Takeaways
- The Ninth Circuit issued the first appellate decision interpreting EKRA, offering initial guidance on the statute's scope.
- The Court ruled that EKRA applies to payments made to marketers, not just to physicians or direct referral sources.
- The decision underscores that EKRA compliance will depend heavily on the facts and circumstances of each arrangement.
On July 11, 2025, the first interpretive decision addressing the Eliminating Kickbacks in Recovery Act 18 U.S.C. 220(a)(2)(A) ("EKRA") was released for publication. In United States v. Schena, the Ninth Circuit Court of Appeals provided first-of-its-kind guidance on the scope of the statute's prohibitions. The case involved Mark Schena's payment of marketers in connection with promoting the sale of laboratory services.
Schena owned and operated an independent clinical laboratory known as Arrayit, which primarily engaged in the provision of allergy testing. In response to the COVID pandemic, Arrayit engaged in COVID blood testing and coupled it with broad allergy testing. The broad allergy testing was often neither requested nor wanted by patients nor their physicians. Schena engaged in dubious and aggressive marketing tactics and encouraged his employed and contracted marketers to promote Arrayit's services to "naïve" physicians, while also misleading them about the speed and efficacy of COVID blood tests and the necessity of the allergy testing. Schena paid his marketers on a percentage of revenue compensation model. Ultimately, Schena was charged and convicted of conspiracy to commit healthcare fraud, two counts of healthcare fraud, conspiracy to violate EKRA, two counts of EKRA violations, and three counts of securities fraud.
On appeal, Schena argued that EKRA only prohibited offering or paying remuneration to induce a referral to those in a position to actually refer a patient, e.g. physicians. Schena asserted that because the remuneration was paid to his marketers and not directly to physicians, his conduct was outside the scope of EKRA.
The Court rejected Schena's arguments. Importantly, it held that nothing in EKRA limits "its reach to payments made specifically to persons who have the authority to refer patients or directly interact with patients." Instead, because EKRA prohibits payment of remuneration "directly or indirectly" to "induce a referral of an individual," the Court concluded that EKRA covers situations where a marketer causes an individual to obtain a referral from a physician." The Court reinforced its conclusion by noting that the interpretation of EKRA is in accord with the Circuit Courts that have interpreted analogous provisions of the Anti-Kickback Statute ("AKS") itself.
The Court then turned to consider the meaning of to "induce a referral." In so doing, the Court concluded that "a percentage-based compensation structure for marketing agents, without more, does not violate the statute." Instead, the Court noted that exertion of "undue influence" on the referral source by the marketers is what distinguishes unlawful inducement from common advertising and promotional practices by marketers. The Court acknowledged that "although no circuit has interpreted the term 'induce' in EKRA," case law relating to the AKS had considered the meaning of the term to aid in its interpretation. Citing Hanlester Network v Shalala, the Court noted that "mere encouragement would not violate the statute," recognizing that the same is the core function and objective of legitimate marketing efforts. However, "to induce connotes an intent to exercise influence over the reason or judgment of another in an effort to cause the referral of program-related business." The key difference is the presence of undue influence, which the Court observed was evident under the circumstances in this particular care where Schena directed his marketers to mislead and deceive physicians. It was also significant that Schena caused Arrayit to run the maximum number of allergy tests to submit claims for maximum reimbursement. The Court stated that when percentage-based compensation to marketers is made in the context of marketers being directed to mislead referral sources about the nature and need for the services, those payments violate EKRA. However, the Court was careful to express that "this is not a necessary set of circumstances for establishing undue influence, but it is sufficient." This comment makes clear that the facts and circumstances of each case will be critical to determining when influence crosses the line to undue influence, and in turn, becomes a violation of EKRA's proscriptions.
Accordingly, although Schena is not to be considered comprehensive guidance on the scope of EKRA, it certainly offers much-needed insight into how the courts may interpret the statute and provides some guidance to healthcare industry participants within EKRA's purview regarding how to conduct (or not conduct) their marketing activities.
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