Overview
On July 11, the Ninth Circuit Court of Appeals provided key insights into the meaning of the Eliminating Kickbacks in Recovery Act (EKRA), 18 U.S.C. § 220. Although EKRA was enacted in 2018, there has been little judicial guidance on its scope until now.
In United States v. Schena,1the Ninth Circuit applied EKRA to laboratory owner Mark Schena, who was criminally charged with violating EKRA's prohibition on paying "remuneration . . . to induce a referral of an individual to a recovery home, clinical treatment facility, or laboratory." 18 U.S.C. § 220(a)(2)(A). The court affirmed Mr. Schena's convictions, confirming that EKRA applies to payments made to marketing intermediaries — even when the intermediaries do not pass on any portion of that compensation to medical professionals or patients. While percentage-based commission payments to third-party marketers are not per se illegal kickbacks, the Ninth Circuit held that they may become unlawful if connected to misleading pitches for referrals. On the other hand, the court also clarified that a referral is not "induced" via a marketing intermediary under EKRA unless "undue influence" is exerted on the referring medical professional through the use of misleading information, deceit, or fraud. Schena, therefore, illustrates both EKRA's potentially expansive application and a meaningful constraint on EKRA liability under the statute.
I. Background
Mr. Schena operated Arrayit, a medical testing laboratory focused on blood tests for allergies. Schena, 142 F.4th at 1219. Although skin tests are typically used for allergy testing, Mr. Schena falsely marketed Arrayit’s blood tests as a superior option for allergy testing. This marketing was motivated by the sizeable profit margin on blood tests: Arrayit could bill patients’ insurance providers up to $10,000 for blood tests that cost the lab a fraction of that amount to perform. Id.
Mr. Schena directed third-party marketers to pitch Arrayit's services to medical professionals, who would in turn steer their patients to his lab. These marketers often evaluated patients for more allergens than medically necessary. Id. The marketers were specifically directed to target medical professionals with limited experience in treating allergies, such as chiropractors and naturopaths. Id. at 1219–20. The marketers were paid a percentage of the revenue that they generated for Arrayit. Id. at 1219. Although the percentage-based payments were central to the case, there was no evidence that the referring medical professionals or patients received kickbacks or other direct payments.
The government charged Mr. Schena with two counts of EKRA violations, among other allegations, and the jury convicted him on both counts. Id. at 1220–21. On appeal, the Ninth Circuit addressed the following two pivotal questions: (1) whether EKRA applies to payments made to marketing intermediaries; and (2) if payments to marketing intermediaries are covered, what constitutes "induce referral" within this type of payment relationship. Id.
II. Clarification of EKRA
Construing EKRA's language and drawing on precedents surrounding EKRA's sister-statute — the Anti-Kickback Statute (AKS), 42 U.S.C. § 1320a–7b(b)(2)(A) — the Ninth Circuit issued the first circuit court interpretation on this issue. The court found that EKRA applies to payments made to marketing intermediaries when, at minimum, the intermediary is directed to engage in deceit or fraud. Id. at 1222–26.
Rejecting Mr. Schena's argument —adopted by some district courts— that EKRA requires illegal payments to be made to a person who interfaces directly with patients, the court provided a broader standard. Id. at 1222. Instead, the correct test is whether a payment violates EKRA if its purpose is to induce a referral—whether via a payment to a referral source or otherwise. As the court explained: "One could 'induce a referral' by paying someone who could in turn effect a referral, even if the person who received the payment did not himself have the ability to order a laboratory test or refer a patient to a treatment facility . . ." Id.2
The court then turned to defining what conduct "induces" a referral under EKRA by contrasting legitimate marketing efforts with undue influence. According to the Ninth Circuit, inducements connotes "wrongful causation," or "undue influence," "not mere causation." Id. at 1224-25 (citing United States v. Hansen, 599 U.S. 762, 774 (2023) and AKS case law). The court concluded that "the mere fact of a percentage-based marketing arrangement, without more, [does not] constitute a per se violation of EKRA." Id. at 1225. The court refused "to read EKRA to criminalize (with major federal penalties) a standard payment structure for marketing personnel, even when the marketing personnel are persuasive in driving business." Id. Specifically, for EKRA liability to arise, marketing activities must "reflect a wrongful effort to unduly influence the decisions of doctors and medical professionals making referrals." Id.
As applied to Mr. Schena's case, the court found that his marketers engaged in misleading and deceitful practices to medical professionals under his direct instruction, exaggerating the effectiveness of Arrayit’s blood testing services to cause them to make referrals to his lab. Id. at 1226. Mr. Schena chose unsophisticated, non-allergist medical professionals as targets for those marketers. As a result, the marketers were able to exercise the requisite "undue influence" to sustain an EKRA violation. The Ninth Circuit, however, declined to decide how EKRA would apply to a defendant who merely knew about—but did not directly coordinate or authorize—such deceptive marketing tactics.
III. Key Takeaways
EKRA, like the AKS Statute before it, represents a potentially expansive incursion into industry marketing practices. The statute's use of broad terminology makes judicial interpretation a critical step in establishing the rules that govern industry actors. Schena represents an early step in that process. It clarifies that, at a minimum, EKRA extends to payments made to marketing intermediaries who, under a percentage-based compensation scheme, are directed to use misleading information, fraud, or deceit to induce healthcare providers to refer their patients. It does not, however, criminalize all percentage-based compensation arrangements for marketers.
Laboratories, clinical treatment facilities, recovery homes, and other businesses subject to EKRA should consider the statute's reach when structuring their marketing practices. To determine whether a commission-based compensation program for marketers violates EKRA, those businesses should assess the directives given to their internal and external marketing teams. This includes incorporating certifications in their contracts with third-party marketers that they have not employed false or misleading statements in their marketing efforts. Contracts might also include audit rights that permit the inspection of the marketer's promotional materials and verify compliance. In addition, businesses subject to EKRA should also closely manage and monitor interactions between their marketers and medical professionals. Best practices could include, for example, offering trainings on EKRA compliance, conducting provider surveys, managing an anonymous hotline to encourage internal and provider reporting of EKRA violations, and implementing surprise "ride-alongs" with marketers visiting providers. These steps can help minimize the risk that intermediaries engage in inappropriate conduct.
If you would like assistance in evaluating your organization’s marketing arrangements for EKRA compliance, please contact a member of our IWC team. We are available to help assess your current practices, review compensation structures, and implement appropriate compliance measures to mitigate risk under EKRA.
1 United States v. Schena, 142 F. 4th 1217 (9th Cir. 2025).
2 In making this ruling, the Ninth Circuit rejected the District Court of Hawaii’s holding, where the district court limited EKRA's application to situations where marketing intermediaries interfaced with healthcare providers. S&G Labs Hawaii, LLC v. Graves, 2021 WL 4847430 (D. Haw. Oct. 18, 2021), abrogated by, Schena, 142 F.4th at 1222–23.
