April 18, 2019 -- A federal law passed to combat the opioid crisis could have unintended consequences by criminalizing sales commissions paid by clinical laboratories to their salaried sales representatives for patient referrals. Under the statute, such payments could be considered kickbacks for referrals.
The legislation, called the Substance Use-Disorder Prevention That Promotes Opioid Recovery and Treatment (SUPPORT) for Patients and Communities Act, was originally intended to battle the U.S. opioid crisis when passed in 2018. But the bill also has an all-payor kickback prohibition that applies to laboratories, recovery homes, and clinical treatment facilities. This prohibition applies to all laboratory business arrangements covered by all payors -- not just government but also commercial -- and to all types of testing, not just to labs undertaking opioid-related toxicology testing.
Section 8122 of the SUPPORT Act, also known as the Eliminating Kickbacks in Recovery Act of 2018 (EKRA), created a new criminal provision that could result in criminal penalties for labs taking or paying a kickback or any remuneration, including sales commissions (unless the applicable exception is met), for referrals made to recovery homes, clinical treatment facilities, and clinical laboratories. The law includes exceptions for a variety of business arrangements, including employee compensation. If employees are paid in a manner that is consistent with the employee exception, then the lab is not in violation of the law.
Unless Congress decides to amend EKRA, it will likely change the business practices of labs because the payment of sales commissions to employees is not permitted unless the applicable exception is met.
Some are hoping that a legislative fix will eliminate inconsistencies between the federal antikickback statute (AKS) and EKRA or amend the statute to reflect that only labs providing toxicology services are covered. But any correction is uncertain.
"The new law broadly prohibits remuneration paid to induce the referral of lab testing," said Karen Lovitch, member and chair of the Health Law Practice at Mintz, in Washington, DC. "Any remuneration paid cannot be determined based on the volume or value of referrals."
"There are some exceptions in the statute," she added. "In some cases, the exceptions are similar to the safe harbors that exist under the AKS. But there are a couple of areas that have raised concerns in the lab industry due to incongruities between the two laws."
As noted previously, the difference that has received the most attention involves payments by an employer to an employee. EKRA specifically states that payments to employees are permitted if they are not based on the volume or value of referrals, Lovitch explained.
"But this has turned the lab industry on its head because under the AKS, there is a safe harbor for payments to employees that permits variable compensation as long as a person is a bona fide employee," she said.
"This has sent shock waves through the industry," she noted. Some labs appear to be taking a wait-and-see approach in the hope that the law will be corrected by Congress. But other labs are changing their compensation systems and looking for other ways to structure their commissions.
"You have to keep in mind that this is a criminal statute, and criminal statutes are intent-based," Lovitch said. "You have to prove intent to do something illegal, and labs could argue that they did not intend to knowingly and willfully violate the law by continuing their current compensation systems for some period of time."
Labs could also point to their historical compliance with the AKS concerning remuneration, she said.
Danielle Holley, an attorney at the law firm O'Connell and Aronowitz in Albany, NY, agrees that the new law changes the regulatory landscape and affects the business practices of clinical labs, especially involving sales and marketing commissions.
"Under the federal AKS, labs could pay salaried employees on a commission basis. But under EKRA, the safe harbors protection for bona fide employees no longer exists," Holley said.
EKRA specifically does not allow a payment from an employer to an employee or independent contractor to vary based on the number of individuals referred, the number of tests performed, or the amount billed to or received from federal or private payors, she added.
Tracking the number of tests or procedures performed has been a common way for labs to track the efficiency and effectiveness of marketing and sales personnel. They would use this information to set benchmarks and pay on a commission basis using these variables, Holley said.
"EKRA also could make labs at risk to penalties under the federal False Claims Act if these practices [commission payments] continue," she said.
The False Claims Act imposes liability on people and companies who defraud government programs, and it has both criminal and civil components.
"The civil component provides for treble damages for false claims submitted to a payor that are based on a lab's sales and marketing commission payment scheme, which are variable payments not allowed by EKRA," Holley explained.
To address concerns, labs must review their compliance plans and contracts and determine how much risk they want to take.
Moreover, some labs do not accept Medicare or Medicaid payments. Because they only accepted commercial payments, they were never subject to the AKS. But under EKRA, they are subject to antikickback concerns involving both federal and commercial payors, Holley said.
And in recent years, commercial insurers have become more aggressive in auditing labs, she noted. Some have sued labs to recoup payments.
"The new law will give commercial insurers another reason to go after labs, possibly claiming that labs are making too many referrals to themselves, due to commission payments made to sales and marketing personnel," Holley said.