EKRA and Pay-Per-Test COVID-19 Testing Models
To many laboratory owners, paying COVID-19 testing sites based on the number of specimens sounds like smart business. Unfortunately, the practice can run afoul of several laws — with potential penalties for both parties.
With demand for COVID-19 testing remaining high, testing centers and clinical labs are working to create compensation arrangements that make sense for their businesses. But profitability shouldn’t be their sole consideration. To avoid liability, both the labs and specimen collections sites must comply with laws prohibiting illegal kickbacks and self-referrals.
The Pay-Per-Test Scenario
Many COVID-19 testing sites seek to implement a pay-per-test compensation model. Under this model, the testing site contracts with a clinical lab, with the lab agreeing to pay the site based on the volume of tests the site delivers.
For example, imagine a COVID testing site offers PCR tests to patients in a local community. This testing site may collect 100 test samples in a given week. Then, it sends the samples to its contracted lab, and the lab pays the site $10 per sample. Finally, the lab bills each patient’s insurance for reimbursement on the test, resulting in a profit.
The above model makes a lot of sense for both the testing site and the lab. Indeed, the site gets paid more if it does more business. Thus, it is motivated to run more samples. In addition to being a sound business strategy, the site can argue the pay-per-test model promotes community health by motivating it to serve more patients. Moreover, the lab can feel secure knowing that it only must pay the site when it receives a reimbursable sample. The arrangement is fair, and the lab can know it will not dive into the red.
But the Department of Justice will likely see a significant potential drawback: the arrangement may prioritize money over patient care. Indeed, an enforcement agency can argue the arrangement involves paying illegal kickbacks for the referral of healthcare business. And the “But Everybody’s Doing It!” defense is unlikely to prevail in court.
Generally, three major laws impact pay-per-test arrangements:
Eliminating Kickbacks in Recovery Act (EKRA)
The Eliminating Kickbacks in Recovery Act (“EKRA”) was passed by Congress on October 24, 2018, as a part of the SUPPORT Act. It prohibits laboratories, clinics, recovery centers, and other clinical treatment facilities from accepting or paying kickbacks for patient referrals for services covered by a health benefit program.
Under the law, individuals cannot knowingly and willfully
- solicit or receive 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 laboratory; or
- pay or offer any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind-
- to induce a referral of an individual to a laboratory; or
- in exchange for an individual using the lab’s services.
Put simply, the law aims to stop labs from paying for a referral of business, and it punishes both the lab and whoever received the payment. Penalties for violating EKRA are severe and include fines up to $200,000 per violation, ten years imprisonment, or both.
EKRA and Pay-Per-Test
If you’re a testing site, you’re probably wondering, “If a lab pays me based on the number of tests I deliver, is that considered payment for referring a patient or patronage? “
The answer: probably yes. EKRA is a relatively new law; it’s difficult to predict how the DOJ will enforce its provisions. However, its language is broad. It prohibits providing or receiving payments for both the referral of patients and patronage. Although there is little precedent to point to, payments per COVID test delivered is likely considered a payment for a referral of healthcare patronage. Thus, both the testing site and the lab could be in hot water.
However, a recent case may provide testing centers with some alternative options. In S&G Labs Hawaii, LLC v. Graves, a lab manager marketed the lab’s services to third-party physicians, soliciting them to refer their patients to the lab. The lab owner paid this manager based on a percentage of the net profits on the accounts he serviced. In other words, the owner paid the manager more money if he convinced more doctors to refer more patients to the lab.
The court held this payment structure did not violate EKRA. Indeed, the court stated that the lab owner’s payment to his employee was not to “induce the referral of an individual” because the owner did not pay the referring physicians. Instead, the payment merely served as an incentive for the manager to work hard.
If the owner paid the physicians, then the strategy would likely be illegal, as the payment would constitute remuneration for a referral of business. However, the payments here were more indirect. They served to pay an employee to induce someone else to refer business; they did not pay someone directly to send business. Here, the manager served as a buffer, shielding the owner from liability.
The Graves case suggests that testing sites may have some flexibility in creating pay-per-test structures if they use separate employees or entities to manage the referring aspect of their business. However, it’s just one case, and it may be appealed and overturned. Therefore, testing sites should tread lightly and speak with an attorney before proceeding.
The Federal Anti-Kickback Statute (AKS)
The AKS imposes civil and criminal penalties against a person who offers or receives remuneration to induce the referral of services covered by a federal health care program (e.g., Medicare). Like EKRA, penalties for violating the AKS are severe. These penalties include fines, exclusion from health programs, license revocation, and even jail. Providers cannot knowingly or willfully solicit, receive, or offer to pay a kickback for referring an item or service reimbursable by a federal healthcare program.
The AKS mirrors EKRA in many ways. A significant difference is that AKS only applies to services reimbursable by a federal health program, like Medicare or Medicaid.
Does the pay-per-test model raise AKS concerns? You bet. Again, the government has a strong argument that the per-test model involves paying a kickback for a reimbursable service. Thus, labs that run tests for Medicare or Medicaid beneficiaries should be cautious before proceeding with the pay-per-test model.
However, the AKS does have numerous safe harbors, which may allow a testing site to use its desired payment structure. These sites must be sure they meet all the exception’s criteria to make sure they avoid harsh penalties.
The Physician Self-Referral Law (Stark Law)
Stark Law prohibits physicians from referring patients to entities with which the physician (or the physician’s immediate family member) has a financial interest. In other words, physicians can’t refer to themselves. Stark law applies to the referral of certain designated health services payable by Medicare or Medicaid. Designated health services include clinical laboratory services. The goal of the law is simple: physicians should refer patients to the best place possible, not the one that most benefits the physician financially.
The Stark Law is a strict liability statute, which means the government does not need to prove the physician had any ill intent when referring the patient. The referring action in and of itself creates the liability. CMS may permanently exclude physicians convicted of violating the law from participation in federal health programs. They may also be subject to civil fines of up to $100,000 per violation.
What’s a referral? Again, the law defines this broadly. Stark Law defines referral to mean any request by a physician for an item or service payable by Medicare or Medicaid. Moreover, it defines a financial relationship to include any ownership or investment interest, as well as any compensation arrangement between a physician and a facility that provides designated health services. Referrals likely include requesting a lab to run a COVID test sample.
Star Law applies whenever a physician has an ownership interest or a compensation relationship with a lab. Unless an exception applies, these physicians cannot freely refer their samples. Any financial relationship between physician and lab is a problem — not just pay-per-test models.
Physicians and testing sites that work with labs must ensure they fit into a relevant exception to avoid liability. For example, the “fair market value compensation exception” allows physicians to refer to labs with which they have a financial relationship. However, this exception demands the compensation arrangement fall squarely within an AKS safe harbor and meet various specific requirements.
Ultimately, testing sites and clinical labs need to know their legal risk before setting up a payment structure. Although the area is highly regulated, the good news is that most laws contain exceptions that may work well for your business. However, these exceptions require strict adherence to enumerated criteria.
An experienced attorney can make sure your practice’s structure is legally compliant and makes sense for your business needs. If you operate in one of the states where Jackson LLP practices, book a free consultation to learn about how we can help your practice.
This blog is made for educational purposes and is not intended to be specific legal advice to any particular person. It does not create an attorney-client relationship between our firm and the reader and should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.