Introduction
The opioid crisis in the United States has necessitated robust legal and regulatory responses. The Eliminating Kickbacks in Recovery Act (EKRA)[1] was enacted on October 24, 2018, as part of the SUPPORT Act[2], targeting the illegal patient referral and kickback schemes prevalent in addiction treatment and recovery. EKRA was designed to address the pervasive issue of patient brokering and illegal kickbacks within the healthcare sector. As a federal crime, it prohibits soliciting, receiving, offering, or paying remuneration for patient referrals to specific healthcare facilities, especially recovery homes, clinical treatment facilities, and laboratories. The statute’s penalties are substantial, imposing fines and imprisonment for violations. EKRA’s reach extends beyond federal healthcare programs, including private insurance and self-pay patients.
The specific language of EKRA can be found under 18 U.S.C. § 220, and it includes the following key provisions:
Prohibition of Kickbacks: EKRA makes it a federal crime to 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 recovery home, clinical treatment facility, or laboratory; or
Pay or offer any remuneration, directly or indirectly, overtly or covertly, in cash or in kind:
To induce a referral of an individual to a recovery home, clinical treatment facility, or laboratory; or
In exchange for an individual using the services of that recovery home, clinical treatment facility, or laboratory.
Penalties: Violations of EKRA can result in significant penalties, including fines of up to $200,000, imprisonment for up to 10 years, or both, for each occurrence.
Scope: Unlike the Anti-Kickback Statute (AKS), which primarily applies to federal healthcare programs, EKRA applies to services covered by any healthcare benefit program, whether public or private.
Exemptions: EKRA includes exemptions for certain payments, such as those made to bona fide employees and independent contractors, provided that specific conditions are met.
EKRA was enacted in response to the opioid crisis, targeting fraudulent practices in the addiction treatment industry. However, its broad scope means it applies to a wide range of healthcare services and arrangements.
EKRA Compared to the Anti-Kickback Statute
EKRA and AKS significantly shape healthcare law, yet they differ fundamentally in scope, application, and exemptions. EKRA’s broader scope, encompassing both federal and private healthcare programs and self-pay patients, contrasts AKS’s focus solely on federal healthcare programs. This extension allows EKRA to address a wider range of healthcare fraud activities, including those involving private payers.
While both EKRA and AKS enforce severe penalties for violations, including substantial fines and imprisonment, the broader reach of EKRA suggests the potential for more extensive enforcement across diverse healthcare arrangements. EKRA, notably crafted to target kickback schemes within the opioid epidemic and addiction treatment, extends its influence beyond the traditional realm of federal healthcare programs.
AKS, known for its numerous safe harbor provisions, offers more leeway for certain business practices if they meet specific criteria, such as investment interests, space and equipment rentals, personal services, management contracts, and sale of practices. EKRA, in contrast, presents fewer exemptions, notably for bona fide employee and independent contractor relationships, discounts or reductions in price under federal healthcare programs, and payments tied to alternative payment models. This discrepancy underscores a stricter regulatory framework under EKRA, demanding heightened diligence from healthcare providers.
EKRA’s specific exemptions, although limited, provide targeted protections under clear conditions, emphasizing the importance of bona fide employment relationships, fair and transparent pricing, and the adoption of innovative payment models that align with care improvement objectives. This contrast in safe harbors and exemptions necessitates careful navigation and compliance strategies by healthcare entities, balancing the obligations of both EKRA and AKS in their operational and contractual practices.
Key Enforcement Actions Involving EKRA
Several enforcement actions since EKRA’s enactment illustrate its broad application:
S&G Labs Haw. LLC v. Graves[3]: This case involved a laboratory’s employment contract dispute in the context of EKRA compliance. The laboratory alleged a breach of a non-compete agreement when the employee joined a competitor. The employee counterclaimed, arguing that changes in the compensation structure due to EKRA compliance led to a breach of the employment contract. The court’s focus was on EKRA’s application to the compensation structure. It examined whether the commission-based compensation constituted an illegal inducement under EKRA. The ruling found that the laboratory’s payment to the employee for services, rather than to physicians for referrals, did not violate EKRA. This case is significant for its interpretation of EKRA, particularly regarding employment and compensation structures within healthcare facilities. However, the court in U.S. v. Schena rejected this court’s analysis.
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In U.S. v. Schena[4], the government brought charges against Mark Schena, president of a medical technology company, for EKRA violations related to kickbacks for COVID-19 and allergy testing. The core allegation was that Schena paid illegal kickbacks to influence patient referrals for these tests.
Schena’s defense centered on the argument that EKRA did not encompass payments to individuals who were not directly referring patients to a clinical laboratory. This defense was anchored in the precedent set by the S&G Labs Hawaii case, which the defense interpreted as limiting EKRA’s scope to direct interactions in kickback schemes. However, the court in Schena’s case diverged significantly from this interpretation.
The court’s analysis highlighted a broader interpretation of EKRA. It emphasized the statutory language, particularly the term “to induce,” which it found encompasses not only direct but also indirect efforts to secure patient referrals. The court asserted that even if a marketer does not interact directly with a patient, their role in persuading others (like physicians) to direct referrals to a specific laboratory falls within EKRA’s purview. This interpretation marks a pivotal shift from the S&G Labs case, where the court had not fully explored the implications of indirect inducement under EKRA.
The Schena court stated, “In its analysis of EKRA, S&G Labs failed to consider the plain meaning of the term ‘to induce,’ a broad phrase that encompasses indirect efforts by marketers to obtain patient referrals through physicians.” This statement reflects the court’s stance on a broader application of EKRA, extending beyond direct referral transactions.
Furthermore, the Schena decision implies that EKRA’s scope includes indirect referrals, a significant expansion from the direct interactions specified in the statute. This interpretation underscores the court’s commitment to following what it perceives as the statute’s plain meaning, emphasizing that EKRA’s reach is not confined to direct referral interactions but also covers more complex, indirect marketing strategies employed within the healthcare industry. This ruling underscores the need for healthcare entities and marketers to carefully navigate their referral practices to remain compliant with EKRA’s expansive application.
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In U.S. v. Mohammed[5], prosecutors in the District of New Jersey obtained a guilty plea from a drug treatment facility owner who conspired to violate EKRA by paying a marketing company a fee for each patient referral in addition to other conduct. Dickau, Welsh, Devlin, and their conspirators owned and operated the aforementioned marketing company in California. Dickau, Welsh, and Devlin used the marketing company to help orchestrate a scheme in New Jersey, Maryland, California, and other states that involved bribing individuals addicted to heroin and other drugs to enter into drug rehabilitation centers so Welsh, Devlin, and their conspirators could generate referral fees from those facilities. Mohammad owned and operated one facility in California that paid such referral fees. The marketing company run by Dickau, Welsh, and Devlin maintained contractual relationships with drug treatment facilities around the country, including the one run by Mohammad. The marketing company also engaged a nationwide network of recruiters – including Costas in New Jersey – to identify and recruit potential patients from New Jersey and other states who were addicted to heroin or other drugs and who had robust private health insurance.
To convince drug-addicted individuals to travel to and enroll in rehabilitation when they otherwise would not have, Costas and other recruiters offered to bribe them – often as much as several thousand dollars – with the approval of Dickau, Welsh, and Devlin. Once the patients agreed to enroll in drug rehabilitation in exchange for the offered bribe, Dickau, Welsh, Devlin, and Costas would arrange and pay for cross-country travel to the drug treatment centers in California and other states, in concert with the owners of the facilities themselves, including Mohammad. Costas would stay in touch with the New Jersey patients at the facilities and specifically instruct them to stay at the facilities long enough to generate referral payments, and he would pass along information to Dickau, Welsh, and Devlin about the patients’ status at the facilities. Dickau, Welsh, and Devlin would monitor the other patients they brokered by speaking to other recruiters or the owners and employees of the drug treatment facilities themselves. Mohammad’s drug treatment facility had a contract with the marketing company. Mohammad’s facility and other facilities typically paid the marketing company a fee of $5,000 to $10,000 per patient referral. Dickau, Welsh, Devlin, and their conspirators divvied that money among themselves. Costas and other recruiters received approximately half that amount for each brokered patient.
For example, on January 24, 2019, Mohammad, Welsh, and Dickau had a text message conversation in which Dickau sent a patient’s biographical and health insurance information to Mohammad to see if Mohammad would accept the patient at his drug treatment facility. After confirming that the patient had adequate health insurance benefits, Mohammad accepted the patient for admission to his drug treatment facility. The patient enrolled at Mohammad’s drug treatment facility soon after, and Mohammad billed a commercial insurance company over $70,000 for purported services rendered to the patient. The following month, Mohammad paid the marketing company a referral payment of $5,000 for referring the patient. In a telephone conversation on March 14, 2019, Mohammad and Welsh discussed kickbacks for referrals for two patients sent to Mohammad’s drug treatment facility. During the call, Mohammad and Welsh discussed how long each patient stayed at Mohammad’s drug treatment facility, and they agreed that Mohammad would pay Dickau and Welsh a kickback for the two patient referrals. On the same day, Mohammad wrote a check to the marketing company for $10,000. Dickau, Welsh, Devlin, and their conspirators brokered scores of patients to drug treatment facilities around the country, including the one run by Mohammad, and the conspiracy caused millions of dollars of losses for health insurers.
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In U.S. v. Lepetich[6], a Louisiana lab owner was indicted in May 2021 for EKRA and AKS violations related to COVID-19 testing and respiratory pathogen panel claims. The defendants in the cases announced today allegedly engaged in various healthcare fraud schemes designed to exploit the COVID-19 pandemic. For example, multiple defendants offered COVID-19 tests to Medicare beneficiaries at senior living facilities, drive-through COVID-19 testing sites, and medical offices to induce the beneficiaries to provide their personal identifying information and a saliva or blood sample. The defendants are alleged to have then misused the information and samples to submit claims to Medicare for unrelated, medically unnecessary, and far more expensive laboratory tests, including cancer genetic testing, allergy testing, and respiratory pathogen panel tests. In some cases, and as alleged, the COVID-19 test results were not provided to the beneficiaries in a timely fashion or were not reliable, risking the further spread of the disease, and the genetic, allergy, and respiratory pathogen testing was medically unnecessary, and, in many cases, the results were not provided to the patients or their actual primary care doctors. The proceeds of the fraudulent schemes were allegedly laundered through shell corporations and used to purchase exotic automobiles and luxury real estate.
EKRA charges were brought against a defendant alleged to be involved in the submission of improper claims to both government payors and, importantly, Blue Cross Blue Shield of Louisiana, a private payor. The defendant allegedly submitted these fraudulent claims to both government payors and Blue Cross Blue Shield of Louisiana. This application of EKRA demonstrates its effectiveness in tackling healthcare fraud beyond federal programs, encompassing fraudulent activities involving private insurers as well.
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In Florida, U.S. v. Markovich (2020)[7], two brothers who operated treatment facilities were convicted of conspiracy to violate EKRA involving commercial insurance claims. In this case, EKRA’s application centered on addressing illegal activities related to addiction treatment facilities. The two brothers involved in this case were convicted for their roles in a scheme that violated EKRA by involving kickbacks in connection with commercial insurance claims. This illustrates how EKRA extends beyond federal healthcare programs to encompass fraudulent practices within the broader healthcare industry, targeting schemes that exploit commercial insurance for profit. This case exemplifies EKRA being used to combat complex healthcare fraud schemes, emphasizing the statute’s reach in protecting the integrity of healthcare services and insurance systems.
Example EKRA Clauses for use in Health Care Contracts
The following examples provide essential clauses that align contractual parties with EKRA requirements. These provisions include safe harbor criteria for bona fide employees and independent contractors and clearly defined penalties for violations of EKRA. The examples below are aimed at guiding healthcare entities; these clauses serve as a navigational tool through the complexities of EKRA, ensuring adherence to legal and ethical standards. This guidance is vital for healthcare entities to structure their contracts effectively and maintain compliance with EKRA’s objectives in preventing healthcare fraud.
EKRA Safe Harbor Provision:
1.1 Notwithstanding any other provision in this Agreement, the parties acknowledge and agree that remuneration paid to individuals who have a bona fide employment or contractual relationship with the party paying the remuneration shall be exempt from the provisions and penalties of the Eliminating Kickbacks in Recovery Act (EKRA) as set forth in this Agreement.
1.2 To qualify for this safe harbor provision, the following conditions must be met:
(a) The employment or contractual relationship must be bona fide and based on a written agreement that is signed by both parties;
(b) The remuneration paid to the individual must be reasonable and consistent with fair market value for the services provided;
(c) The remuneration must not be determined, directly or indirectly, by the volume or value of referrals or other business generated between the parties;
(d) The remuneration must not be tied to any arrangement or agreement that violates any federal or state law, regulation, or policy;
(e) The parties must maintain accurate and contemporaneous records documenting the employment or contractual relationship, including the services provided, time worked, and any compensation paid;
(f) The parties must comply with all applicable federal and state laws, regulations, and policies governing employment and independent contractor relationships, including but not limited to tax, labor, and immigration laws; and
(g) The parties must promptly report any suspected violations or non-compliance with this safe harbor provision to the appropriate authorities.
1.3 The parties understand and acknowledge that compliance with EKRA is an ongoing obligation and that failure to comply with the conditions of this safe harbor provision may result in the loss of the safe harbor protection and potential liability under EKRA.
1.4 Nothing in this safe harbor provision shall be construed to limit or affect the rights and remedies of the enforcing authorities, including the Department of Health and Human Services Office of Inspector General (HHS-OIG), to pursue any legal action or enforcement action against any party for EKRA violations.
1.5 The parties shall indemnify and hold harmless each other from any claims, damages, liabilities, costs, and expenses arising out of or relating to any violation of EKRA committed by the indemnifying party, except to the extent caused by the negligence or willful misconduct of the indemnified party.
1.6 This safe harbor provision shall survive the termination, expiration, or completion of this Agreement.
EKRA Penalties Clause
1.1 Violations of the Eliminating Kickbacks in Recovery Act (EKRA), as set forth in this Agreement, shall be subject to penalties and enforcement actions as prescribed by applicable law.
1.2 Any party found to be in violation of EKRA shall be liable for civil and criminal penalties, including but not limited to fines, imprisonment, and exclusion from participation in federal and private healthcare programs, as determined by the enforcing authorities.
1.3 Civil penalties for EKRA violations may include monetary fines up to $200,000 per violation, or three times the amount of remuneration involved, whichever is greater, as specified under 18 U.S.C. § 3571.
1.4 Criminal penalties for EKRA violations may include imprisonment for up to 10 years, fines up to $500,000 for individuals or $1,000,000 for organizations, or both, as provided under 18 U.S.C. § 3571.
1.5 In addition to civil and criminal penalties, the enforcing authorities may pursue other remedies and enforcement actions available under the law to address EKRA violations, including but not limited to disgorgement of ill-gotten gains, injunctive relief, and exclusion from federal healthcare programs.
1.6 Each party acknowledges and agrees that compliance with EKRA is of utmost importance and shall take all necessary measures to ensure adherence to the provisions of EKRA and its implementing regulations.
1.7 The parties shall indemnify and hold harmless each other from any claims, damages, liabilities, costs, and expenses arising out of or relating to any violation of EKRA committed by the indemnifying party, except to the extent caused by the negligence or willful misconduct of the indemnified party.
1.8 The remedies and penalties set forth in this clause shall be in addition to any other remedies or penalties available at law or in equity.
1.9 Nothing in this clause shall be construed to limit or affect the rights and remedies of the enforcing authorities, including the Department of Health and Human Services Office of Inspector General (HHS-OIG), to pursue any legal action or enforcement action against any party for EKRA violations.
1.10 The obligations and liabilities under this clause shall survive the Agreement’s termination, expiration, or completion.
Outlook for EKRA Enforcement in 2024
The enforcement of EKRA is likely to continue intensively in 2024, with HHS-OIG focusing on unlawful kickback arrangements in various healthcare settings. The ongoing pandemic-related fraud cases may further spur enforcement actions. Clinical laboratories and healthcare entities must remain vigilant, regularly updating compliance programs to align with EKRA requirements.
As to the forecast for 2024, there are several potential trends in light of recent government priorities, settlements, and guidance that may impact EKRA. This would include certain laboratories that focus on add-on tests related to COVID-19, such as individual respiratory tests and respiratory pathogen panels, genetic, and allergen tests. These laboratories will likely draw increased scrutiny from the strike force teams referenced above. The government has also successfully prosecuted companies in the electronic health record sector, involving laboratories and others. Specific marketing arrangements for laboratories, such as commission-based compensation arrangements, are another trend to monitor in 2024. In addition, the government has highlighted specific telehealth arrangements in one of its recent fraud alerts related to genetic testing. Due to the lack of regulatory guidance and recent government activities, companies must closely monitor developments surrounding EKRA.
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[1] 18 U.S.C. § 220 – Eliminating Kickbacks in Recovery Act.
[2] Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act.
[3] S&G Labs Hawaii, LLC v. Graves, D. Haw., 19-00310 LEK-WRP (Oct. 18, 2021).
[4] U.S. v. Schena, No. 5:20-CR-00425-EJD-1, (N.D. Cal. May 2022)
[5] Department of Justice, “Two California Men Admit Roles in Multi-State Recovery Home Patient Brokering Scheme,” (September 15, 2020). See United States v. Mohammad (D.N.J.), https://www.justice.gov/usao-nj/press-release/file/1316956/download. Crim. 20-00784-001 (D.N.J. Jun. 15, 2023).
[6] Department of Justice, “DOJ Announces Coordinated Law Enforcement Action to Combat Health Care Fraud Related to COVID-19”,” https://www.justice.gov/opa/pr/doj-announces-coordinated-law-enforcement-action-combat-health-care-fraud-related-covid-19 (May 26, 2021). See U.S. v. Lepetich, No. 3:21-CR-00032 (M.D. La. May 2021)
[7] Department of Justice, “Addiction Treatment Facility Operators Convicted in $112 Million Addiction Treatment Fraud Scheme,” https://www.justice.gov/opa/pr/south-florida-addiction-treatment-facility-operators-convicted-112-million-addiction (Nov. 2021).