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Court (Mis)Interprets EKRA to Allow Commission Payments to Marketers

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Recently a Hawaii district court concluded that EKRA does not apply to marketers.  That interpretation is contrary to the core statutory text and purpose of the statute.  Hopefully this opinion, issued in an employment dispute, will not lead other courts to misapply the statute.

Congress enacted EKRA (Eliminating Kickbacks in Recovery Act of 2018) to fight patient brokering and recovery profiteering. EKRA prohibits anyone from paying, receiving, or soliciting, remuneration for referrals to recovery homes, clinical treatment facilities, or laboratories.  We have a full EKRA explainer here.

Court Interprets EKRA In Context Of A Marketer’s Employment Suit

They say that bad facts make bad law.  This may be a very good example of that truism.  It was neither a criminal prosecution for violating EKRA, nor even a False Claims Act case alleging EKRA violations.  But rather it was an employment dispute between a laboratory and an employed marketer.

S&G Laboratory employed Darren Graves as a marketer.  S&G paid Graves a relatively low base salary plus a portion of the sales revenue generated. As a result of this formula, in 2018, Mr. Graves received a $50,000 salary and over $1.8 million dollars in total compensation.  However, after the EKRA enactment, S&G told Graves that commission-based payments were illegal. It then offered Graves a $1 million annual salary.  After the parties were unable to agree on a new contract, the lab terminated his employment.

Court Concludes that EKRA Does Not Apply to Payments to Marketers

The court’s interpretation of EKRA runs from pages 22 to 30 of the opinion below.  First, the Judge correctly identified the relevant EKRA provisions:

            whoever, with respect to services covered by
            a health care benefit program, in or affecting
            interstate or foreign commerce, knowingly and
               (1) solicits or receives 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; or

               (2)  pays or offers any remuneration (including any kickback, 
                bribe, or rebate) directly or indirectly, overtly or covertly,
                in cash or in kind--

                 (A) to induce a referral of an individual to a recovery home, 
                 clinical treatment facility, or laboratory; or
                 (B) in exchange for an individual using the services of that recovery 
                 home, clinical treatment facility, or laboratory, 

  18 U.S.C. § 220(a) (emphases added).

The judge then concluded that S&G qualifies as a laboratory.  It also decided that the compensation paid to the marketer, Graves, qualifies as “remuneration.”  Importantly, the court relied on definitions from the similar Anti-Kickback Statute.

Court Incorrectly Interprets The Meaning of “to induce” in EKRA

The court then addressed what it called “the critical issue.”  “Whether Graves’s remuneration was ‘to induce a referral of an individual to S&G.”  p.29.  Section 220(a)(2)(A) applies to:

“whoever” (S&G);

“pays or offers any remuneration” (Grave’s $1.8 M in compensation);

“to induce a referral of an individual.” 18 U.S.C. § 220(a)(2)(A).

That leaves the question of whether S&G paid Grave’s compensation “to induce a referral of an individual.”  The language “to induce a referral” is borrowed from the Anti-Kickback Statute interpretation (AKS).  The AKS uses different statutory language.  But, courts and agencies interpret it to prohibit paying remuneration whenever one purpose is to reward or induce health care business.  See, e.g, HHS-OIG Advisory Opinion No. 13-03. And Importantly, The AKS clearly applies to payments made to marketing and sales agents.  See, e.g., HHS-OIG Advisory Opinion No. 98-10; United States ex rel Lutz v. BlueWave, No. 14-cv-00230 (D.S.C. May 23, 2018).

Here however, the Court, interpreted the provision to apply only when remuneration is paid to a referrer to induce him to refer individuals.  So, the court concluded that it wouldn’t apply in this case because “the compensation that S&G paid [Graves] was not paid to induce him to refer individuals to S&G.”  (emphasis added). The judge interpreted this provision wrong, concluding it only prohibited bribing referrers.

Notably, the statute doesn’t say that the remuneration must be paid to the referrer.  The statute says “induce a referral” not “induce a person to refer.”  The language applies to paying anyone (such as a marketer) for the purpose of inducing referrals.

Court also Misinterpreted the Prohibition on Paying for Patients

The judge made the same mistake in concluding that section 220(a)(2)(B) wouldn’t apply.  She said the provision “does not apply because the remuneration was not paid in exchange for Graves’s use of S&G’s laboratory services” p.29.  But again, the statute prohibits all remuneration “in exchange for an individual using the services of that recovery home, clinical treatment facility, or laboratory.” The statute applies any time a covered provider pays remuneration to anyone in exchange for an individual using its services. Importantly, it doesn’t only apply (as the judge wrongly decided) to payments to an individual in exchange for that individual using the services.

In both cases, the judge erred by interpreting EKRA to apply only when someone pays a referrer or a patient.  But that’s not what the statutory language says.

In fact, section 1 of the statute is limited to payments to referrers.  It prohibits soliciting or receiving remuneration “in return for referring.”  That language clearly applies only to the person making a referral.  Notably, Congress could limit the statute if it wanted to. Thus, under normal rules of statutory interpretation (and logic), by using different words in section 2, Congress intended a different result.

Excluding Payments To Marketers Undermines the Core Purpose Of EKRA

In fact, this interpretation could severely limit the reach of EKRA.  Under the judge’s reasoning, subsection (1) prohibits a referrer from soliciting or receiving bribes in return for referring patients or patronage. Subsection (2) prohibits offering or paying bribes to (A) referrers for making referrals, and (2) patients for using services.

But recall that the core purpose of EKRA itself was to stop patient brokers who recruit patients and shop them to the highest bidder.  Indeed Senator Rubio, the co-sponsor of the legislation, explained that it was designed to target “middlemen.”

This bill will help stop the cash flow for middlemen involved in illicit sober homes and paid referrals. I remain committed to addressing this important issue that has left no part of the state untouched

Senator Marco Rubio, Amid National Opioid Crisis, Rubio & Klobuchar Introduce Bill to Eliminate Patient Brokering (July 20, 2018). But the S&G ruling, leaves these middlemen patient brokers, neither referrers nor patients,  beyond the reach of the statute.  The fact that the judge’s interpretation eliminates the core purpose of the statute is a very strong sign she has erred.

S&G Labs v. Graves, 19-00310 (D-Hi, Oct. 18, 2021)


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