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Rare Circuit Court Decision on Eliminating Kickbacks in Recovery Act Demands Notice In and Beyond Addiction Treatment Industry

The Ninth Circuit recently decided United States v. Schena, 142 F.4th 1217 (9th Cir. 2025), which considered the Eliminating Kickbacks in Recovery Act (“EKRA”). EKRA, enacted in 2018 to address “body brokering” and other fraud in the addiction treatment industry, largely tracks the federal Antikickback Statute (“AKS”), but there have been few Circuit Court opinions interpreting this law specifically. The Schena ruling has applicability beyond the addiction treatment field.

Facts of the Case

Clinical laboratory operator Mark Schena was convicted of paying marketers to induce referrals from providers for “medically dubious” allergy tests. The marketers were not paid a salary; rather, they were paid a percentage of the revenue they brought in.

Schena’s lab, called Arrayit, focused its business model on conducting blood tests for allergies, although the primary method for allergy testing is a skin test. While normally blood tests are reserved for those patients on whom skin testing cannot be performed, Schena was attempting to market the more expensive blood test with a full suite of 120 allergens more broadly.

Because allergists considered skin testing to be superior and testing for many of the 120 allergens to be unnecessary, Arrayit’s marketers stayed away from these specialists and instead pitched the blood tests primarily to doctors who were less familiar with allergy testing. Importantly, the marketers conveyed a false message that the blood tests were “far superior” to skin testing, even though Arrayit’s blood test could not determine whether the patient had an allergy or merely had been exposed to an allergen.

During the COVID-19 pandemic, Arrayit’s marketers pivoted to COVID tests, falsely contending that blood tests (which could detect antibodies) were better than the gold standard PCR test (which could detect active infection).

In part due to these marketing practices, Arrayit became the highest-billing laboratory in the country on a per-patient basis, and billed public and private insurers more than $77 million between October 2018 and June 2020.

Schena was charged with a variety of healthcare fraud charges, including EKRA violations arising from payments to one of his marketers to induce referrals from prescribers. Schena moved to dismiss the EKRA charges, arguing that his conduct did not violate the statute as a matter of law, because the percentage payments were made only to marketing intermediaries, and not to the physicians making the “referral,” i.e., ordering the tests. The district court denied the motion and Schena was convicted at trial.

Issues on Appeal

The Ninth Circuit considered two questions on appeal:

1. Whether EKRA covers payments to marketers designed to induce referrals, or whether the provision is limited to payments made to the medical professionals who make the actual patient referrals; and
2. What it means to “induce a referral” in the context of this type of compensation arrangement.

The court concluded that EKRA’s provisions are not limited to payments made to an individual who interfaces 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.”

Noting also that the statute applied to payments made “directly or indirectly,” the Ninth Circuit agreed with the district court’s conclusion that “the plain meaning of ‘to induce a referral’ includes situations where a marketer causes an individual to obtain a referral from a physician.”

The court then turned to the connection between the payments to the marketers and the goal of obtaining referrals, focusing on the meaning of the term “to induce.”

EKRA has a safe-harbor provision that permits payments made by an employer to an employee or independent contractor so long as the employee’s payment does not vary by the number of individuals referred, the number of tests or procedures performed, or the amount billed to or received from a patient’s insurance company. Because Arrayit’s marketers’ compensation was tied directly to the amount of tests performed, the safe harbor did not apply. 

Nevertheless, the court concluded that “a percentage-based compensation structure for marketing agents, without more, does not violate” EKRA’s section 220(a)(2)(A).

However, where, as in Schena’s case, the evidence is sufficient to show “wrongful inducement” through payments by the employer to marketing agents to influence doctors’ referrals through false or fraudulent misrepresentations about the service, the statute is violated. While EKRA does not define the term “induce,” the court borrowed from the AKS and other criminal caselaw to conclude that “the term ‘induce’ connotes not mere causation, but wrongful causation.” As a result, Schena’s convictions were upheld.

Key Takeaways

There are several key takeaways from the Schena decision:

First, Schena serves as a reminder EKRA extends well beyond the addiction treatment industry. Referrals to clinical labs are expressly covered by EKRA, and labs, of course, serve providers across the entire medical spectrum, not just in the recovery space. Moreover, EKRA’s language closely tracks the AKS, and the Ninth Circuit’s interpretation of EKRA’s “to induce” language should be applicable to marketing activities covered under the AKS as well. 

Second, this case confirms that illegal payments do not have to be made directly to the person ordering or prescribing a service to constitute a kickback; a payment made to a marketer with the intent to induce a referral from the prescriber is sufficient.

Third, compensation to marketers that varies according to the amount of services provided or revenue obtained does not qualify for EKRA’s safe harbor, but neither does it violate the statute per se. Rather, such a compensation arrangement would violate EKRA only if the marketer is communicating a false or misleading message about the service to induce referrals from prescribers.

The court left it to future cases “to give content to the specific circumstances in which payments to a marketing agent reflect a wrongful effort to unduly influence the decisions of doctors and medical professionals making referrals.” Still, as the court itself subtly advised, “companies seeking to steer clear of EKRA may consider whether it is preferable to structure their compensation arrangements in accordance with the statute’s safe harbor.”

Fourth, Schena reinforces that any company carrying a marketing message to induce referrals for medical services should take care to ensure that their agents are not communicating false or misleading information to medical professionals authorized to make such referrals. 

Fifth, although Schena does not involve addiction treatment, providers in the treatment industry should reinforce with their marketing agents the need to be scrupulously honest with other providers and patients about the services they provide, to avoid potential liability under EKRA.

With questions about the Schena decision, EKRA, or compliance issues in the addiction treatment field generally, contact Scott Coffina, co-chair of Pietragallo’s Government Enforcement, Compliance and White Collar Litigation practice group at (856) 817-2601, or sac@pietragallo.com.

New Jersey Enacts Key Legislation Addressing Kickbacks and Deceptive Marketing Practices in the Substance Use Disorder Treatment Industry

On August 11, 2025, New Jersey’s Acting Governor, Tahesha Way, signed into law two bills to combat patient brokering and deceptive marketing practices in the Substance Use Disorder (“SUD”) treatment industry. The legislation, which followed a 2024 report by the State Commission on Investigations (“SCI”) highlighting abuses in this field, covers treatment programs, nonprofits, clinical laboratories, and recovery residence operators. It also reaches anyone who refers patients into treatment programs or sober living homes.

Let’s review these two new laws:

A3973 Anti-Kickback Legislation

Under existing New Jersey law, it has been a fourth-degree crime (i.e., “felony”) to make or receive payment for the referral of a patient to a licensed treatment facility. It also has been a fourth-degree crime to assist or conspire in the commission of these acts. The new law, A3973, expands and strengthens the law as follows: 

• It elevates the kickback offense to a third-degree crime, now punishable by 3-5 years in prison, payment of restitution, and a fine of $50,000 (the maximum fine for a third-degree crime is normally up to $15,000).
• It expands and specifies who is covered by the prohibition on these illicit payments, now to include health care providers, health care facilities, non-profit organizations, clinical laboratories, and recovery residences. Of course, individual employees, contractors, or even volunteers associated with these organizations who offer or solicit fees for patient referrals are also covered by this law.
• It clarifies and extends the scope of its prohibited conduct for offers and solicitations to include those that are “direct or indirect,” “overt or covert,” “in-cash or in-kind.” And while payments for “referrals” had been outlawed previously, payments are also now prohibited “in exchange for a patient using the services of” a SUD treatment provider. This provision logically would cover promises to patients for benefits like free housing in exchange for using a provider’s treatment services. 
• It empowers the Department of Health, for health care providers and clinical labs, and the Department of Community Affairs, for recovery residences, to investigate alleged violations of the act, suspend or revoke a facility’s license or certification, and/or impose civil penalties up to $20,000 per violation.

One common question when it comes to kickback legislation is its potential impact on the salaries of marketing employees or employees responsible for patient outreach or intake, or on contractual relationships with referral hotlines. The new legislation does not change existing law, except for adding recovery residences and clinical labs to its coverage. The statute continues to include the payment of “commissions” for referrals among its prohibited acts.

Therefore, treatment providers should confirm that the compensation paid to marketers (and all employees) and fees paid to referral hotlines are market-based, and clearly connected to them performing their functions, and not tied to the number of patients that these employees or services bring into the program. Payments that do not vary based upon (1) the number of referrals, (2) the volume of services provided, or (3) the amount of insurance benefits a patient has, are expressly exempt from the prohibition on payments for referrals.

A3974 Deceptive Marketing Legislation

The law targeting deceptive marketing practices specific to the SUD treatment field is new. It requires treatment providers and recovery residence operators to include in any marketing or advertisement materials complete and accurate information about the provider’s name and brand name, the services they provide, and the location where they provide it.

The laws other key provisions include:

• Prohibiting treatment providers or recovery residences making false or misleading statements about:
  • Their status as an in-network or out-of-network provider;
  • The identity of or contact information for any treatment provider or recovery residence;
  • The internet address of any treatment provider or recovery residence’s web site, or to surreptitiously direct or redirect a person to another website;
  • An affiliation with another treatment provider or recovery residence without express written consent from that provider or residence operator; 
  • The SUD treatment services that they provide; or
  • The location of the treatment provider or recovery residence, or of where the provider or residence provides treatment services.

Treatment providers or recovery residence operators face civil penalties for up to $20,000 per violation for the above false or misleading statements.

• Establishing a private right of action for any person injured as a result of paying for services performed in violation of this act, and requiring the court to award treble damages and attorney’s fees to the injured party.
• Empowering the Department of Health, for health care providers and clinical labs, and the Department of Community Affairs, for recovery residences, to investigate alleged violations of the act, suspend or revoke applicable licenses, and impose civil penalties up to $20,000 for each violation.

How Treatment Industry Participants Should Respond

These new laws enter an active enforcement environment in the SUD treatment industry. Prosecutors like to use new tools the legislature hands them, and the SCI report garnered a lot of attention within New Jersey on abusive practices in this field. In April, New Jersey treatment provider Seabrook resolved False Claims Act allegations with the federal government, some of which would be covered by these new state laws.

Treatment providers, recovery residence operators, nonprofit organizations, referral hotline or SUD helpline operators, and others in the SUD treatment industry, should review their compliance plans, codes of conduct, compensation arrangements (especially with marketers), patient incentives, contracts, and marketing and advertising materials to ensure they are compliant with these new and/or expanded laws.

For any questions or assistance with navigating this new legislation, please contact New Jersey partner Scott A. Coffina at sac@pietragallo.com or 856-817-2601.