United States v. Schena: a criminal conviction under ekra creates uncertainty about the statute's scope.

Last month, the United States obtained the first criminal conviction under the Eliminating Kickbacks in Recovery Act (EKRA) for conduct outside the addiction-recovery context. That conviction, and the denial of the defendant's motion to dismiss in that case, may have far-reaching implications for certain compensation arrangements between clinical laboratories and their salespeople.

EKRA, enacted in 2018, prohibits, among other things, "pay[ing] or offering any remuneration . . . to induce a referral of an individual to a recovery home, clinical treatment facility, or laboratory." 18 U.S.C. § 220(a). EKRA defines "laboratory" broadly, and, unlike the Anti-Kickback Statute (42 U.S.C. § 1320a-7b), which applies only to federal health care programs, EKRA also applies to private insurance payors. EKRA does include certain exceptions for payments made by an employer to an employee, but requires that those payments not vary by the volume of referrals or tests performed. Id. § 220(b)(2).

Though originally intended to help combat the opioid epidemic, the government has more recently interpreted EKRA to cover conduct outside the addiction-recovery context, and the U.S. Attorney General and Secretary of Health and Human Services have not yet promulgated clarifying regulations in this area. Id. § 220(c).

Thus far, the only two courts to interpret the scope of the Act have reached starkly conflicting results. First, in a civil case, a federal district court in Hawaii found that a contract provision for commission-based compensation to a laboratory sales manager did not violate EKRA because the sales manager, Darren Graves, marketed laboratory services to physicians and counseling centers rather than to individual patients. S&G Labs Haw., LLC v. Graves, No. 19-00310 LEK-WRP, 2021 WL 4847430, at *11 (D. Haw. Oct. 18, 2021). The court reasoned that although "Graves's commission-based compensation structure induced him to try to bring more business to S&G," because Graves's clients "were 'the physicians, substance abuse counseling centers, or other organizations in need of having persons tested,'" the "'client' accounts [Graves] serviced were not individuals whose samples were tested at S&G." Id. (emphasis in original). Thus, "[b]ecause Graves was not working with individuals, the compensation that S&G paid him was not paid to induce him to refer individuals to S&G." Id.

The second case to interpret the scope of EKRA--this time in a criminal case involving allergy and COVID-19 testing--rejected S&G's interpretation, leading to the first criminal conviction for a violation of EKRA outside the addiction-recovery context. USA v. Schena, No. 5:20-cr-00425-EJD-1, 2022 WL 1720083, at *4 (N.D. Cal. May 28, 2022). In Schena, the court denied the defendant's motion to dismiss, holding that "[t]he plain meaning of 'to induce a referral of an individual' includes situations where a marketer causes an individual to obtain a referral from a physician." Id. The court explained that "there is no requirement of 'directness' in the text of EKRA," id., and thus "[i] t is irrelevant that some of the marketers caused the referral of patients by conveying Defendant's allegedly false representations about [the laboratory] to physicians, instead of to the patients directly. The physicians referred the patients based on the misrepresentations, and the marketers received a kickback to 'influence' the physician's referrals. This conduct squarely falls within the text of EKRA," id. at *5.

In so holding, Schena expressly rejected S&G's reliance on the Anti-Kickback Statute's definition of "person," explaining that the definition "says nothing about payment needing to be made based on the 'direct' recruitment of an individual patient. Indeed, it does not even define 'individual' as used in [EKRA], let alone impose a requirement of directness." Id. at *4. Thus, under Schena, commission-based payments to laboratory salespeople are prohibited by EKRA.

Other EKRA indictments also suggest that the government broadly interprets the Act to cover conduct outside the addiction-recovery context and not involving direct marketing to patients. For example, in 2021, the owner of a clinical laboratory in Louisiana was indicted under EKRA for allegedly offering to pay kickbacks for referrals of specimens for COVID-19 testing. United States v. Lepetich, No. 3:21-cr-00032, Dkt. 1 (M.D. La. May 20, 2021).

While we await further guidance, it appears that commission-based compensation agreements for laboratories - even those that market to physicians and counseling centers rather than directly to patients - are at risk of being found in violation of EKRA. Laboratories may thus wish to consider revising their employment agreements to provide set annual compensation rather than volume-based payments.

Perhaps these are the "unintended consequences" referred to by Congressman Frank Pallone when he stated during consideration of the Act that "multiple stakeholders have raised concerns that the [Act's] language does not do what we think it does." 164 Cong. Rec. H9174-02 (daily ed. Sept. 28, 2018).