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Previously published in Healthcare News andHealthcare Michigan
Recently, the Ninth Circuit Court of Appeals affirmed a conviction of a lab operator for violations of the Eliminating Kickbacks in Recovery Act ("EKRA") in United States v. Schena. This ruling, the first ever appellate interpretation of EKRA, has notable implications for both the laboratory industry and the greater healthcare industry.
What is EKRA?
EKRA was enacted in 2018 as a component of the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act (SUPPORT Act). EKRA makes it a federal crime to accept or pay kickbacks for referrals to recovery homes, clinical treatment facilities, or laboratories. Similar to the Anti-Kickback Statute, EKRA requires proof of "knowing and willful" intent of the unlawful behavior and is not a strict liability statute, like the Stark Law.
Unlike many federal fraud and abuse statutes, EKRA's prohibitions are applicable to services covered by any health care benefit program – including those offered by private payors. Therefore, EKRA's reach is broader than the Anti-Kickback Statute and Stark Law, which only govern federal health care programs such as Medicare, Medicaid, and TriCare. Additionally, nearly none of the Anti-Kickback Statute and Stark Law safe harbors and exceptions that laboratories typically rely upon apply to EKRA. Examples of the limited safe harbors applicable to EKRA include (1) properly disclosed discounts or reductions under a health care benefit program, (2) payments made to bona fide employees or independent contractors that are unaffected by patient referral volume, and (3) good faith waivers or discounts by a health care benefit program.
Who is Subject to EKRA?
EKRA applies to recovery homes, clinical treatment facilities, and laboratories, each of which are defined as follows:
- Recovery homes are shared living spaces free from alcohol and illicit drug use that are centered on peer support and services that promote sustained recovery from substance use disorders
- Clinical treatment facilities include all medical settings, other than a hospital, that provide detoxification, risk reduction, outpatient treatment, residential treatment, or rehabilitation for substance use
- Laboratories are facilities for the biological, microbiological, serological, chemical, immune-hematological, hematological, biophysical, cytological, pathological, or other examination of materials derived from the human body for the purpose of providing information for the diagnosis, prevention, or treatment of any disease or impairment of, or the assessment of the health of, human beings. Therefore, EKRA covers all labs regardless of if they provide substance abuse testing or treatment.
United States v. Schena
On July 11, 2025, the Ninth Circuit Court of Appeals affirmed the criminal conviction of a laboratory operator who made payments to marketing intermediaries in return for referrals for medically dubious allergy tests. In its written opinion, the Ninth Circuit relied heavily on prior interpretations of the Anti-Kickback Statute to define "induce" within the context of EKRA.
Mark Schena operated a medical testing laboratory, Arrayit, in Northern California focusing on allergy blood tests. To find new patients, Mr. Schena paid marketers to pitch Arrayit to medical professionals. This included marketing the labs as superior to traditional skin tests. The marketers that Mr. Schena engaged were paid a percentage of the revenue that they were able to bring in. The marketers oftentimes misrepresented Arrayit's services to physicians and other providers to induce patient referrals. After patients were brought in, Mr. Schena billed insurers for a wide variety of tests that were questionably medically necessary.
During the COVID-19 pandemic, when Arrayit's testing volume fell drastically, Mr. Schena transitioned to COVID testing using a blood test instead of PCR testing. Mr. Schena again directed marketers to mislead doctors about his lab's testing abilities and billed payors for tests not medically necessary. Between October 2018 and June 2020, Arrayit billed more than $77 million to public and private insurers (but was only paid around $2.7 million).
When the U.S. government brought EKRA claims against Mr. Schena, he moved to dismiss on the basis that his conduct did not violate EKRA because the percentage payments were made only to marketers and not to physicians. The district court denied his motion and eventually sentenced him to 96 months in prison and to pay more than $24 million in restitution. Mr. Schena appealed and the Ninth Circuit affirmed.
The Ninth Circuit held that EKRA is not limited to payments made directly to referring physicians: it also covers payments made to third parties, such as marketers, who indirectly influence patient referrals.Thus, under EKRA, there is no requirement that an offender makes payments directly to the individual who makes the referrals to violate the law. Instead, EKRA covers those who indirectly influence patient referrals, too, such as intermediary marketers. Importantly, a percentage-based compensation structure for marketing agents on its own does not violate EKRA. When coupled with evidence of fraud or wrongful inducement, however, that is unlawful under EKRA.
What does this mean?
This Schena ruling is significant because it sets binding precedent that indirect referral schemes may violate EKRA. Providers in the behavioral health and laboratory industries should heed the plain reading of EKRA when engaging in compensation arrangements. Regardless of an individual's level of interaction with patients, a compensation arrangement should avoid considering the volume of referrals to or testing performed. Considering the Trump Administration's increased efforts to prosecute healthcare fraud and abuse, it will not be surprising to see increased enforcement under EKRA and other healthcare fraud statutes.
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