White Collar Criminal Defense Group

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.

No Harm, Still Foul: Supreme Court Affirms Expansive Reach of Wire Fraud Statute in Kousisis

In a recent decision upholding the expansive reach of the federal wire fraud statute (18 U.S.C. §1343), the U.S. Supreme Court ruled in Kousisis v. United States, No. 23-909 (May 22, 2025) that a defendant can be convicted of wire fraud even if the victim suffers no net economic loss. The Court’s opinion, authored by Justice Barrett, holds that deception alone — if material and aimed at obtaining money or property — can suffice for a federal wire fraud conviction.

The ruling underscores the broad reach of federal prosecutors under the wire fraud statute and reinforces the importance of strict compliance with representations made during the bidding and negotiation process.

The Facts: A “Pass-Through” Scheme

The case involved two public works contracts awarded by the Pennsylvania Department of Transportation (PennDOT) to Alpha Painting and Construction Co., managed by petitioner Stamatios Kousisis. As a condition of receiving federal funds, PennDOT required a portion of each contract to be subcontracted to a Disadvantaged Business Enterprise (DBE), as defined by federal regulations.

Kousisis represented that Alpha would purchase paint supplies from Markias, Inc., a certified DBE. In reality, Markias served as a pass-through entity: it neither supplied materials nor performed any commercially useful function. Instead, it merely processed invoices and collected a fee, while Alpha sourced materials from non-DBE suppliers.

Notwithstanding the DBE deception, Alpha completed the projects to PennDOT’s satisfaction and earned over $20 million in gross profit. The government charged Kousisis and Alpha with wire fraud and conspiracy, alleging that they fraudulently induced PennDOT to award the contracts under false pretenses.

The Legal Issue: Is Economic Loss Required?

Kousisis argued that because PennDOT received the full value of the services it contracted for, there was no deprivation of “money or property” as required by §1343. The Third Circuit rejected this argument, and the Supreme Court affirmed.

The Court held that the wire fraud statute does not require the government to prove that the victim suffered a net pecuniary loss. Instead, it is enough that the defendant used material misrepresentations to obtain money or property. The Court emphasized that the statutory language — “scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses” — does not mention economic loss, and that common-law fraud historically did not require it in all contexts.

Materiality as a Limiting Principle

To address concerns about overcriminalization, the Court reaffirmed that materiality remains a critical element. Not every lie is actionable — only those that would influence a reasonable person’s decision to enter the transaction. In this case, the DBE requirement was a material term of the contract, and Kousisis’s misrepresentations went to the heart of the government’s decision to award the contracts.

Justice Thomas, concurring, expressed skepticism about whether the DBE provisions were truly material, suggesting that future cases may test the boundaries of this standard. Justice Gorsuch, in a separate concurrence, warned that the Court’s reasoning could open the door to prosecuting “victimless” lies and urged adherence to the traditional “benefit of the bargain” rule.

Implications for White-Collar Defense

Kousisis is a wake-up call for contractors, corporate executives, and their counsel. It confirms that:

• Material misrepresentations alone can support a fraud conviction, even if the government receives full value.
• Compliance with regulatory requirements is not just a contractual issue—it’s a potential criminal liability issue if misrepresented.
• The scope of federal fraud statutes remains broad, and courts are willing to uphold convictions even in the absence of financial harm.

In the post-Kousisis era, the absence of economic loss is not a shield against wire fraud liability.  This decision highlights the importance of scrutinizing representations in government contracting, grant applications, and other regulated transactions.