Overview
Since its enactment in 2018, the Eliminating Kickbacks in Recovery Act (EKRA) has remained one of the greater compliance mysteries facing the healthcare industry. The statute’s odd language and structure raises more interpretative questions than it answers. Recent cases have addressed one key area of ambiguity: the extent to which EKRA applies to certain sales and marketing practices and related compensation arrangements for laboratories, clinical treatment facilities, and recovery homes.
Despite EKRA’s many interpretive ambiguities, these recent developments have shed light on some of the statute’s contours and clarified the government’s position that percentage-based marketing payments are not expressly prohibited.
Background
In relevant part, EKRA prohibits persons from knowingly and willfully:
(1) solicit[ing] or receiv[ing] any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind, in return for referring a patient or patronage to a recovery home, clinical treatment facility, or laboratory; and
(2) pay[ing] or offer[ing] any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind-
(A) to induce a referral of an individual to a recovery home, clinical treatment facility, or laboratory; or
(B) in exchange for an individual using the services of that recovery home, clinical treatment facility, or laboratory.
Unlike certain other federal fraud and abuse laws that apply only to services paid for by federal healthcare programs, such as the Anti-Kickback Statute (AKS), EKRA applies to services covered by all payors. Each violation of EKRA could result in criminal fines of up to $200,000, imprisonment for up to 10 years, or a combination of both.
Notably, EKRA’s statutory prohibition omits the AKS’s “arranging for or recommending” language that is often cited as covering marketing activities in federal healthcare programs. To date, courts have differed on the extent to which EKRA covers certain marketing activities. In connection with the underlying cases, the issue of whether percentage-based sales and marketing compensation is per se illegal under EKRA has been an area of focus.
Despite the statute’s broad scope, EKRA includes statutory exceptions (which some courts refer to as “safe harbors”) for certain arrangements. For example, EKRA includes an exception protecting bona fide employment and independent contractor relationships. EKRA’s exception is narrower than the AKS employment exception and safe harbor, which stakeholders have long relied on to protect sales and marketing payments to employees, including those that are based on a percentage of revenue. EKRA’s employment and independent contractor exception, however, does not protect arrangements where compensation is determined or varies by the number of individuals referred, the number of tests or procedures performed, or the amount billed to or received from healthcare benefit programs.
In Depth
Several federal courts recently addressed the extent to which EKRA applies to certain sales and marketing arrangements, including several district courts that reached different conclusions. A recent US Court of Appeals for the Ninth Circuit decision resolved the district split in that circuit. In the course of the Ninth Circuit case, the regulated industry received some helpful clarity on the US Department of Justice’s position regarding whether EKRA per se prohibits percentage-based sales and marketing compensation. (Spoiler alert: it does not.)
- In S&G Labs Hawaii, LLC v. Graves, the US District Court for the District of Hawaii considered whether percentage-based payments made to an employee overseeing client accounts on behalf of a medical testing company violated EKRA. The employee’s clients were various healthcare providers and organizations whose patients had a need for the testing services offered by S&G Labs. To determine the statute’s scope, the court read EKRA’s language in light of definitions established by the AKS, including those for “remuneration” and “individual.” In holding that the payments did not violate EKRA, the court determined that because the employee’s clients were healthcare providers rather than the actual patients who needed the services offered by S&G, any payments made to the employee could not have been to induce him to refer “individuals” to the lab. The court thus concluded that EKRA did not apply to the underlying employment arrangement.
- Another case in the same judicial circuit, United States v. Schena, concerned the alleged submission of improper claims by the owner of a medical lab testing facility in violation of multiple fraud and abuse statutes, including EKRA. The EKRA allegations related to the percentage of revenue payments to marketers. In its consideration of the EKRA issue, the US District Court for the Northern District of California specifically objected to the S&G Labs court’s reliance on the AKS to interpret the statutory language of EKRA. Relatedly, the Schena court found that EKRA had no “directness” requirement, and that therefore the statute’s prohibition on making payments to induce the referral of an individual extends to situations where a person is marketing only to physicians or other healthcare providers.
The Ninth Circuit heard the S&G Labs and Schena cases on appeal in February 2025 and issued slip opinions for each in July 2025. In Schena, the Ninth Circuit’s analysis centered on the two primary legal issues raised in the district court:
- Whether EKRA reaches payments made to persons who do not have the authority to refer patients and do not otherwise interact directly with patients
- If EKRA does reach such payments, what it means to “induce a referral” in the context of the statute.
On the first question, the Ninth Circuit ultimately affirmed the district court’s conclusion, holding that EKRA’s scope is not limited only to payments made to those who directly interact with or are able to refer patients.
On the second question, the Ninth Circuit held that as with the AKS standard, “to induce a referral” in violation of EKRA requires some degree of “undue influence” over the referrals. This may include, for example, a marketer improperly guiding a doctor’s referrals by making patently false representations about the service being marketed. The court went on to clarify that, as the government itself recognized during oral argument, standard percentage-based compensation structures do not constitute per se violations of EKRA, “even when the marketing personnel are persuasive in driving business,” as long as undue influence is not present. This point proved dispositive to the EKRA claim in the S&G Labs appeal, as the court determined that the contract at issue did not automatically violate EKRA by the mere fact that it included a percentage-based marketing compensation structure. Despite taking a major step by officially adopting the “undue influence” standard in the EKRA context, the Ninth Circuit recognized that “future cases will be needed” to demarcate the relative boundaries of that standard.
When questioned by the Ninth Circuit on whether EKRA implicates standard percentage-based marketing arrangements, the government conceded in oral argument that percentage-based payments are not per se unlawful under EKRA. To support this proposition, the government cited to United States v. Marchetti, a case involving the AKS that found that “the structure of [a] contract alone is not sufficient evidence to produce a conviction” under the AKS. The government went on to note that whether an arrangement implicates EKRA is a fact-specific inquiry, and the government is required to show beyond a reasonable doubt that the “purpose of the kickback was a quid pro quo to induce referrals” and was not simply to compensate marketing, advertising, hours worked, or other legitimate services. The Ninth Circuit expressly noted this government concession in its Schena opinion.
Prior to the publication of the Ninth Circuit’s opinions above, the US District Court for the Eastern District of Pennsylvania evaluated the merits of both the Schena and S&G Labs decisions and ultimately sided with the latter in GF Industries of Missouri, LLC v. Lehigh Valley Genomics LLC. The GF Industries court found that the AKS’s analogous language was in fact relevant to the EKRA analysis, and proceeded to reference AKS caselaw to determine the sorts of arrangements that fall within EKRA’s scope of prohibition. As with the district court decision in S&G Labs, the court held that EKRA may not apply to percentage-based payments where a marketer’s clients are providers rather than patients. Although the GF Industries court reached a different conclusion about the scope of EKRA generally, it reached the same conclusion as the Ninth Circuit in adopting the Marchetti conclusion that “percentage-based compensation structures are not per se unlawful” and that “the structure of [a] contract alone is not sufficient evidence to produce a conviction.”
Next steps
Although there is still judicial disagreement about whether EKRA applies to payments made for sales and marketing services when the target audience is healthcare providers and others who are not patients, the courts are in alignment that percentage of revenue compensation to sales and marketing staff are not per se illegal under EKRA. Laboratories, clinical treatment facilities, and recovery homes should consider these recent cases when devising or revising compensation structures and should implement guardrails to mitigate the risk of sales and marketing staff being perceived as exerting “undue influence” over referrals. As the Ninth Circuit cautioned, where to draw the line is not yet settled. Regulated actors should work closely with experienced counsel to assess the specific facts and circumstances surrounding their sales and marketing compensation structures to mitigate EKRA risks.
For more information about compliance with EKRA and other fraud and abuse laws, contact any of the authors of this client alert or your regular McDermott Will & Schulte lawyer.