Ninth Circuit Applies EKRA to Marketing Intermediaries in Lab Operator’s Allergy Testing Scheme

The U.S. Court of Appeals for the Ninth Circuit has held that a laboratory owner’s payments to marketing intermediaries violated the Eliminating Kickbacks in Recovery Act (EKRA)—in its first interpretation of the statute since it was enacted in 2018.

In United States v. Schena, No. 23-2989, F.4th (9th Cir. July 11, 2025), the Ninth Circuit affirmed the convictions of Mark Schena—who in 2022 was found guilty by a federal district court jury of nine counts of health care and securities fraud. These included two counts of EKRA violations, based on illegal kickbacks to an intermediary who misrepresented the lab’s services. Schena was sentenced to 96 months in prison and ordered to pay more than $24 million in restitution. (The intermediary plead guilty to conspiracy to commit health care fraud and was sentenced to a shorter term, as was another co-defendant represented by Epstein Becker & Green attorneys.)

The relevant text of the statute, 18 U.S.C. § 220(a)(2)(A), prohibits—with respect to services covered by a health care benefit program—the knowing and willful payment or offer of remuneration (including any kickback, bribe, or rebate) to induce a referral of an individual to a recovery home, clinical treatment facility, or laboratory.

Schena argued on appeal that the statute should apply only to payments made to those effectuating the referrals, meaning doctors and medical professionals interacting directly with patients, and should not apply to payments to marketing intermediaries. Alternatively, Schena argued that if EKRA did apply to marketing intermediaries, it should apply only to those who interface directly with patients. The court rejected both arguments.

“[W]e hold that 18 U.S.C. § 220(a)(2)(A) covers those who interface with those who do the referrals,” Judge Daniel A Bress wrote for the court, noting that nothing in the statute requires the illegal payments be made to someone interfacing 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…. We therefore agree with the district court that ‘[t]he plain meaning of ‘to induce a referral of an individual’ includes situations where a marketer causes an individual to obtain a referral from a physician.’”

It was undisputed, Bress wrote, that Schena’s California medical testing laboratory, Arrayit, was a laboratory within the meaning of the statute; and that Schena had paid remuneration to the marketers. The case therefore turned on the court’s interpretation of the words “to induce a referral of an individual.” While EKRA does contain safe-harbor provisions regarding payments to employees or independent contractors, in those cases, the payment must not be determined by, or must not vary by:

• the number of individuals referred to a particular recovery home, clinical treatment facility, or laboratory;
• the number of tests or procedures performed, or
• the amount billed to or received from a patient’s insurance company.

As the payments at issue varied based on the number of tests or procedures performed, the safe harbor provision did not apply, the court concluded.

The Scheme

According to court documents, Schena developed a scheme between 2015 and 2020 to bill commercial and government insurers up to $10,000 for medically unnecessary blood tests for allergies. Marketers would pitch Arrayit’s services to medical professionals in exchange for a percentage of the revenue, misrepresenting the importance of the tests. Marketers were not paid a salary or given written contracts but were allegedly told they would receive 50 percent of the revenue that they were able to bring in, through insurance reimbursement, and that they could make up to $5000 by selling a single test.

The marketers allegedly would persuade doctors who lacked allergy experience to order Arrayit’s more expensive and unnecessarily broad blood tests by pitching them as superior to the typical skin tests. Arrayit’s test scanned for 120 allergens, many of which allegedly were unnecessary.

When COVID-19 arose in 2020, the defendant began a similar scheme touting COVID-19 blood tests instead of polymerase chain reaction (PCR) tests. Arrayit’s allergy and COVID blood tests were then bundled, with the marketers claiming both tests were required for COVID-19. As a result, Arrayit billed Medicare more than any other lab in the country, an average of $5,200 per patient (more than $4,000 more than the average laboratory billing per beneficiary).

‘Referral of an Individual’ and “Induce a Referral”

The Ninth Circuit noted in Schena that in the 2021 case of S&G Labs Hawaii v. Graves, another district court held that EKRA did not apply to a marketing employee interfacing with doctors and other treatment providers—believing that this was not inducing “a referral of an individual” under the meaning of the statute.

The Ninth Circuit disagreed in Schena and also disagreed in the S&G Labs appeal, in an unpublished opinion issued the same day. “In [Schena], we rejected the district court’s determination in this case that EKRA applies only to payments made to persons who are ‘working with’ individual patients,” the Ninth Circuit wrote in S&G Labs.

The court nonetheless affirmed S&G Labs, which was an appeal of a jury’s award of more than $8 million on counterclaims of breach of contract, wrongful termination, and defamation. The commission-based compensation package in that case, without more, did not violate EKRA, the Ninth Circuit held.

Schena brings the Ninth Circuit in line with those circuits interpreting an analogous provision—“to refer an individual”—in the federal Anti-Kickback Statute (AKS), 42 U.S.C. § 1320a-7b(b)(2)(A). The AKS prohibits the knowing and willful payment of remuneration to “induce” or reward patient referrals or the generation of business involving any item or service payable by federal health care programs (EKRA may include those payable by private insurers). Regarding what it means to “induce a referral,” the Ninth Circuit looked again to the AKS to determine the meaning of the word “induce,” which is not defined in EKRA. For example, the court noted that AKS cases have interpreted “inducement” to require “not mere causation, but wrongful causation” or “undue influence.” The court also concluded that percentage-based payments to marketers, alone, do not violate EKRA.

Yet “when percentage-based payments are made to marketing agents who are directed to mislead those making the referrals about the nature of and need for the covered medical services, those payments would violate EKRA,” the Ninth Circuit stated. “This is not a necessary set of circumstances for establishing undue influence, but it is sufficient.”

Takeaways

The Schena case has all the trappings of a fraudulent scheme, yet what happens when the behavior in question is not so egregious? How would a court treat a simple percentage or volume-based payment by a lab, recovery home, or treatment facility for medically necessary and otherwise appropriate services?

At the opposite end of the spectrum, in S&G Labs, no evidence was presented of anything “more” than a percentage-based compensation structure, so the Ninth Circuit found that the marketing employee’s contract provision alone was not sufficient to demonstrate a violation of EKRA.

The Ninth Circuit similarly held in Schena that “the mere fact of a percentage-based marketing arrangement, without more,” would not constitute a per se violation of EKRA—noting the government conceded as much at oral argument.

“In the absence of a clearer indication in the statute, we are hard-pressed to read EKRA to criminalize (with major federal penalties) a standard payment structure for marketing personnel, even when the marketing personnel are persuasive in driving business,” Bress wrote.

Yet, because the facts of Schena were so clearly “more,” the Ninth Circuit stated that it was not required to address “the potentially more difficult questions” regarding the meaning of “inducement” under EKRA, noting that future cases will be needed to catalog the specific circumstances in which payments to a marketing agent would run afoul of EKRA. “[W]e conclude that at a minimum, when percentage-based payments are made to marketing agents who are directed to mislead those making the referrals about the nature of and need for the covered medical services, those payments would violate EKRA. This is not a necessary set of circumstances for establishing undue influence, but it is sufficient.”

The court suggested, in the meantime, that “companies and marketing agents wishing to steer clear of EKRA may wish to consider whether it is preferable to structure their compensation arrangements in accordance with the statute’s safe harbor.”

Percentage-based payments do not fit into the safe harbor, yet are not adequate, alone, to constitute an EKRA violation. Still, those operating in this space should exercise caution.

Entities will also need to comply with other statutes including the criminal AKS. As the Department of Justice continues to crack down on fraud, waste, and abuse, particularly in health care (see a blog post by our colleagues on the subject), health care and life sciences companies will need to remain vigilant about overbilling, billing for services that are not medically necessary, etc.—and labs are no exception. EKRA violations should be on everyone’s radar as well, as violations could result in fines of up to $200,000, up to 10 years imprisonment, or both.

If you have questions about the issues discussed in this blog post, please contact any of the authors or your regular EBG attorneys.

Epstein Becker Green Staff Attorney Ann W. Parks contributed to the preparation of this post.