On July, 11, 2025, the Ninth Circuit Court of Appeals affirmed laboratory operator Mark Schena’s conviction under Eliminating Kickbacks in Recovery Act (EKRA). This is the first time a higher court has addressed the lab marketing and sales compensation provisions of EKRA, and it offers new insights for lab operators.
What is EKRA?
EKRA, enacted in 2018 to combat opioid treatment referral schemes, extends beyond toxicology labs to cover any diagnostic testing laboratory, as well as recovery homes and clinical treatment facilities. The law imposes civil and criminal penalties for paying or receiving kickbacks for referrals, applying to services covered by both private insurance and government programs.
What Happened in Schena?
Mark Schena, a lab operator, was convicted of paying “remuneration ... to induce a referral of an individual to a ... laboratory,” which is a crime under EKRA.
According to the court opinion:
- Schena directed the lab’s marketers to mislead doctors and deceive physicians to induce their referral of patients to Schena’s lab, Arrayit, for blood testing services. Schena directed marketers to target “naive” practitioners who lacked allergy testing experience. Schena further directed marketers to misrepresent Arrayit’s blood tests as being superior to skin tests, even though Arrayit’s blood tests could only detect whether a patient had been exposed to an allergen as compared to skin tests which assess whether the patient has an allergy.
- Additionally, during the COVID pandemic, Schena directed marketers to misrepresent the speed and efficacy of blood tests as compared to PCR tests, and further directed them to mislead physicians into believing that allergy tests were necessary for patients suffering from COVID symptoms. All patients were tested for 120 allergens, regardless of medical necessity.
- Marketers controlled where lab samples would be sent, and Schena directed lab employees to run lab tests that were not ordered by doctors.
- Marketers were paid based on the percentage of the revenue they generated.
The court upheld Schena’s conviction and made three important legal holdings:
1. EKRA Applies Even If Payments Are Made to a Third Party (Like Marketers)
In his defense, Schena argued that EKRA only prohibits direct payments from the lab to referring providers. He pointed to S&G Labs Hawaii, LLC v. Graves, a lower court case that said only direct payments triggered EKRA. Since EKRA refers to the induced referral of an “individual” the S&G court opined that EKRA does not apply when marketing employees communicate with physicians (client accounts), because physicians (client accounts) are not individuals whose samples are tested.
The Ninth Circuit Court of Appeals disagreed with this analysis. In determining that EKRA applies when payment is made to an intermediary (like a marketer), the court held that EKRA only requires remuneration to generally contemplate the referral of a patient. The phrase “to induce a referral of an individual” means that a natural person (the patient) must be the ultimate object of the inducement, such as when a marketer seeks to influence the referral of patients from a physician who can order laboratory tests. A violation of EKRA does not require direct communication between a marketer and the patient.
The court reversed S&G Labs Hawaii, LLC v. Graves the same day it issued the Schena decision.
2. Percentage-Based Marketing Compensation Is Not Necessarily Prohibited
When EKRA was adopted in 2018, the law caused significant uproar within the laboratory community. Clinical laboratories across the United States have historically compensated their marketers and sales representatives through a commissioned based structure.
Prior to the adoption of EKRA, this payment structure was protected under the Anti-Kickback Statute Safe Harbor for bona fide employees. Similarly to the Anti-Kickback Statute, EKRA prohibits the exchange of remuneration for the inducement of referrals. However, EKRA’s exception for employees and independent contractors does not protect commission-based compensation arrangements because such arrangements consider the number of individuals referred to a laboratory or the number of tests or procedures performed by the laboratory.
This discrepancy between the two laws caused many laboratories to change their compensation structures and partly led to the dispute in S&G Labs Hawaii, LLC v. Graves.
To the relief of many in the laboratory industry, the Ninth Circuit Court of Appeals has addressed this issue head on by rejecting the notion that EKRA criminalizes the historically standard payment structure for marketing personnel. The court stated that the existence of a percentage-based payment structure does not by itself result in a violation of EKRA.
3. “Inducing a Referral” Means Applying Undue Influence, Not Marketing
In determining that a percentage-based payment structure, by itself, is not prohibited under EKRA, the court distinguished between the plain meaning of the word “induce” and how the term has been interpreted through criminal law.
In plain English, the term “induce” can mean an action taken to influence someone to do something. However, in criminal law, the term has a specialized meaning that combines a wrongful act taken in connection with the attempt to influence someone to do something. This combination can be characterized as “undue influence.”
Relying upon cases that involved the interpretation of the Anti-Kickback Statute, the court found that Schena unduly influenced the referral of patients in violation of EKRA through the combination of paying marketers through a commission-based structure, and by directing the marketers to mislead and deceive physicians about the nature of and the need for laboratory testing services. The court stopped short of defining every wrongful act that may lead to undue influence.
(Of course, paying providers directly for referrals is always “inducement” under EKRA.)
Who Does Schena Apply To?
Schena is a binding interpretation of EKRA within the Ninth Circuit (Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington) absent a future ruling by the Supreme Court or Congressional action.
Other federal circuit courts are not required to follow this interpretation. However, this is the first time any federal appeals court has interpreted EKRA, making it highly influential nationwide. Additionally, this decision may end up being highly persuasive for cases brought within the Fifth Circuit (Texas, Louisiana, and Mississippi). Most of the analysis regarding the interpretation of the word “induce” was based upon cases from the Fifth Circuit.
Other circuits will likely look to this decision as persuasive authority when they encounter similar cases.
What Does This Mean for Laboratory Sales/Marketing Compensation Agreements?
The Schena decision provides important clarityfor labs: Percentage-based compensation structures are permissible as long as it's not combined with illegal conduct. This means labs can continue (or re-establish) using performance-based marketing compensation without automatic legal liability.
Labs should focus on ensuring marketing truthfulness to avoid claims of undue influence:
- Audit all marketing materials and sales scripts for accuracy
- Monitor for other potentially wrong acts, such as the payment of gifts or kickbacks to referring physicians
- Ensure marketers cannot override physician test selection decisions
For complete protection from EKRA liability, consider structuring compensation to fit within EKRA's definition of bona fide employee compensation, which allows payments that do not vary by the number of referrals received, tests or procedures performed, or the amount billed to insurance.
EKRA Compliance Attorneys for Your Medical Lab
Hendershot Cowart’s EKRA compliance attorneys are closely following the Schena decision and other EKRA legal actions. We can help you assess your compensation structures in light of Schena, improve your EKRA compliance programs, and defend your practice or lab against EKRA enforcement actions.
Call 713-783-3110 to contact us today for legal counsel related to EKRA.