Recently enacted federal law expanding criminal liability for kickbacks related to all payors, and increased government enforcement activity in behavioral health (see press release), has heightened the importance of clinical due diligence for private equity investors targeting deals and acquisitions in the emerging behavioral health space.  PE firms continue to target behavioral health opportunities as federal and commercial insurance coverage expands for mental health, including substance abuse treatment and telehealth services.  Such commercial coverage will only become more commonplace after a federal court this month found United Behavioral Health improperly denied benefits for treatment of mental health and substance use disorders to plan participants because United’s guidelines did not comply with the terms of its own insurance plans and state law.[1]  PE firms entering the behavioral health market, though, particularly opportunities related to substance abuse treatment and laboratory services, should carefully review a company’s compliance with the Eliminating Kickbacks in Recovery Act of 2018 (“EKRA”).

EKRA is part of the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act (“SUPPORT Act”), passed in October 2018 with more than 120 provisions aimed to combat the opioid crisis.  EKRA, which applies to all payors (not just government payors), makes it a federal crime to knowingly and willfully:

(1) 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

(2) pay or offer 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.[2]

Each violation may result in fines up to $200,000 and/or imprisonment up to ten years.  Notably, a “clinical treatment facility” means a medical setting, other than a hospital, that provides detoxification, risk reduction, outpatient treatment and care, residential treatment, or rehabilitation for substance use, pursuant to licensure or certification under state law. Similarly broad is the “laboratory” definition, which encompasses all clinical labs, not just toxicology labs.

While EKRA and the Anti-Kickback Statute (“AKS”) contain similar language and some of EKRA’s eight exceptions mirror certain AKS exceptions and safe harbors, arrangements allowable under AKS may in fact violate EKRA.  For example, the EKRA individual compensation exception requires that payments to an employee or independent contractor not be determined by: referrals to a home, facility, or lab; number of tests or procedures performed; or the amount billed or received from any payor.  In other words, organizations (and potential PE investors) need to review and reassess percentage-based compensation arrangements for sales and marketing employees and contractors.  Such arrangements are particularly prevalent for clinical labs that work with substance abuse treatment providers and facilities, although all clinical labs should be on alert for EKRA compliance.

In addition to analyzing payment arrangements, clinical due diligence should also include reviewing existing billing practices for labs and physician group practices alike, following a February 2018 HHS-OIG report finding more than $66 million in improper billing related to providers and labs separately billing specimen validity testing when also performing urine drug tests.  Such improper billing continues to be the focus of DOJ prosecutions and settlements under the False Claims Act, as a Connecticut psychiatrist recently agreed to pay more than $3.3 million to resolve allegations of fraudulent billing for urine drug tests.

For more information on the implications of intersecting anti-kickback laws and clinical due diligence for private equity investors, please contact a member of the Husch Blackwell Health Law Team.


[1]  See Wit v. United Behavioral Health, 14-CV-02346-JCS, 2019 WL 1033730, at *54 (N.D. Cal. Mar. 5, 2019).

[2]  18 U.S.C. § 220(a).