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Case provides guidance on labs, commissions and EKRA

On Behalf of | Jan 17, 2022 | Diagnostic Testing And Reference Labs, Stark Law/Anti-Kickback Statutes |

The Eliminating Kickbacks in Recovery Act (EKRA) generally prohibits the use of kickbacks and other forms of remuneration for referrals. The law applies to various medical practices, including labs. One of the biggest critiques to the law is the lack of transparency. Like the Antikickback Statute (AKS) which also prohibits kickbacks, there are exceptions. But how do these exceptions actually work?

For EKRA, payments to employees and independent contractors can qualify for an exception if it is unrelated to the number of individuals referred to the lab, number of tests performed, or amount billed. As to how the exception works, a recent case provides some guidance.

The case, S&G Labs Hawaii v. Graves, involves a lab account manager whose contract states they get a percentage of net profits of accounts managed by Mr. Graves in addition to a base salary. After the passage of EKRA, the group attempted to renegotiate the contract — fearing the courts would view the percentage of net sales as a kickback under EKRA. Renegotiations failed and the account manager sued the lab stating the lab breached their employment contract.

There are two important findings from the court.

#1: Can the account manager get a salary that includes commission?

First, the court stated the language of EKRA refers to remuneration to an individual using the services of the laboratory. Essentially the court stated that the EKRA prohibition did not apply because the remuneration or commission paid to the account manager was not in exchange for the account manager’s use of lab services.

#2: Does the exception apply?

The court also stated that the commission did not qualify for the EKRA exception because it was based on the number of tests the lab performed. However, since the payment itself did not violate EKRA use of the exception was irrelevant.

Can labs comfortably move forward with commission-based payments?

If this were a holding from the Supreme Court, such moves are more comfortable. However, this is a holding from a lower court. As such, the holding provides some guidance, but is far from final. Those who are considering similar payment structures are wise to carefully review the agreement and discuss any potential concerns for an EKRA violation before moving forward.

It is also important to point out another concern with using this case as the sole piece of evidence to justify similar compensation structures. The court, in its holding, noted neither party provided expert testimony regarding the scope of EKRA in this case. As such, the court viewed the record in the light most favorable to the lab when making its determination, stating the answer, at a minimum, involves a genuine issue of fact.

Attorney John Rivas is responsible for this communication

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