EKRA – What we’ve said about the prohibitions

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.  This case was not a criminal prosecution for violating EKRA or even a False Claims Act case alleging EKRA violations.  But rather it was an employment dispute between a laboratory and an employed marketer.

The laboratory changed the marketer’s pay from commission-based to salary based because it claimed that EKRA prohibited commission based payments.  As a result, the judge felt the need to determine whether EKRA applied to that situation.

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 Grave’s compensation qualifies as “remuneration.”  Importantly, as we predicted, the court relied on definitions from the similar Anti-Kickback Statute.

Then the court got to what it called “the critical issue.”  “Whether Graves’s remuneration was ‘to induce a referral of an individual to S&G.”  p.29.  The court concluded that “because Graves was not working with individuals, the compensation that S&G paid him was not paid to induce him to refer individuals to S&G.” p.30.

However, it seems that the Court misunderstood the relevance of “an individual” in the statute. The Court seemed to get  itself in grappling with the fact that Grave’s clients, ie the entities he was marketing to are not patients, but referring entities, then notes that the Laboratory was ultimately paid by the patients’ insurers.  By the end of the analysis on page 30 t

Do you see the problem?  The court interpreted EKRA to apply only when remuneration is paid to the referrer (Graves) to induce him to refer individuals.  Indeed, the Court notes that its analysis is compelled because “Graves was not working with individuals,” but that doesn’t matter.  Because marketers don’t (and cant) refer patients, the prohibition wouldn’t apply.

But this interpretation of EKRA is wrong.  EKRA doesn’t just prohibit paying someone directly “for referring individuals,” it prohibits paying someone “to induce a referral of an individual.”  In fact if you look back at section 1 of the statute, that section (which applies to those who solicit or accept remuneration) is limited to payments to referrers.  It prohibits soliciting or receiving remuneration “in return for referring.”  Under normal rules of statutory interpretation (and logic), by using different words, Congress intended a different result.

Excluding Payments To Marketers Undermines the Core Purpose Of EKRA

In fact, this interpretation was severely limit the reach of EKRA.  Under it subsection (a) prohibits a referrer from soliciting or receiving bribes in return for referring patients or patronage. Subsection (b) prohibits offering or paying bribes to (1) referrers for making referrals of individuals, and (2) patients for using the services of recovery home, clinical treatment facilities, and laboratories (see p. 29 “Section 220(a)(2)(B) does not apply because the remuneration was not paid in exchange for Graves’s use of S&G’s laboratory 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.  But under the S&G ruling patient brokers, who are neither referrers nor patients would be beyond the reach of the statute.

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


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