Legal Intelligencer article by Lamb McErlane Health Law attorneys Vasilios J. Kalogredis, Esq. and Sonal Parekh, Esq.

The July 11, 2025 Ninth Circuit decision in United States v. Schena[1] marks the first appellate interpretation of Eliminating Kickbacks in Recovery Act (“EKRA”)[2] and constitutes a defining moment for health care providers, laboratories, behavioral health facilities, and intermediaries subject to the statute.

In 2018, Congress enacted EKRA to criminalize, among other things, direct or indirect remuneration “to induce a referral of an individual to a recovery home, clinical treatment facility, or laboratory” or in exchange for an individual using the services of such facility.[3] Unlike the Anti-Kickback Statute (AKS), EKRA applies to any health care benefit program (including private insurance), not only federal health plans.

Schena owned and operated Arrayit, a clinical laboratory offering allergy and COVID testing. To drive volume during the COVID-19 pandemic, Schena coupled COVID blood testing with allergy testing. To drive volume, he employed or contracted with marketers to pitch Arrayit’s services to physicians (especially “naïve” or non-specialist providers) using aggressive marketing tactics including: (i) targeting “naïve” physicians or non-specialist providers; (ii) providing misleading statements regarding efficacy and superiority over skin tests; (iii) bundling COVID blood tests with broad allergy testing; and (iv) inducing patients and physicians to obtain such bundled testing even when it was neither requested, wanted, nor needed. The marketers were paid on a percentage of revenue model instead of a fixed salary arrangement.

Schena was charged with and convicted of conspiracy to violate EKRA, two counts of EKRA violations, conspiracy to commit healthcare fraud, two counts of healthcare fraud, and three counts of securities fraud. On appeal, Schena argued that the scope of EKRA did not extend to marketers (i.e., EKRA did not prohibit remuneration to marketers) as opposed to actual referral sources with direct patient contact.

Rejecting Schena’s argument, the Ninth Circuit held that EKRA’s prohibition on paying remuneration “directly or indirectly … to induce a referral of an individual” is broad enough to encompass payments to intermediaries who do not themselves refer patients but who interface with those who do. The court emphasized that nothing in EKRA’s text confines the statute to persons with prescribing or referral authority, and the inclusion of the term “indirectly” counsels a broad reach.

The court explicitly disapproved of the district court’s reasoning in S&G Labs Hawaii v. Graves, which had held that EKRA did not apply to marketing arrangements directed solely at providers (i.e., marketers that did not deal with patients). The Ninth Circuit rejected that approach as unduly restrictive and inconsistent with EKRA’s plain text.

The Ninth Circuit further held that while a commission or percentage-based arrangement does not automatically violate EKRA, it becomes unlawful when coupled with undue influence or misrepresentations used to steer referrals, such as deceptive marketing that distorts clinical judgment.

Drawing from AKS precedent and interpretive guidance, the court observed that mere encouragement is insufficient to violate anti-kickback prohibitions; what must be shown is an effort to influence the clinical judgment or decision-making of the referral source. In the context before it, the Ninth Circuit found that the evidence (viewed in the light most favorable to the government) permitted a jury to conclude that the marketers had exercised undue influence by deceptive misrepresentations.

Notably, the court did not attempt to define an exhaustive test for undue influence; it held only that the facts in Schena—i.e., directed misleading communications, bundling of tests, controlling which lab received samples, and pushing tests regardless of patient consent—were sufficient to sustain liability. It further clarified that this is not a “necessary” set of circumstances, but a sufficient one.

Implications for Health Care Providers

Although Schena is binding only within the Ninth Circuit, its reasoning may prove influential nationwide. The decision sends strong signals about how courts may evaluate marketing and referral arrangements under EKRA. Some key implications:

1. Intermediary Arrangements Carry Risk.

a. Providers that compensate third-party marketers, brokers, liaisons, or agents to solicit physician referrals are squarely in Schena’s Even if the marketer does not have direct patient contact, EKRA liability may be attached if the marketing is used to induce referrals. Providers should carefully scrutinize whether marketing intermediaries are being asked to influence clinical decision-making or mislead referral sources.

2. Commission or Percentage Arrangements Are No Safe Harbor.

a. Providers should not assume that commission-based compensation to marketers is automatically lawful. While not categorically prohibited, Schena makes plain that such percentage-based compensation becomes unlawful when tied to undue influence or misrepresentation.

3. The Importance of Guardrails Around ‘Influence’ and Messaging.

a. The boundary between permissible marketing and illegal inducement is contextual. Providers should look closely at the marketing arrangement including, but not limited to, the how marketers are instructed, what messages the marketers convey, whether there are any practices that may cause the marketers to exert influence over or obscure clinical judgment, and whether the function of the marketers could be considered to steer patients and referrals.

4. Jurisdictional Limits

a. Because Schena is a Ninth Circuit decision, it directly governs only those within that circuit (i.e., Washington, Oregon, California, Arizona, Nevada, Idaho, Montana, Alaska, and Hawaii). In other circuits, however, lower courts may adopt narrower readings consistent with Schena or other district-level precedent. Providers outside the Ninth Circuit should monitor how other circuits receive Schena and consider whether to comport practices on a nationwide standard. Some providers may adopt Schena-compliant policies as a best practice, even where not strictly required by local jurisdiction.

5. Compliance with AKS is Not Compliance with EKRA.

a. EKRA is broader, applying to commercial insurers and imposing stricter limits on compensation, than AKS. Thus, even where an arrangement might pass muster under AKS compliance regimes, it may still trigger EKRA exposure. The Ninth Circuit’s decision underscores that providers cannot assume that AKS compliance suffices to avoid EKRA risk.

6. Expect Heightened Enforcement.

a. The Schena decision is likely to energize DOJ and U.S. Attorneys’ offices to bring further EKRA prosecutions, especially in the laboratory and recovery or treatment facilities. Providers should regard EKRA not as a dormant risk, but as a front-burner compliance concern.

In light of Schena, health care providers should consult with legal counsel regarding strategies to reduce EKRA exposure including, but not limited to: (i) evaluating existing arrangements in light of Schena; (ii) transitioning away from volume-based compensation, where possible; (iii) implementing contractual guardrails and oversight relative to marketing; (iv) avoiding giving marketing control or influence over clinical or operational decisions; (v) maintaining contemporaneous policies, procedures and documentation relative to marketing instructions, materials and interactions with referral sources; and (vi) incorporating EKRA-specific risk assessments into compliance frameworks.

Legal counsel should continue to monitor circuit-based differences and local precedents following Schena and remain cognizant of the precise threshold for “undue influence” in the absence of a bright-line test. These and other issues likely will prompt further litigation, agency guidance, and perhaps legislative clarification.

The Ninth Circuit’s Schena decision is a milestone: it expands EKRA’s reach to marketing intermediaries, rejects a per se rule forbidding commission compensation, and roots its inducement analysis in the doctrine of undue influence. For those in the health care, laboratory, and behavioral health sectors, Schena demands a careful reexamination of marketing, referral, and compensation structures. Although many uncertainties remain, the direction is clear: compliance programs must treat EKRA not as a distant threat, but as a live, evolving constraint on how providers may engage with intermediaries.

If you have any questions or if we may be of further assistance regarding compliance or health law matters, please feel free to contact Bill Kalogredis, Esq. or Sonal Parekh, Esq.

[1] United States v. Schena, No. 23-2989 (9th Cir. July 11, 2025)
[2] 18 U.S.C. § 220(a)(2)(A).
[3] 18 U.S.C. § 220(a)(2)(A).

_____________________________________

Vasilios J. (Bill) Kalogredis, Esq. has been advising physicians, dentists, and other healthcare professionals and their businesses as to contractual, regulatory and transactional matters for over 50 years. He is Chairman of Lamb McErlane PC’s Health Law Department. Bill can be reached by email at bkalogredis@lambmcerlane.com or by phone at 610-701-4402.

Sonal Parekh, Esq., is an associate at Lamb McErlane PC who focuses on healthcare transactional matters and a broad range of healthcare regulatory-related issues on behalf of healthcare systems, physicians, dentists, and other healthcare providers, and is a pharmacist by education and training. Sonal can be reached by email at sparekh@lambmcerlane.com or by phone at 610-701-4416.

*This article is for educational purposes only and is not intended to be legal advice. Should you require legal advice on this topic, any health care matter, or have any questions or concerns, please contact Vasilios J. (Bill) Kalogredis, Esq. or Sonal Parekh, Esq.