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February 05, 2020

Analyzing the First Eliminating Kickbacks in Recovery Act (EKRA) Enforcement Action and Its Application to Federal and State False Claims Statutes

By Patrick Ouellette, Esq., Massachusetts Executive Office of Health and Human Services, Boston, MA and Rachel V. Rose, Esq. Attorney at Law, Houston, TX

Until now, discussions around the scope of Eliminating Kickbacks in Recovery Act of 2018 (EKRA) 18 U.S.C. § 220 enforcement have been strictly theoretical due to a lack of public enforcement actions. Theresa C. Merced’s guilty plea to one count of an EKRA violation on January 10, 2020 is believed to be the first of its kind and has finally shed some initial light on how regulators view the federal law. This article will focus on what this case means – and does not mean – to EKRA compliance and the broader landscape of healthcare fraud and abuse enforcement.

EKRA was enacted under Section 8122 of the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act (the SUPPORT Act), Pub. L. 115-271 (Oct. 24, 2018). It is unique in that it applies to all types of payors (both public and private) and is intended to prevent individuals from referring substance use disorder patients to recovery homes, clinical treatment facilities, and laboratories covered by any healthcare benefit program in return for illegal kickbacks.1 Individuals found to be in violation of EKRA are subject to fines of up to $200,000 or imprisonment of 10 years, or both. And, unless a safe harbor provision is met under the Anti-kickback Statute of 1972 (AKS) and EKRA, then liability may be imposed under the AKS, too.

The EKRA Enforcement Action

Merced, of Jackson, Kentucky, was the office manager of St. John Neumann's Extended Hours clinic in Breathitt County, Kentucky, a substance abuse treatment clinic; her husband worked as a physician at the clinic. Merced, according to the plea agreement filed in the United States District Court Eastern District of Kentucky Central Division – Lexington, “solicited kickbacks from R.C. [the Chief Executive Officer (CEO) of a clinical toxicology lab] in exchange for her referral of urine drug testing to his laboratory; the solicited kickbacks included cash payments, the hiring of employees to work in the clinic, and the payment of certain utilities.”2

The plea agreement stated that Merced had direct knowledge that this arrangement was illegal because she stated that she and “R.C.” needed to use discretion and she did not want to "be in trouble with the law." Merced received $4,000 as part of a total proposed cash payment of $14,000 and the hiring of five employees as requested by Merced in exchange for referrals for urine drug tests between December 2018 and August 2019.3  She was also charged with one count of making false statements under 18 U.S.C. § 1001 and one count of attempted tampering with records under 18 U.S.C. § 1512. She is scheduled to be sentenced on May 1, 2020. The U.S. Department of Health and Human Services, Office of Inspector General, and the Kentucky Office of Attorney General, Medicaid Fraud Control Unit led the investigation.

This case, in which an employee of a clinic serving substance use disorder patients uses his/her ability to make referrals to testing labs for direct monetary kickbacks appears to be exactly what the EKRA drafters contemplated to combat the opioid crisis. In reviewing Merced’s actions against the text of EKRA, they squarely fall into the statute’s purview, prohibiting individuals from soliciting or receiving “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.”4 Merced, according to the charges filed in the United States District Court Eastern District of Kentucky Central Division – Lexington, violated EKRA when she solicited and received this remuneration knowingly and willfully, in cash and in kind, in return for patient referrals to a laboratory for the furnishing of services covered by a healthcare benefit program, in or affecting interstate commerce.5

EKRA contains seven safe harbors,6 none of which appeared to be relevant to the actions taken by Merced. For instance, in reviewing one safe harbor against the facts of the Merced case, any argument that there was a principal-agent personal services and management contract between Merced and the clinical laboratory CEO would be nullified by the volume-based transactions between Merced and “R.C.” EKRA allows personal services and management contracts as a safe harbor. However, these transactions must be set forth in a formal agreement and not be “determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties for which payment may be made in whole or in part under Medicare, Medicaid or other Federal health care programs.”7

Anti-Kickback Statute and EKRA: Safe Harbor Comparison

Industry stakeholders are now on notice following Merced’s plea as to what can constitute an EKRA violation in the eyes of the regulatory authorities. Given the interplay between the EKRA and AKS safe harbors, and other similarities such as the potential for criminal and civil penalties, it is possible that future cases could include violations of both the AKS and EKRA. Under the AKS, individuals are barred from offering, paying, soliciting or receiving anything of value in exchange for patient referrals or items or services that are considered to be reimbursable by public healthcare programs such as Medicare and Medicaid, while EKRA applies to all payors.8

The comparisons between the AKS and EKRA are natural, given the criminal elements in both laws as well as the similarities and differences between the EKRA and AKS safe harbors. While there are direct impacts on clinical laboratories previously covered only by AKS, EKRA is broader in nature.9 The safe harbor inconsistencies – the bona fide employment safe harbors, in particular – between the two will likely have important consequences for entities that have traditionally been leaning on compliance with the AKS, but were not applicable to Merced.10 The AKS "bona fide" employee safe harbor, unlike EKRA, which does place limits on referral and commission volume, does not include such barriers, exempting "any amount paid by an employer to an employee, who has a bona fide employment relationship with the employer, for employment in the furnishing of any item or service for which payment may be made in whole or in part under Medicare, Medicaid or other Federal health care programs.”11 It is up to the government’s discretion what laws to utilize as the basis of its case. Just because the AKS (or the False Claims Act (FCA)) applied does not necessitate the government utilizing all options available to it. It simply appears in this case that the government chose to focus on one law – EKRA.

False Claims Act Application to EKRA

The FCA enables either the federal government on its own or a private person on behalf of the government (a “relator”) to bring a case under the FCA. The federal government always remains a party of interest in any FCA case, whether or not it intervenes in a case that a relator brings.12

The FCA, which also has a scienter requirement but differs from both EKRA and the AKS, sets forth “liability for any person who knowingly submits a false claim to the government or causes another to submit a false claim to the government or knowingly makes a false record or statement to get a false claim paid by the government.”13 These acts include:

(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval;

(B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim;

(C) conspires to commit a violation of the FCA;

(D) has possession, custody, or control of property or money used, or to be used, by the Government and knowingly delivers, or causes to be delivered, less than all of that money or property;

(E) is authorized to make or deliver a document certifying receipt of property used, or to be used, by the Government and, intending to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true;

(F) knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer or employee of the Government, or a member of the Armed Forces, who lawfully may not sell or pledge property; or

(G) knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.14

Under the FCA, violators must make claims knowingly, which means they “(i) have actual knowledge of the information; (ii) act in deliberate ignorance of the truth or falsity of the information; or (iii) act in reckless disregard of the truth or falsity of the information.” FCA violations can be based on directly false claims, express false certification, or implied false certification, which can be brought directly by the federal government or by a private individual plaintiff.15 In Universal Health Services, Inc. v. United States ex rel. Escobar, the Supreme Court held that “liability can attach when the defendant submits a claim for payment that makes specific representations about the goods or services provided, but knowingly fails to disclose the defendant’s noncompliance with a statutory, regulatory or contractual requirement. In these circumstances, liability may attach if the omission renders those representations misleading.”16 The Fifth Circuit, overturning the District Court, interpreted this to mean that “the Supreme Court made clear that defendants could be liable under the FCA for violation statutory or regulatory requirements, whether or not those requirements were designated in the statute or regulation as conditions of payment.”17

The FCA allows relators to allege through “qui tam” actions that third parties defrauded the federal government. Relators may receive between 15 and 25 percent of the amount recovered by the government through the qui tam action if the government intervenes and between 25 and 30 percent of the amount recovered if the government declines to intervene. Currently, relators can use, among other types of violations, AKS violations to file qui tam actions.

A violation of the AKS can be the basis of an FCA qui tam lawsuit. How the FCA and EKRA interact from an enforcement perspective and how the federal government would perceive relators’ potential use of EKRA violations to file qui tam suits, for instance, remains in question. Here, since the EKRA violation was investigated at the outset by federal and state governments, unfortunately little clarity was gained with respect to potential qui tam actions under the FCA.

State Law and Potential EKRA Liability

Individuals who violate EKRA must also consider the potential triggering of state statutes that mirror the FCA and may introduce additional liability.18 The Massachusetts False Claims Act, for example, is enforced by the Massachusetts Attorney General’s Office and contains many of the same liability elements as the FCA discussed above as well as a provision that allows for its civil enforcement equivalent of FCA qui tam actions. The Texas Attorney General’s Office has prosecuted its own version of qui tam claims under the Texas Medicaid Fraud Prevention Act (TMFPA), which focuses on Medicaid fraud.19 Similar to Massachusetts, the TMFPA and other state-level False Claims Act-type statutes should serve as further levels of regulation that could be civilly enforced against EKRA violators on top of EKRA criminal punishment. These state law causes of action are often intertwined with the federal FCA.20

Conclusion

Though Merced’s EKRA violation appears to be a relatively clear-cut case from a government investigation and case perspective, it is not particularly informative as to the interplay between EKRA and the AKS and FCA. It is important to remember the following: (1) a safe harbor under EKRA and the AKS must be met; (2) an EKRA violation constitutes a valid basis for a FCA case because although the government pursued Merced solely as a criminal matter, it could have brought a FCA case; and (3) EKRA, the AKS and FCA all have scienter requirements and the potential for criminal liability. Additionally, it cannot be overlooked or overstated that EKRA, although it applies to only three types of healthcare entities (i.e., recovery homes, laboratories and clinical treatment facilities), in a way is broader than the AKS since it also covers private payors. In sum, Merced should serve as a beacon of what could be coming down the road in terms of case law and compliance programs.

  1. Congress Expands Ant-Kickback Statute to Include All Payors for Laboratories, Clinical Treatment Facilities and Recovery Homes (Dec. 7, 2018), https://www.natlawreview.com/article/congress-expands-anti-kickback-statute-to-include-all-payors-laboratories-clinical.
  2. United States of America v. Theresa C. Merced, Case No. 5:20-006-DCR, Plea Agreement (E.D. Ky. Jan. 2020).
  3. See https://www.justice.gov/usao-edky/pr/jackson-woman-pleads-guilty-soliciting-kickbacks-making-false-statements-law (Jan. 10, 2020).
  4. 18 U.S.C. § 220(a)(1).
  5. United States of America v. Theresa C. Merced, Case No. 5:20-006-DCR, United States Attorney Charges (E.D. Ky. Jan. 2020).
  6. National Law Review, The Eliminating Kickbacks in Recovery Act: A Critical Analysis of an Altered Landscape for Financial Relationships with Clinical Laboratories, The National Law Review (Jan. 8, 2019), https://www.natlawreview.com/article/eliminating-kickbacks-recovery-act-critical-analysis-altered-landscape-financial. Identifying “seven (7) statutory exceptions, specifically for certain: (1) discounts; (2) payments made to employees; (3) Part D drug discounts; (4) personal services arrangements; (5) coinsurance and copayment waivers; (6) arrangements with Federally qualified health centers (“FQHCs”); and (7) remuneration made pursuant to an alternative payment model or similar model.”
  7. 18 U.S.C. § 220(b)(4); 42 C.F.R. 1001.952(d).
  8. 42 U.S.C. § 1320a.
  9. Rachel V. Rose & Sean R. McKenna, Eliminating Kickbacks in Recovery Act of 2018: A Long Sought-After Tool Is Realized, American Health Lawyers Association (2019), https://www.healthlawyers.org/News/Health%20Lawyers%20Weekly/Pages/2019/January%202019/January%2018%202019/Eliminating-Kickbacks-in-Recovery-Act-of-2018-A-Long-Sought-After-Tool-Is-Realized--.aspx
  10. Patrick Ouellette, Comparing and Contrasting AKS and EKRA Safe Harbors: Clinical Lab Impact, American Health Lawyers Association (2019),https://www.healthlawyers.org/News/Health%20Lawyers%20Weekly/Pages/2019/August%202019/August%2009%202019/Comparing-and-Contrasting-AKS-and-EKRA-Safe-Harbors-Clinical-Lab-Impact.aspx.
  11. Id.
  12. U.S. Department of Justice, The False Claims Act, https://www.justice.gov/civil/false-claims-act (last visited Feb. 3, 2020).
  13. 31 U.S.C. §§ 3729 – 3733.
  14. 31 U.S.C. §§ 3729(a)(1).
  15. Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989, 1999  (2016).
  16. Id. at 1995.
  17. United States ex rels. Lemon et al. v. Nurses to Go, Inc., Opinion,  Case No. 18-2032 (5th Cir. May 7, 2019).
  18. M.G.L. c. 12 §§ 5A - 5O.
  19. Tex. Hum. Res. Code §§ 36.001-132. See also Texas Patient Solicitation Act (TPSA), TEX. OCC. CODE ANN. § 102.001 et seq.
  20. The Massachusetts False Claims Act, Texas Medicaid Fraud Prevention Act, and the federal FCA all require knowledge by the individual or company accused of misleading or defrauding government entities through the use of false or fraudulent claims, records or statements. In the instance of Medicaid fraud, for example, an individual could face civil enforcement actions by the Texas Attorney General’s Office or potentially criminal enforcement by the Texas Medicaid Fraud Control Unit within its office; in addition to the actions taken at the state level, such Medicaid fraud, depending on the facts and circumstances, may also warrant federal review under the FCA.

About the Authors

Patrick Ouellette, Esq. is Assistant General Counsel at the Massachusetts Executive Office of Health and Human Services. He focuses on healthcare technology transactions and has broad legal experience with healthcare providers, state government and employee benefit plans. He can be reached at [email protected].

Rachel V. Rose – Attorney at Law, PLLC (Houston, Texas) - advises clients on healthcare, cybersecurity and qui tam matters. She also teaches bioethics at Baylor College of Medicine. She has been consecutively named by Houstonia Magazine as a Top Lawyer (Healthcare), the National Women Trial Lawyer’s Top 25 and the National Trial Lawyers Top 100. She can be reached at [email protected]