On July 11, 2025, in United States v. Schena,[1] the Ninth Circuit adopted an expansive interpretation of the Eliminating Kickbacks in Recovery Act (EKRA), making use of the legislation to any fee that might have the impact of inducing a referral, even downstream, regardless of who obtained the fee. The courtroom affirmed laboratory operator Mark Schena’s convictions for violating EKRA ensuing from his percentage-based funds to advertising intermediaries who supplied deceptive info to referring suppliers.
What Is EKRA?
Enacted in 2018, EKRA prohibits the realizing and willful fee of something of worth “to induce a referral of a person to a … laboratory” or “in trade for a person utilizing the providers” of a restoration house, scientific therapy facility, or laboratory.[2] Unlike the Anti-Kickback Statute (“AKS”)[3], which applies to solely federal healthcare packages, EKRA applies to providers coated by any “well being care profit program” in interstate commerce. Also in distinction to the AKS, which broadly excludes from legal responsibility any quantity paid by an employer to a bona fide worker for employment in furnishing federal well being care program coated providers, EKRA supplies a way more restricted secure harbor for employment compensation, relevant solely to funds that don’t fluctuate with referrals, checks carried out, or insurance coverage billings.[4]
Factual Background
Schena operated a medical testing laboratory that targeted on testing blood samples for allergic reactions and, starting in 2020, COVID-19 antibodies. Schena paid entrepreneurs to pitch the laboratory’s providers to medical professionals, despite the fact that the checks have been allegedly pointless, expensive, and inferior to different testing strategies. Schena paid the entrepreneurs a proportion of the income his laboratory generated from their accounts. The proof at trial confirmed Schena’s entrepreneurs misrepresented the laboratory’s providers to medical professionals to persuade them to order checks from Schena’s laboratories, and Schena was convicted on two counts of EKRA violations, one rely of conspiracy to violate EKRA, and 6 extra counts. Schena subsequently appealed his convictions to the Ninth Circuit.
The Ninth Circuit’s Interpretation of EKRA
The Ninth Circuit discovered that Schena and the authorities disagreed on two key questions: (1) whether or not EKRA applies to funds made to advertising intermediaries, versus solely funds to referring scientific suppliers or individuals who work together immediately with sufferers, and (2) what it means for a fee to a advertising middleman to “induce a referral”.
1) EKRA applies to funds made to advertising intermediaries.
The courtroom decided that the scope of EKRA just isn’t restricted to funds made to individuals who’ve the authority to refer sufferers or who immediately work together with sufferers. It famous that such a restrict on EKRA would enable recipients of illegal funds to evade EKRA by enlisting a subordinate or different agent to stress a affected person into utilizing the supplier’s providers. Accordingly, the courtroom concluded that inducing a referral contains paying a marketer to trigger a person to acquire a referral from a doctor by varied means, together with by advertising to physicians, and EKRA extends to funds to such entrepreneurs.
In reaching this conclusion, the Ninth Circuit analyzed a district courtroom’s choice in S&G Labs Hawaii, LLC v. Graves, which held EKRA did not apply when a advertising worker interfaced with medical doctors and therapy suppliers as a result of the consumer accounts they serviced weren’t “people” whose samples have been examined.[5] The Ninth Circuit rejected that view, explaining that the phrase “to induce a referral of a person” signifies that the final object of the inducement have to be a pure particular person to whom medical providers can be supplied—it doesn’t imply the payee should immediately work together with or refer the affected person. The courtroom likened EKRA to the AKS, regardless of completely different and broader language in that statute, beneath which circuit courts have lengthy held that oblique funds designed to trigger downstream referrals violate the legislation. As a outcome, the Ninth Circuit affirmed the district courtroom in Schena and held that EKRA applies to funds made to advertising intermediaries.
2) Payment for wrongful inducement violates EKRA.
The courtroom then turned to what it means to “induce a referral” beneath EKRA, significantly in the context of a case, like Schena, through which a defendant is alleged to have made funds to a advertising agent to induce a referral of a person. Because EKRA doesn’t outline “induce,” the courtroom reviewed the historical past of the time period inside legal legislation and famous that “induce” connotes not mere causation, however wrongful causation. Thus, a percentage-based compensation construction, with out extra, doesn’t violate EKRA. Rather, some type of undue affect is required.
The courtroom once more relied on AKS case legislation to distinguish between typical promoting actions and exerting undue affect to acquire referrals. The Ninth Circuit didn’t outline the actual circumstances that qualify as “undue affect,” however concluded percentage-based funds made to entrepreneurs who’re directed to mislead referring suppliers about the nature of and want for medical providers violate EKRA.
Implications for Healthcare Compliance
Laboratories and substance abuse restoration suppliers have struggled since EKRA’s inception to grasp its scope and implications, significantly with respect to applicable compensation for gross sales employees. This battle has been exacerbated by a scarcity of interpretive rules or company steering, in addition to the divergent interpretations of the legislation between the decrease courts in Schena and S&G Labs Hawaii. The Ninth Circuit choice in Schena presents some restricted readability, rejecting the S&G Labs Hawaii courtroom’s place, but additionally underscoring that not all percentage-based funds to gross sales employees are violative of EKRA. This latter clarification could supply consolation to many companies which have sought to retain all or half of commonplace commission-based compensation to gross sales employees. The details and circumstances evaluation adopted by the courtroom, nonetheless, doesn’t supply companies any vibrant line take a look at for when such compensation buildings could also be applicable. It can be important for companies utilizing gross sales employees compensation that falls outdoors the EKRA secure harbor to fastidiously consider, and – as wanted – implement extra, safeguards to make sure that gross sales employees are appropriately skilled and directed, and that gross sales employees conduct and interactions with referring suppliers are fastidiously managed.
FOOTNOTES
[1] 2025 WL 4363156 (ninth Cir. July 11, 2025).
[2] 18 U.S.C. § 220(a)(2)(A).
[3] 42 U.S.C. § 1320a-7b).
[4] Id. at § 220(b)(2).
[5] 2021 WL 4847430 at *11 (D. Haw. Oct. 18, 2021).