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EKRA, sales agents, and diagnostic labs: 2 cases, 2 different holdings

The Eliminating Kickbacks in Recover Act (EKRA) is known for many things, but clarity is not one of them. It provides a tool for the government to fight the opioid epidemic in our country, which is a noble cause. Unfortunately, lawmakers left portions of the law too vague making it difficult for those impacted by the law to know if they comply or not.

We know EKRA applies to labs in a broad sense — not just those that operate within the realm of addiction treatment. One key example that plagues labs is marketing. Diagnostic labs often make use of marketing measures to help bring in new clients. Do a quick search online and your browser will have list after list of tips to get a better marketing plan for your lab.

But is this legal?

Unfortunately, EKRA does not provide a clear answer.

Since lawmakers have failed to provide additional guidance, we are left to see how the courts apply this law to figure out what compliance means. Unfortunately, we just had two court holdings that came out with contradicting answers.

Case #1: S&G Labs Hawaii, LLC v. Graves

In this case, a federal court out of Hawaii reviewed a lab that allegedly violated EKRA when it basically paid a sales agent commission based on how many referrals they were able to bring into the lab. The court held that the language of EKRA is narrow, that it applies specifically to referring patients. The sales agents were not working directly with the patients, but with physicians and hospitals. Since there was not a financial relationship between the patients and the sales agent, this court determined that there was not a violation.

Case #2: USA v. Schena

The court in this case, out of the United States District Court for the Northern District of California, rejects the previous holding in Graves. Instead, this court found the language of EKRA was much broader than the Graves court and that an indirect relationship could still constitute a violation of EKRA.

So much for the hope of a bit more clarity. These contradictory holdings can leave lab owners and managers in a difficult situation. It is best to comply with EKRA as a violation can result in up to $200,000 in fines and 10 years of imprisonment. As such, it is best to take any allegations of a violation seriously.

Attorney John Rivas is responsible for this communication