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In 2018, Congress passed the Eliminating Kickbacks in Recovery Act (EKRA), with the goal of curbing fraud and abuse in addiction treatment and laboratory testing. EKRA detonated the existing business models of treatment providers, addiction treatment referral networks, and marketing contractors leaving little guidance on how to comply with the law. The Ninth Circuit’s recent decision in United States v. Schena answered some key questions about compensating marketers, but left many more undecided, including the most important one —what does it mean to “induce” a referral?
What Schena decided: Payments to marketers can trigger EKRA
Mark Schena paid marketers based on commission to refer tests to his lab. As the Court put it, he had an “obsession” with medical billing codes, and in an endeavor to capitalize as much as possible by billing insurers, Schena also bundled those tests with useless allergy tests and directed his commission-based marketers to mislead providers about the necessity and effectiveness of those tests. As the saying goes, bad facts make bad law.
His defense: EKRA doesn’t apply to third-party marketers. The Ninth Circuit disagreed. The Court held that EKRA covers marketing intermediaries who get paid to generate referrals—even if they don’t interact with patients. But it also held that percentage-based compensation for marketers is not per se illegal, unless those marketers’ efforts reflect a “wrongful effort” to “unduly influence”—i.e. induce—a referral.
This part of the holding has gotten a lot of attention, and rightfully so. Schena makes clear that advertising is legal, and paying marketers based on their success is permissible. As the Court points out, “[a]ll marketing efforts are intended to influence the recipient.”
But what does it mean to “induce” a referral?
What does “induce” mean, anyway?
Schena doesn’t say. After pointing out that “induce” isn’t defined in EKRA, the Court attempts to cobble together a definition using equally opaque, value-laden terms. But the result is unhelpful word salad. For example, the Court says that “the term ‘induce’ connotes not mere causation, but wrongful causation.” A mere attempt to “influence” doesn’t suffice. Rather, EKRA requires “undue influence.” The Court assures us that these murky definitions, derived based on the “specialized, criminal-law” understanding of the term “induce,” are what Congress intended. But they provide no useful guidance to providers of covered services, who must determine, for example, when “a marketing intermediary effectively takes over the role of the referring physician.”
The Court leaves these “more difficult questions” for later decisions, finding that the influence in Schena qualified as “undue” because the marketers deceived providers about the nature and need for the tests. Okay, so lying to persuade providers to order covered services constitutes, under certain circumstances, “undue influence.” Now what?
Vague concepts like “undue influence” are tough to navigate in practice. There’s no statute, regulation, or regulatory guidance that defines these terms in the EKRA context. That means service providers are left trying to avoid breaking a rule that has no clear shape.
Practical steps for labs and marketers
Until regulators or Congress offer more precise rules, your best move is to be cautious, ask questions, and build a compliance culture that doesn’t just check boxes—but actually considers how your marketing efforts might look to a skeptical outsider.
