Key Takeaways
- At least three EKRA indictments have been filed so far this year in the Central and Southern Districts of California, each alleging illegal payments for the referral of commercial health insurance patients to substance abuse treatment facilities.
- Another defendant in the Central District of California was recently sentenced to 41 months in prison following a jury conviction late last year for EKRA violations. And the Ninth Circuit recently affirmed an EKRA jury conviction from the Northern District of California, leaving that defendant’s 96-month sentence undisturbed.
- These recent cases reflect an emerging trend of EKRA enforcement targeting laboratories and substance abuse treatment facilities, and their financial arrangements with marketers, particularly where they involve per-patient payments, monthly patient quotas and/or “undue influence” exerted on the referral.
In the past few months, federal prosecutors in California have brought multiple indictments under the Eliminating Kickbacks in Recovery Act (EKRA) charging the owners of substance abuse treatment facilities and their marketers. These indictments – in addition to a recent Ninth Circuit decision affirming an EKRA conviction of a laboratory owner[1] – show a concerted effort by federal prosecutors in California to utilize EKRA to prosecute illegal inducement of patient referrals in the realm of commercial health insurance.
EKRA, like the Anti-Kickback Statute (AKS), generally prohibits the payment or receipt of any remuneration (e.g., kickbacks, bribes, or rebates) to induce patient referrals. However, unlike the AKS, which only applies to services covered by federal health care programs such as Medicare and Medicaid, EKRA applies to commercial health insurance – but only for certain covered services (recovery homes, clinical treatment facilities, and laboratories). When it was enacted in late 2018, EKRA was somewhat controversial due to its broad reach into the field of private health insurance, and prosecutions under EKRA were slow to start. However, with the recent series of indictments in California, EKRA enforcement appears to be on the rise.
Here are brief summaries of recent EKRA prosecutions in California:
- In United States v. Patton, No. 2:25-cr-00489 (C.D. Cal. June 17, 2025), the owner of a marketing company was indicted for allegedly referring patients with commercial health insurance to substance abuse treatment facilities throughout Orange County, California, via marketing agreements with patient recruiters that paid those recruiters based on the volume or value of patient referrals, requiring minimum monthly quotas. The defendant allegedly received payments from substance abuse treatment facilities in exchange for those patient referrals. The recruiters allegedly made payments to patients to induce them to receive substance abuse treatment at the facilities associated with the defendant.
- In United States v. Simons, No. 3:25-cr-02444 (S.D. Cal. June 18, 2025), the CEO of multiple substance use disorder treatment facilities and sober homes throughout San Diego County, California was indicted for allegedly paying entities for marketing services, where the amount of payment was based on the volume or value of patient referrals and contingent on a minimum number of patient referrals (i.e., a monthly quota). Additionally, if a referral did not meet a minimum value that could be obtained from the patient’s private health insurance, the defendant would allegedly count such a referral as only half of a patient referral for purposes of the monthly quota.
- In United States v. Sharma et al., No. 8:25-cr-00078 (C.D. Cal. May 15, 2025), the owner of multiple addiction treatment facilities throughout Southern California, and the company’s accounts payable supervisor, were indicted under EKRA for alleged payments to patient “brokers” for patient referrals based on a monthly quota in exchange for a per-patient-fee, disguising such fee as an hourly marketing rate.
- In United States v. Mahoney, No. 8:21-cr-00183 (C.D. Cal. March 21, 2025), the owner of addiction treatment facilities in Orange County, California was sentenced to 41 months in prison (nearly 3½ years) after a jury found the defendant guilty of violating EKRA.[2] The indictment alleged and the defendant was convicted of paying patient “brokers” based on the volume or value of referrals to the defendant’s treatment facilities. The patient brokers also allegedly made payments to patients to continue receiving addiction treatment at the defendant’s facilities.
Taken together, these cases reflect a common trend of DOJ enforcement targeting substance abuse treatment providers (e.g., sober homes, addiction treatment facilities, and substance use disorder treatment facilities) and their financial arrangements with marketers or, as the DOJ labels them, “patient brokers” / “body brokers.” Specifically, each indictment alleged payments based on the volume or value of patient referrals involving commercial health insurance (e.g., per-patient payments).
Further, these cases share common factual allegations that defendants imposed monthly patient referral quotas on the marketers they paid. By including these allegations in the recent indictments, the DOJ seems to take the position that monthly patient quotas are facts that may establish unlawful “inducement” of patient referrals. However, the Ninth Circuit’s decision in United States v. Schena,[3] issued after the indictments in Simons and Sharma, may call that charging theory into question. In Schena, the Ninth Circuit specifically noted that percentage-of-revenue-based compensation structures for marketers, without more, are not enough to establish illegal “inducement” of a patient referral and therefore do not per se violate EKRA.[4] Thus, after Schena, allegations concerning marketer compensation structure (i.e., per-patient payments and monthly quotas), without more, may not be sufficient to plead and may not be relevant to prove an EKRA violation. Issues such as these may be ripe for litigation in the recently indicted EKRA cases and future EKRA cases within (and outside) the Ninth Circuit.
To be sure, the Ninth Circuit in Schena, looking to AKS precedents in the Fifth and Seventh Circuits, held that an EKRA violation may be sustained where there is evidence of “undue influence” over those who make healthcare decisions, or where a marketing intermediary effectively takes over the role of the referring provider. The “undue influence” standard in Schena was satisfied where the defendant directed marketers to make false and fraudulent statements to referring providers.[5] The recent indictments in Patton and Mahoney allege that marketers made payments directly to patients in exchange for the patients’ agreement to seek substance abuse or addiction treatment at certain facilities. A court may find such allegations sufficient to plead an EKRA violation and, if established beyond a reasonable doubt, to sustain a conviction.
The recent string of cases in California may signal that prosecutors have become more comfortable and emboldened to pursue charges under EKRA. Notably, two of the indictments identified above (Patton and Simons) were part of the DOJ’s record-breaking National Health Care Fraud Takedown announced earlier this year.[6] The DOJ’s inclusion of new EKRA prosecutions in the Takedown and the accompanying press onslaught reflect an effort to draw attention to these prosecutions and may be an indicator of future EKRA investigations and indictments to come. With the recent spate of new EKRA cases focusing on illegal remunerations in the area of private health insurance, providers, owners and marketers in the laboratory, substance abuse, and recovery home sectors should reexamine their compliance programs, as well as their marketing and provider compensation arrangements, to ensure that EKRA compliance is effectively considered.
[1] United States v. Schena, No. 23-2989, 2025 WL 1910064 (9th Cir. July 11, 2025).
[2] https://www.justice.gov/usao-cdca/pr/hollywood-hills-man-sentenced-nearly-3-12-years-federal-prison-paying-nearly-29.
[3] United States v. Schena, No. 23-2989, 2025 WL 1910064, at *18 (9th Cir. July 11, 2025).
[4] Id. at *17.
[5] Id. at *19.
[6] https://www.bakerlaw.com/insights/doj-announces-record-breaking-national-health-care-fraud-takedown-against-324-defendants-with-over-14-6-billion-in-alleged-fraud/. The Takedown also included a recently indicted EKRA case in the Eastern District of North Carolina. United States v. Sims, No. 4:25-cr-00015 (E.D.N.C. March 28, 2025).
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