Marketing, Misconduct and Healthcare: Ninth Circuit Issues First EKRA Appellate

On July 11, 2025, in United States v. Schena, the U.S. Court of Appeals for the Ninth Circuit issued the first appellate decision interpreting the Eliminating Kickbacks in Recovery Act (“EKRA”). The decision marks a significant development in EKRA’s enforcement, as it represents the first time a federal appeals court has addressed EKRA’s reach and moved toward some clarity in its application to marketing arrangements within the healthcare industry, particularly in the often-discussed lab context.

In affirming the conviction of clinical laboratory executive Mark Schena, the court held that EKRA applies not only to direct payments made to referring physicians but also to payments made to marketing intermediaries.[1] Of note, the Ninth Circuit emphasized that a percentage-based marketing arrangement, without more, would not constitute a per se violation of EKRA. Rather, such contractual arrangements become unlawful under EKRA when coupled with deceptive, wrongful or misleading practices that improperly affect referral decisions. While noting that future cases will be necessary to give context to the circumstances in which payments to marketers constitute a “wrongful effort to unduly influence the decisions” of medical professionals making referrals, the court found that Schena does not require such nuanced analysis because, by directing marketers to mislead and deceive doctors about Arrayit’s blood testing services, particularly those doctors less knowledgeable about allergies, Schena engaged in deceitful conduct that gave marketers undue influence over referrals. Therefore, the Circuit found Schena paid marketers to induce referrals to his lab in violation of EKRA. 
 
The Eliminating Kickbacks in Recovery Act

EKRA, enacted in late 2018 as part of the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act (the “SUPPORT Act”) and codified at 18 U.S.C. Section 220, prohibits accepting or paying kickbacks for referrals to recovery homes, clinical treatment facilities, or laboratories. EKRA was novel in that it was the first significant federal law intended to regulate payment for the referral of patients or services billed to private insurance, rather than those billed to federal government providers like Medicare or Medicaid, known in the industry as “federal payors.” In other words, while other government payor-focused statutes, such as the Anti-Kickback Statute (AKS), were in place that regulated the ability to pay and receive referral commissions in connection with federal health care service repayment, EKRA was the first statute that also regulated conduct for the referral of patients or services to private insurance.

Schena Background
 
Mark Schena ran Arrayit, a small medical lab in Northern California. Initially, the lab sold equipment to other labs, but Schena decided to shift the business to clinical diagnostic testing, particularly blood-based allergy tests. While allergists typically use skin tests and often use blood tests as a secondary or ancillary measure when patient skin conditions require them, Schena marketed the blood tests as “superior,” at least in part because insurance providers paid up to $10,000 for each full suite of blood tests. The government prosecuted Schena, claiming that he chose blood tests over traditional skin tests because he could make large amounts of money by billing insurers for each panel, even though the tests were often allegedly unnecessary and excessive.
 
To generate patient volume and boost revenue, Schena hired marketing agents on a commission basis, paying them a percentage of the revenue they brought in. The evidence at trial showed that Schena orchestrated a scheme by which the marketers misrepresented Arrayit’s services, to medical professionals, especially those unfamiliar with allergy testing, by claiming that Arrayit’s blood testing was “highly accurate” and “far superior” to skin tests, even though skin testing was more common in the industry and Arrayit’s blood tests could not assess whether the patient had an allergy (as opposed to having been exposed to an allergen). Evidence further showed that the marketer’s undue influence extended beyond their misrepresentations, as one testifying employee stated that marketers “controlled” which lab received the blood samples, and another marketer confirmed that Arrayit’s financial incentives led them to push blood tests and not mention skin tests as an option.
 
When the COVID-19 pandemic reduced testing volume, Schena pivoted to COVID antibody tests, instructing marketers to bundle these tests with an extensive panel of allergy tests, even when the patiently only requested COVID testing. In one notable instance, Arrayit billed over $5,000 for an allergy test that the patient explicitly declined.
 
Between 2018 and 2020, Arrayit billed insurers over $77 million. The government charged Schena with healthcare fraud, securities fraud, and violations of EKRA, including two substantive EKRA counts based on payments made to a top marketer. The Jury convicted Schena on all counts, and the district court sentenced him to 96 months in prison and ordered him to pay over $24 million in restitution.

Holding

The Ninth Circuit Court of Appeals ruled that:

1. EKRA applies to payments made to marketing intermediaries, not just to doctors or medical professionals who directly refer patients.
2. A commission-based or percentage-based compensation structure for marketers does not, without more, result in a violation of EKRA.
3. A commission-based or percentage-based compensation structure for marketers, when paid to the marketer to unduly influence a medical professional’s referral through false or fraudulent representations about the medical services, is violative of EKRA. 

The court, concentrating on what it means to “induce a referral” in the context of 18 U.S.C. Section 220(a)(2)(A), found that Schena intentionally directed his marketers to deceive doctors, target uninformed providers, and bundle unnecessary tests. By doing so, he paid marketers to induce referrals, which falls squarely under EKRA’s prohibitions. The court affirmed the EKRA convictions, upholding Schena’s 96-month prison sentence and the district court’s partial restitution order.
 
Why It’s Important

1. With little regulatory guidance from either the Department of Justice or the Department of Health and Human Services, appellate analysis defining the scope of EKRA is helpful to practitioners attempting to responsibly navigate the statute’s prohibitions. This decision clarifies inconsistent district court opinions in the circuit, finding that EKRA does cover payments to marketers designed to induce referrals, and is not limited to payments made to medical professionals who are actually referring the patients.
2. The decision also makes clear that, while percentage-based or commission-based payments made to marketers are not per se violative of the statute, when those marketers are directed to mislead the medical professionals making the patient referrals about the medical services at issue, those payments would certainly violate EKRA.
3. Stopping short of criminalizing all percentage-based or commission-based payment structures to marketers, the court emphasizes that practitioners using such structures must be very cautious in navigating these arrangements and should consider whether it is preferable to structure marketing compensation in accordance with the safe harbors in 18 U.S.C. Section 220(b)(2), which permits payments made to an employee or independent contractor as long as the payment is not determined by :
   1. the number of individuals referred to a particular recovery home, clinical treatment facility, or laboratory;
   2. the number of tests or procedures performed; or
   3. the amount billed to or received from a patient’s insurer.

Takeaway

The Ninth Circuit’s ruling in Schena should remind recovery homes, clinical treatment facilities, and laboratories that compensation structures and promotional strategies should be carefully designed to avoid even the appearance of undue influence, and practitioners and organizations in these spaces should review existing marketing agreements and compensation models to ensure they do not involve conduct that could be construed as prohibited by EKRA. 
 
Special thanks to summer associate Nylah D. Custalow for her significant contribution to this legal alert. She is not licensed to practice law.

[1] In doing so, the Court rejected the district court’s determination in S&G Labs Hawaii, LLC v. Graves, 2021 WL 4847430 (D. Haw. Oct. 18, 2021) that since EKRA refers to the induced referral “of an individual,” EKRA did not apply when a marketer interfaced with medical professionals because the “client” accounts they serviced were not individuals whose samples were tested at S&G’s lab.