EKRA update: Ninth Circuit opinion in U.S. v. Schena

Martin Merritt, JD

Mark Schena, sometime after 2018, operated a CLIA lab in California. He’s also an idiot. Schena hatched a scheme to pay marketers on a percentage basis, to target non-allergy specialists (including chiropractors and naturopathy practitioners), because they could be more easily deceived by false and deceptive claims about Shena’s $10,000 allergy blood tests.

The reason I say he is an “idiot,” in part, is because he tried to get away with this to the tune of $77 million in billing. But mostly, because Congress passed a statute in 2018, making percentage-based payments to marketers in the CLIA lab space illegal. Although, admittedly, we did not have any federal appellate opinions on the meaning of this 2018 statute, until U.S. v. Shena. July 11, 2025.

EKRA. In 2018, Congress passed the Elimination of Kickbacks in Recovery Act (“EKRA”) 18 USC §220, a criminal statute, to combat fraud and abuse with respect to referrals to a “recovery home, clinical treatment facility or laboratory. ”Although the title would indicate the law applies to kickbacks involving patients “in recovery” homes and treatment facilities, the word “laboratory” is not so limited. To the contrary, the word “laboratory” is specifically defined in para. (e) to include any CLIA laboratory (not just those serving patients “in recovery.”)

As a refresher, the original federal-payer Anti-Kickback statute (“federal payer-AKS”), 42 USC §1320a-7b only applies to government payers. The 2018 statute, EKRA, extended the concept to payments to marketers where the patient is covered by private insurances or “commercial” plans. (EKRA is for private-payer plans, the federal-payer AKS is for government plans.) 

You might say, applying these two laws to payments to marketers is what keeps me in business. (It’s complicated.) Under the federal-payer AKS safe harbor, independent contractors and marketing companies (as opposed to bona fide employees) usually must meet all the elements of the “personal services” safe harbor, which I explained in a 2014 Physicians Practice Article. Notably the AKS safe harbor requires: (1) the “aggregate compensation” must be set in advance (2) under a contract for at least a year, meaning the rate can’t vary during the year (3) the rate must be at “fair market value,” and (4) must use a method which doesn’t take into account success, or the value of the sales generated.

Failure to meet the safe harbor doesn’t mean the payment is illegal, the government still must prove “illegality,” but the safe harbor is an affirmative defense to any claim of illegality. And this foundational question, “when is the payment illegal under EKRA” is the subject of the Ninth Circuit opinion in Schena.

Borrowing from 5^th Circuit federal-payer AKS opinions, the Schena court first observed that merely paying marketers on a “percentage” basis is not per-se illegal. The Court reasoned there must be something more, such as undue influence, deceptive marketing or some wrongful element of the marketing effort. Otherwise, ordinary “truthful” advertising would potentially be illegal.

I have often said this about federal-payer AKS marketing cases. There are First Amendment Commercial Free Speech issues involved, if the government attempts an industry-wide ban on the content of commercial speech, for example, paying someone to go say nice things about your healthcare company, the content of which are neither false nor misleading. (See Virginia Board of Pharmacy a seminal US Supreme Court Commercial Free Speech case from 1976).

And for this reason, the government in both EKRA and federal-payer AKS cases, always alleges that the payment to marketers led to something amounting to “fraud” (medically unnecessary prescribing) or some other morally reprehensible referrals (such as paying to steer legitimate, medically necessary referrals to the “highest bidder.”)

And the first kind of fraud is what we have in spades in the Schena case. While truthful advertising might have been legal, Schena seems to have left a paper trail of activities in which he induced “improper referrals” under EKRA, by paying marketers to deceive naïve practitioners into making referrals for useless, expensive allergy tests (practitioners who were deliberately targeted because they were not allergy specialists who would know any better.)

As a result, the Ninth Circuit had little difficulty concluding that Shena’s percentage-based payments to marketers violated EKRA, although percentage-based payments alone, would not have violated EKRA.

Martin Merritt is a health lawyer and health care litigator at Martin Merritt PLLC, as well as past president of the Texas Health Lawyers Association and past chairman of the Dallas Bar Association Health Law Section. He can be reached at Martin@martinmerritt.com.