Ninth Circuit Provides Clarity on Eliminating Kickbacks in Recovery Act (EKRA)

In July of 2025, the Ninth Circuit Court of Appeals issued the first federal appellate review of the Eliminating Kickbacks in Recovery Act (EKRA) in United States v. Schena, No. 23-2989 (9th Cir. July 11, 2025).  Congress enacted EKRA in 2018 to criminalize, among other things, the payment of “remuneration . . . to induce a referral of an individual to a recovery home, clinical treatment facility, or laboratory.” 18 U.S.C. § 220(a)(2)(A).  In Schena, the Ninth Circuit confirmed that: (1) EKRA applies to remuneration to marketers, not just physicians who may refer an individual to a laboratory; and (2) while percentage-based compensation arrangements to marketers alone may not violate EKRA, such arrangements when combined with undue influence to referring physicians through false or fraudulent statements do give rise to wrongful inducement under EKRA. 

This decision sets an important precedent by broadening EKRA liability beyond referrals made by physicians or others who have direct contact with patients. At the same time, it narrows liability to cases where there is concrete evidence of “undue influence,” rather than merely basing it on volume-based referral payments. This creates a critical opportunity for entities covered by EKR (such as laboratories, addiction treatment centers, and recovery homes) to reevaluate any compensation arrangements involving third-party marketing agents that could raise EKRA concerns.

EKRA

EKRA prohibits the knowing and willful payment of “any remuneration (including kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind . . . to induce a referral of an individual to a recovery home, clinical treatment facility, or laboratory . . . .” 18 U.S.C. § 220(a). The statute also includes a few safe-harbor provisions, including one where payment made by an employer to an employee or independent contractor are exempted as long as the “employee’s payment is not determine by or does not vary by (A) the number of individuals referred to a particular recovery home, clinical treatment facility, or laboratory; (B) the number of tests or procedures performed; or (C) the amount billed to or received from . . . the healthcare benefit program from the individuals referred . . . .” 18 U.S.C. § 220(b)(2).

SCHENA’S VIOLATIONS

Schena owned and operated Arrayit, a clinical laboratory in Northern California subject to EKRA, which offered blood-based allergy testing. Although these tests cost Arrayit relatively little to perform, Schena was able to bill insurers up to $10,000 for a full panel of tests. Since allergists typically rely on skin tests, reserving blood tests for patients unable to undergo skin testing, Schena allegedly devised a scheme to drive patient volume. He hired marketing intermediaries to solicit referrals from physicians, paying them a percentage of the revenue they generated rather than a salary. According to the court, Schena instructed the marketers to target “naïve” providers without allergy expertise (such as chiropractors and naturopaths) while avoiding allergists who were skeptical of the tests. The intermediaries allegedly misled these less experienced providers by falsely claiming that Arrayit’s blood tests were “highly accurate” and “far superior” to traditional skin tests. In many cases, patients received panel testing for 120 allergens, despite a lack of medical necessity for such expansive testing.

SHEDDING LIGHT ON EKRA’S SCOPE

Although Schena argued that EKRA liability should apply only to individuals who directly make patient referrals, the court rejected that view, holding that EKRA “covers marketing intermediaries who interface with those who do the referrals” and that the statute does not require payments to be made to someone who interacts directly with patients. This represents a broader interpretation of EKRA’s scope. However, the court simultaneously adopted a fairly narrow view of what constitutes inducement, declining to expand liability to all volume-based compensation arrangements in the absence of clear evidence of improper influence.

“. . . [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 Ninth Circuit’s decision in United States v. Schena marks a pivotal moment in federal healthcare fraud enforcement. By clarifying that EKRA applies to payments made to marketing intermediaries and not just healthcare providers and by affirming that inducement requires more than just volume-based compensation, the court has significantly illuminated the statute’s reach. For healthcare organizations, especially laboratories and treatment centers, the takeaway is clear: compensation arrangements must be carefully structured to avoid even the appearance of improper influence over patient referrals. Percentage-based pay, while not inherently illegal, becomes a serious liability when paired with misleading practices or overbroad incentive models. The Ninth Circuit upheld Schena’s sentence of 96 months imprisonment and more than $24 million in restitution. As the first appellate interpretation of EKRA, the Schena court sets the tone for future enforcement, and organizations subject to EKRA should take note.

For more information, contact Felicia Sze at felicia@athenelaw.com or (415) 686-7531 or Karen S. Kim at karen@athenelaw.com or (310) 612-3744.