect to the application of the AKS, the longstanding clinical lab industry practices of providing in-office phlebotomy personnel and free lab supplies to referral sources.

Limited Exceptions

By regrettable contrast, EKRA contains no express exceptions specific to such longstanding laboratory practices, and neither the DOJ nor the OIG have issued any regulations to clarify whether and to what extent such common lab industry practices deemed appropriate under the AKS are likewise permitted by EKRA.

Perhaps of greatest concern to many clinical laboratories, is that although EKRA includes an exception for payments to employed and contracted sales representatives, the exception is limited to only those arrangements where compensation is not determined by and does not vary by the:

• (i) Number of individuals referred to a particular recovery home, clinical treatment facility, or laboratory;
• (ii) Number of tests or procedures performed; or
• (iii) 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.

Conclusion

While many in the lab industry hoped that Congress, the DOJ, or the OIG would take steps to clarify EKRA before the DOJ began prosecuting under the statute, this first EKRA guilty plea may serve to dispel such hopes.

However, because the conduct prosecuted under EKRA in the Merced case did not raise any of the concerns raised by the lab industry regarding EKRA, it remains to be seen whether the DOJ or the HHS will pursue criminal enforcement under EKRA against labs or treatment centers for engaging in common business practices arguably prohibited by EKRA’s broad language yet long permitted under the AKS.

For questions or additional information, please contact Caitlin Forsyth, David Gee, or Matthew Diggs

FOOTNOTES

1 ACLA Memo Regarding Anti-Kickback provisions of the SUPPORT for Patients and Communities Act (Public Law 115-271)

2 What You Should Know About EKRA and What the CAP Is Doing Next