Enacted in 2018, the Eliminating Kickbacks in Recovery Act (“EKRA”), makes it a federal crime to pay or receive any form of “remuneration” to induce the referral of a patient or other patron to a recovery home, treatment facility or laboratory. While EKRA was primarily aimed at curbing abuses occurring in connection with substance use treatment, the definition of “laboratory” is broad enough to cover all clinical laboratories. Furthermore, while the federal Anti-Kickback Statute (“AKS”) applies primarily to medical services reimbursed by Medicare and other federal programs, EKRA extends similar prohibitions for certain services covered by any health plan, governmental or commercial, that affect interstate or foreign commerce. A key issue raised by EKRA has been whether laboratories, recovery homes or treatment facilities can legally compensate marketers and sales representatives based on the volume and/or value of business they generate.
Until recently, it has been unclear whether such value-based arrangements were permissible due to the broad language of the statute, scant case law interpreting its scope, and lack of clear interpretation through federal regulations or agency guidelines. However, the Ninth Circuit’s recent decision in Schena v. United States (No. 23- 2989, 9th Cir. 2025) provides the first appellate court guidance on the following key issues related to EKRA’s applicability to value-based arrangements with marketers: (a) whether EKRA applies to value-based compensation arrangements with employed or third party marketing and sales representatives (as opposed to compensation paid directly to physicians or patients), if so (b) whether it applies to the marketer’s interaction with physicians or only to interactions directly with patients, and (c) whether there are any value-based compensation arrangements with marketing and sales representatives that are permissible. In Schena, the Court held that (a) EKRA does indeed apply to compensation payable to third-party marketing agents, (b) EKRA applies to such arrangements when the marketer interacts with physicians as well as with patients, and (c) commission-based compensation does not automatically violate EKRA, rather, there is a distinction between permissible sales commissions and improper inducements involving fraud or undue influence. However, the Court in Schena declined to indicate where to draw the line between a permissible value-based arrangement and one that involves prohibited inducement.
Case Background: Schena v. United States
In Schena, Mark Schena owned a California lab that performed high-cost allergy and COVID blood tests. He hired third-party marketers and paid them on a percentage-of-revenue basis to pitch these tests to doctors. The marketers falsely touted the blood tests as superior to standard skin tests, targeted “naïve” (i.e., non-allergist) physicians and chiropractors rather than knowledgeable allergists who were more likely to know that their claims were false, and improperly bundled COVID tests with expensive allergy tests to inflate referrals. Schena was convicted on multiple counts, including two EKRA counts, for “pay[ing] remuneration…to induce a referral” of patients to his laboratory. He was sentenced to 96 months imprisonment and ordered to pay millions in financial restitution. On appeal, the Ninth Circuit affirmed Schena’s convictions for violating EKRA and, in doing so, addressed the three crucial questions outlined above.
Ninth Circuit’s EKRA Ruling
The Ninth Circuit made the following key holdings that clarify EKRA’s scope:
EKRA covers third-party marketers. The Court held that payments to marketing agents who “interface with those who do the referrals” fall under EKRA. The statute’s language prohibiting “indirect” inducements meant that paying a marketer, even one who never interfaces directly with patients, can potentially constitute prohibited remuneration to induce referrals depending on other factors discussed below. The Court explicitly rejected Schena’s argument that EKRA only applies to payments made to doctors or patient-facing staff.
EKRA applies to the marketer’s interaction with persons who could influence a referral. The Court held that 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 or recovery house. The Court likened interpretation of EKRA to that of AKS, in which the recipient of unlawful payments from a provider would not be able to circumvent liability by enlisting a subordinate or other agent to pressure a patient into using the provider’s services.
Commissions aren’t per se illegal – EKRA targets undue influence, not ordinary sales compensation. The Court held that a percentage- or commission-based pay structure alone does not violate EKRA. In Schena, the marketers’ contracts varied with test volume, so they did not fall within EKRA’s narrow employee/contractor safe harbor, which unlike the similar AKS employee safe harbor, specifically requires that payments not be tied to volume or value of referrals in order to have safe harbor protection. Yet, the Court declined to treat every commission agreement as a crime. It explained that EKRA’s core concept of “inducement” requires something more than causation, it requires “undue influence” or “wrongful causation”. Thus, commission pay is lawful unless and until the evidence shows that marketing agents used deceptive or coercive tactics to sway the provider’s decision. In Schena, the Court found sufficient evidence of undue influence where marketers were instructed to mislead doctors about the efficacy of the tests. The Ninth Circuit concluded that Schena’s lab owner had paid marketers to “unduly influence doctors’ referrals through false or fraudulent representations about the covered medical services”. Because of that deception, the referral inducements were unlawful under EKRA. But the Court was careful to say that if a lab merely offers standard commissions for legitimate services, with no fraudulent persuasion, EKRA would not automatically be violated.
Key Takeaways from Schena
Broad scope: EKRA’s referral ban is not limited to doctors or patient-facing staff. It reaches any intermediary, such as marketing agents, who can influence referrals. A payment that helps bring patients to the lab can fall under EKRA even if the payee never bills insurance or treats the patient directly or refers the patient directly. EKRA’s referral ban further applies to any interaction between such a marketing intermediary and any person who could influence a referral.
Commission-based compensation is not per se prohibited: The Court emphasized that common sales compensation (percentage or volume-based commissions) is not per se illegal. Such arrangements are only unlawful “when percentage-based payments are made to marketing agents who are directed to mislead those making the referrals”.
Undue influence triggers EKRA liability: The line between acceptable marketing and kickbacks is undue influence. EKRA requires more than a causal link, it requires wrongful inducement. If a marketer simply educates providers truthfully about the availability of lab services, the fact that the marketer receives commission-based compensation is not enough for an EKRA violation. But if the marketer is instructed to lie, exaggerate, or exert undue pressure, or if the marketer itself has the ability to direct referrals to particular providers, then the arrangement may very well constitute illegal conduct on the part of both the provider and the marketer.
Penalties are steep: EKRA is an intent-based criminal statute akin to the AKS. Violations carry harsh penalties, including up to a $200,000 fine, 10 years’ imprisonment, or both per offense.
Practical Guidance for Recovery Homes, Treatment Facilities and Laboratories
Recovery homes, treatment facilities and laboratories should not be complacent. The employee/contractor safe harbor in EKRA is narrow, and Schena did not create a bright-line “safe harbor” solution. Each arrangement must be assessed on its facts. Schena is binding in the Ninth Circuit, and providers in that region now have precedent to follow, however, parties outside the Ninth Circuit can still look to this decision for guidance.
Given the Ninth Circuit’s ruling in Schena, recovery homes, treatment facilities and laboratories should reevaluate their marketing and sales compensation practices to ensure EKRA compliance, and take steps such as:
- Carefully Review Marketing Contracts
- Ensure Truthful Marketing
- Structure Compensation Carefully
- Regularly Monitor and Audit Marketing Programs
- Beware of Marketers Who Promise Results
EKRA is complex and still evolving. Given the severe penalties and the potential for circuit splits, it is wise to consult healthcare counsel when entering into or reviewing marketing arrangements. A healthcare lawyer can help analyze whether a particular compensation plan might “induce” referrals in an improper way under current law. By proactively examining their marketing and sales programs in light of Schena, recovery homes, treatment facilities and laboratories can better safeguard against EKRA violations.
Frier Levitt’s attorneys can help you ensure compliance and adapt strategies for compliance as the law continues to develop. Contact us for assistance.
