A recent Ninth Circuit Court of Appeals decision is raising eyebrows and setting important precedent about the legal boundaries of referral-based compensation in the healthcare industry. In a July 2025 ruling, the appellate court upheld the conviction of a California man under the Eliminating Kickbacks in Recovery Act of 2018 (“EKRA”), offering a cautionary tale for medical laboratories and healthcare providers nationwide.
The court’s decision provides some long-awaited clarity on how EKRA applies beyond substance abuse treatment facilities and underscores the legal risks companies face when compensating employees or contractors based on referrals. One message remains clear: healthcare businesses must exercise extreme caution when structuring compensation or risk violating federal law.
Background: What Is EKRA?
EKRA was enacted in 2018 to combat fraud and abuse in the addiction treatment industry, specifically targeting patient brokering and improper financial incentives. While originally introduced as part of legislation addressing the opioid crisis, the statute’s broad language applies not only to recovery homes and addiction treatment centers, but also to any clinical laboratory or clinical treatment facility.
Under EKRA, it is a federal crime to pay or receive any remuneration, directly or indirectly, in exchange for referring patients to a recovery home, clinical treatment facility, or laboratory. Remuneration includes bonuses, commissions, or other incentives tied to the number of referrals or the value of services provided.
EKRA violations can result in up to 10 years in prison, significant fines, and permanent damage to a company’s reputation.
The Case: U.S. v. Schena
In the case at hand, the defendant argued that his conduct didn’t fall under EKRA because the law should only apply to substance abuse-related facilities. The appellate court rejected that argument, finding that EKRA’s language is intentionally broad and extends to all clinical laboratories, regardless of whether they perform addiction-related testing.
The Ninth Circuit also dismissed the notion that the defendant’s lack of criminal intent should shield him from liability. Instead, the appellate court emphasized that EKRA does not require proof of intent to defraud. Rather, simply engaging in the prohibited conduct triggers liability.
Why This Matters
The Schena ruling is one of the first circuit court interpretations of EKRA and may serve as a bellwether for how future cases are prosecuted and defended. For businesses operating in the healthcare sector, particularly those involving laboratory testing, diagnostic services, or patient referrals, it’s a case to be studied.
Key implications include:
- Broad Application: EKRA applies to all clinical laboratories, not just those focused on substance abuse.
- No Safe Harbor for Common Practices: Even longstanding or industry-standard sales practices, such as commission-based pay tied to referrals, may violate EKRA.
- Criminal Exposure Without Intent: A defendant does not need to intend to break the law to be found guilty under EKRA. Ignorance of the statute is not a defense.
What Employers Should Do Now
For companies operating clinical labs or working with third-party marketing firms, the Schena decision creates an increased sense of urgency to review internal policies and contracts. Many organizations unknowingly operate under compensation structures that may be considered unlawful under EKRA.
Here are practical steps employers should consider:
- Review All Compensation Arrangements: This includes both employees and contractors. If any compensation is tied to the volume or value of referrals, those arrangements may need to be revised or eliminated.
- Audit Referral Practices: Ensure that referral sources are not receiving direct or indirect payments in exchange for directing business to your facility.
- Implement Compliance Training: Staff members, especially in business development, should be educated about EKRA and other federal anti-kickback laws.
- Consult Legal Counsel: EKRA compliance can be complex, particularly when contracts span multiple states or involve layered business relationships. A qualified healthcare attorney can help you assess risk and revise agreements accordingly.
- Revisit Contracts with Independent Contractors: Contractors engaged in marketing or sales may pose the highest risk under EKRA if they are incentivized based on business volume.
Not Just About Labs
While the Schena case centers on clinical laboratories, its reasoning may be applied more broadly. Regulators and courts have shown increasing interest in eliminating financial conflicts of interest across the entire healthcare industry, including durable medical equipment providers, specialty pharmacies, diagnostic imaging centers, and more.
In short, EKRA represents a shift away from commission-driven healthcare marketing and toward compliance-first compensation models. The Ninth Circuit’s ruling reinforces that shift and expands the universe of organizations that must take notice.
Compliance Now Prevents Litigation Later
This decision should be a serious prompt for all healthcare providers and vendors to reassess their compensation models and referral networks. The potential penalties for noncompliance are steep, not just in terms of criminal liability, but also civil penalties, exclusion from Medicare and Medicaid programs, and lasting reputational harm.
Companies that act now can avoid painful consequences later. This means not only reviewing contracts and pay structures but also building a culture of compliance that prioritizes transparency and ethics over aggressive growth tactics.
Get Legal Guidance Before It’s Too Late
If your organization relies on referrals, sales-based commissions, or third-party marketing partnerships, the Ninth Circuit’s ruling makes one thing crystal clear: you need to understand how EKRA applies to your business.
At Hoyer Law Group, we help healthcare companies and laboratories stay on the right side of federal law and we represent whistleblowers who have knowledge of companies that are intentionally violating laws like EKRA. Our attorneys are experienced in healthcare compliance, government investigations, and whistleblower law
Contact Hoyer Law Group today to schedule a confidential consultation if you have questions about your company’s compliance with EKRA and other federal regulations.
