The Ninth Circuit recently decided United States v. Schena, 142 F.4th 1217 (9th Cir. 2025), which considered the Eliminating Kickbacks in Recovery Act (“EKRA”). EKRA, enacted in 2018 to address “body brokering” and other fraud in the addiction treatment industry, largely tracks the federal Antikickback Statute (“AKS”), but there have been few Circuit Court opinions interpreting this law specifically. The Schena ruling has applicability beyond the addiction treatment field.
Facts of the Case
Clinical laboratory operator Mark Schena was convicted of paying marketers to induce referrals from providers for “medically dubious” allergy tests. The marketers were not paid a salary; rather, they were paid a percentage of the revenue they brought in.
Schena’s lab, called Arrayit, focused its business model on conducting blood tests for allergies, although the primary method for allergy testing is a skin test. While normally blood tests are reserved for those patients on whom skin testing cannot be performed, Schena was attempting to market the more expensive blood test with a full suite of 120 allergens more broadly.
Because allergists considered skin testing to be superior and testing for many of the 120 allergens to be unnecessary, Arrayit’s marketers stayed away from these specialists and instead pitched the blood tests primarily to doctors who were less familiar with allergy testing. Importantly, the marketers conveyed a false message that the blood tests were “far superior” to skin testing, even though Arrayit’s blood test could not determine whether the patient had an allergy or merely had been exposed to an allergen.
During the COVID-19 pandemic, Arrayit’s marketers pivoted to COVID tests, falsely contending that blood tests (which could detect antibodies) were better than the gold standard PCR test (which could detect active infection).
In part due to these marketing practices, Arrayit became the highest-billing laboratory in the country on a per-patient basis, and billed public and private insurers more than $77 million between October 2018 and June 2020.
Schena was charged with a variety of healthcare fraud charges, including EKRA violations arising from payments to one of his marketers to induce referrals from prescribers. Schena moved to dismiss the EKRA charges, arguing that his conduct did not violate the statute as a matter of law, because the percentage payments were made only to marketing intermediaries, and not to the physicians making the “referral,” i.e., ordering the tests. The district court denied the motion and Schena was convicted at trial.
Issues on Appeal
The Ninth Circuit considered two questions on appeal:
- Whether EKRA covers payments to marketers designed to induce referrals, or whether the provision is limited to payments made to the medical professionals who make the actual patient referrals; and
- What it means to “induce a referral” in the context of this type of compensation arrangement.
The court concluded that EKRA’s provisions are not limited to payments made to an individual who interfaces directly with patients. “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.”
Noting also that the statute applied to payments made “directly or indirectly,” the Ninth Circuit agreed with the district court’s conclusion that “the plain meaning of ‘to induce a referral’ includes situations where a marketer causes an individual to obtain a referral from a physician.”
The court then turned to the connection between the payments to the marketers and the goal of obtaining referrals, focusing on the meaning of the term “to induce.”
EKRA has a safe-harbor provision that permits payments made by an employer to an employee or independent contractor so long as the employee’s payment does not vary by the number of individuals referred, the number of tests or procedures performed, or the amount billed to or received from a patient’s insurance company. Because Arrayit’s marketers’ compensation was tied directly to the amount of tests performed, the safe harbor did not apply.
Nevertheless, the court concluded that “a percentage-based compensation structure for marketing agents, without more, does not violate” EKRA’s section 220(a)(2)(A).
However, where, as in Schena’s case, the evidence is sufficient to show “wrongful inducement” through payments by the employer to marketing agents to influence doctors’ referrals through false or fraudulent misrepresentations about the service, the statute is violated. While EKRA does not define the term “induce,” the court borrowed from the AKS and other criminal caselaw to conclude that “the term ‘induce’ connotes not mere causation, but wrongful causation.” As a result, Schena’s convictions were upheld.
Key Takeaways
There are several key takeaways from the Schena decision:
First, Schena serves as a reminder EKRA extends well beyond the addiction treatment industry. Referrals to clinical labs are expressly covered by EKRA, and labs, of course, serve providers across the entire medical spectrum, not just in the recovery space. Moreover, EKRA’s language closely tracks the AKS, and the Ninth Circuit’s interpretation of EKRA’s “to induce” language should be applicable to marketing activities covered under the AKS as well.
Second, this case confirms that illegal payments do not have to be made directly to the person ordering or prescribing a service to constitute a kickback; a payment made to a marketer with the intent to induce a referral from the prescriber is sufficient.
Third, compensation to marketers that varies according to the amount of services provided or revenue obtained does not qualify for EKRA’s safe harbor, but neither does it violate the statute per se. Rather, such a compensation arrangement would violate EKRA only if the marketer is communicating a false or misleading message about the service to induce referrals from prescribers.
The court left it to future cases “to give content to the specific circumstances in which payments to a marketing agent reflect a wrongful effort to unduly influence the decisions of doctors and medical professionals making referrals.” Still, as the court itself subtly advised, “companies seeking to steer clear of EKRA may consider whether it is preferable to structure their compensation arrangements in accordance with the statute’s safe harbor.”
Fourth, Schena reinforces that any company carrying a marketing message to induce referrals for medical services should take care to ensure that their agents are not communicating false or misleading information to medical professionals authorized to make such referrals.
Fifth, although Schena does not involve addiction treatment, providers in the treatment industry should reinforce with their marketing agents the need to be scrupulously honest with other providers and patients about the services they provide, to avoid potential liability under EKRA.
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