By: Christopher Parrella, Esq., CPC, CHC, CPCO Parrella Health Law, Boston, MA. A Health Care Provider Defense and Compliance Firm

Recently, the Ninth Circuit has finally weighed in on a major question surrounding the reach of the Eliminating Kickbacks in Recovery Act (EKRA) and healthcare providers, particularly laboratories and addiction treatment centers, should take note. The decision in United States v. Schena offers the most comprehensive judicial interpretation of EKRA to date and provides long-awaited guidance on when the law is implicated and when it’s not. The bottom line: paying commissions alone isn’t automatically illegal under EKRA, but if those payments are tied to deceptive marketing or efforts to exert undue influence over referrals, you’re in dangerous territory.

The Case in Focus: U.S. v. Mark Schena

Mark Schena, the owner of a Northern California medical lab (Arrayit), was convicted of EKRA violations for paying marketers to steer referrals to his lab for medically questionable allergy and COVID-19 tests. Schena didn’t pay doctors directly. Instead, he paid third-party marketers a percentage of the revenue they brought in. These marketers, in turn, made misleading claims to physicians about the lab’s testing services, claims the Ninth Circuit said clearly crossed the line.

Key Takeaways from the Court’s Ruling

Here’s how the Ninth Circuit drew the line between legitimate business practices and unlawful kickbacks:

1. Who Can Trigger EKRA? EKRA is not limited to payments made directly to doctors or providers who refer patients. The statute applies even to payments made to marketers or intermediaries anyone who plays a role in influencing referrals can fall within EKRA’s scope.
2. When Is a Commission Legal? Percentage-based payments to sales reps or marketers are not per se illegal under EKRA. The statute requires more than just a commission structure it requires an intent to unduly influence the referral decision.
3. Undue Influence Is the Line The court held that EKRA liability attaches when marketers use deception or exert undue influence over the referral decision. In Schena’s case, his marketers misrepresented the effectiveness and necessity of Arrayit’s tests, steered referrals from doctors who lacked relevant expertise, and bundled unnecessary allergy testing with COVID-19 tests.
4. Safe Harbor Still Applies (BUT Narrowly) EKRA has a safe harbor for employee compensation, but pay cannot vary with volume, tests performed, or dollars billed. That’s a hard standard for many sales teams to meet.
5. Misleading Marketing = Criminal Exposure What made Schena’s arrangement criminal wasn’t just the commission structure but that he told marketers to lie. That’s what transformed a gray area into a prosecutable offense.

Why This Matters to You

If your organization, whether a clinical lab, addiction treatment center, or marketing agency working with providers, uses commission-based compensation, you need to scrutinize those relationships now.

While EKRA was originally aimed at “body brokering” in addiction treatment, this case confirms it reaches far wider. If you’re a provider in any EKRA-covered space and are using marketing agents, you must ensure:

• Your sales practices don’t involve deception or misrepresentation;
• Commission structures are legally defensible;
• There is strong documentation of marketing activities and oversight;
• You understand the EKRA safe harbors and when you’re outside them.

This decision puts the industry on notice: deceptive marketing that leads to referrals can trigger criminal liability under EKRA.

What You Should Do Now

• Audit Your Marketing Practices: Review all sales and marketing relationships for compliance with EKRA. Pay special attention to independent contractors and those compensated based on volume.
• Train Your Teams: Sales reps and marketers must understand what constitutes misleading or undue influence.
• Document Legitimate Business Purposes: Ensure your compensation agreements are structured around valid services, not inducement of referrals.
• Consult Counsel Before You Act: Especially if you’re operating with percentage-based sales comp. This is no longer a “gray area” you can ignore.

If your organization is unsure whether its marketing or referral arrangements pass muster under EKRA, now is the time to act. The Schena decision is a loud and clear signal that the government will pursue deceptive marketing tactics. If you have any questions or concerns about your referral arrangements or EKRA compliance, contact Parrella Health Law at 857.328.0382 or email me directly at cparrella@parrellahealthlaw.com.