Another genetic testing lab settles with DOJ for violating the False Claims Act (FCA) and Anti-Kickback Statue (AKS) [https://www.justice.gov/usao-wdwi/pr/autogenomics-inc-agrees-pay-over-25-million-allegedly-paying-kickbacks].California-based PersonalizeDx, a genetic testing laboratory, entered into an agreement with a third-party “healthcare marketing company”. According to the agreement, the genetic testing lab paid the health care marketing company a specified monetary kickback for each test that was reimbursed by Medicare. The particular structure of the marketing agreement violates the AKS and further implicates the False Claims Act once such tests are filed for reimbursement with Medicare. Under the agreements, the amount of the kickback was based either on a percentage or fixed amount of Medicare’s reimbursement for each test, which violates the AKS.
The AKS prohibits medical providers from paying or receiving kickbacks, remuneration, or anything of value in exchange for referrals of patients who will receive treatment paid for by government healthcare programs such as Medicare and Medicaid, and from entering into certain kinds of financial relationships.
Another relatively new law which also governs laboratories and how they acquire patients is the Eliminating Kickbacks in Recovery Act of 2018 or (EKRA). EKRA was signed into law on October 25, 2018 which included some provisions for laboratories and how they procure patients. In general, EKRA prohibits knowingly and willfully:
- 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; or
- Paying or offering 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 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.
Although the language used in EKRA is similar to the language in the AKS (mentioned above), there are some important differences to be aware of. First, EKRA applies to all health care benefit program business, including private payors, while the Federal AKS applies only to the federal health care programs (Medicare/Medicaid). Second, even though EKRA focuses on substance abuse treatment, EKRA applies to all laboratory testing, regardless of whether the laboratory tests are related to substance abuse.
EKRA includes several statutory exceptions that describe situations where EKRA will not apply, some of which are similar to the federal AKS safe harbors. The more significant exception related to laboratories is EKRA’s exception for remuneration paid to employees which is narrower than that the Federal AKS employment exception.
The Federal AKS employment safe harbor (42 C.F.R. § 1001.952(i)), protects payments, including volume-based commissions, paid to bona fide employees. In contrast, ERKA will only protect payments made by an employer to an employee or independent contractor if the payment is NOT determined by or DOES NOT vary by:
- the number of individuals referred to a particular recovery home, clinical treatment facility or laboratory;
- the number of tests or procedures performed; or
- the amount billed to or received from, in part or in whole, the health care benefit programs of the individuals referred to a particular recovery home, clinical treatment facility or laboratory.
In other words, even though volume-based commissions may be paid to employees under the Federal AKS, under EKRA, a laboratory that pays volume-based commissions to its employees risks enforcement action.
As a result, many operators of genetic testing labs and their attorneys are re-structuring their independent contractor agreements and developing effective and appropriate arrangements to provide management/marketing/advertising services in a legal and compliant manner. This almost always calls for an FMV opinion of the marketing/management fees.
The most common payment arrangements/models we’re seeing at HVG are separate entities characterized as either marketing/advertising firms, MSO or telemarketing/call center firms. These healthcare marketing businesses are typically either direct-to-consumer (DTC) or physician services channel (PSC) firms. The DTC services are believed to be more problematic from a compliance perspective. These independent “marketing firms” contract with genetic testing labs and other types of labs to perform a number various tasks and strategies to promote the laboratory’s services. Since the fee charged by the marketing firm cannot be based on the reimbursements or number patients (i.e. samples or swabs), estimating the FMV fee is more of a challenge. HVG is seeing many of the services agreements identified as “Marketing/Advertising Services Agreements” or “Management Services Agreements” (MSOs). From the appraiser’s perspective, it’s important to know the specific scope of services with as much detail as possible. The most common and appropriate way to arrive at the FMV of such services is a method called “cost plus.” It’s customary for professional services to be charged to a client based on the actual direct costs (labor and out-of-pocket expenses) plus a certain percentage mark-up. It’s the appraiser’s job to determine the fair and reasonable (i.e. fair market value) mark-up percentage. As such, these marketing/management arrangements should require the service provider to submit records of actual employee timesheets, payroll roster, employer payroll costs and out-of-pocket expenses (among others expenses) each month.
 Included in Section 8122 (18 U.S.C.§ 220) of the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment (“SUPPORT”)