Undue Influence: Defining the Scope of Legal Marketing under EKRA

Picking is your poison.

In 2018, the Eliminating Kickbacks in Recovery Act (EKRA) signified a massive change in how diagnostic labs and addiction treatment providers can market their services. Under EKRA, it is a federal crime for such companies to pay for referrals of patients, even those with private insurance, and even when the payments are made to bona fide employees of the payer.

But what is a "referral?" If a lab pays a doctor $1,000 for each patient sample the doctor sends to it, that would qualify. If the lab pay a marketing firm to put advertisements in an industry journal, probably not. Where exactly the line lies is enormously important for companies in these industries, but EKRA's text does not say, and there have been almost no court decisions interpreting EKRA, including as to this issue.

The Ninth Circuit may soon change that. A single panel of that court is currently considering a pair of cases raising the definition of "referral." In S&G Labs v. Graves, Case No. 19-cv-310 (D.Hawai'i Oct. 18, 2021), a lab paid a marketer to persuade doctors and addiction treatment providers to send patient samples to the lab for urinalysis. Similarly, in U.S. v. Schena, Case No. 20-cr-425 (N.D. Cal. May 28, 2022), a lab hired marketers to promote its Covid-19 testing services to allegedly "naïve" doctors, using purportedly misleading representations about the lab's capabilities.

In both cases, the parties have addressed on appeal whether the arrangement entailed payment for a referral, or simply for legitimate "marketing" services. There is no allegation that any compensation went to doctors.

To define "referral," the court may adopt the "undue influence" test developed to answer the same question in the older Anti-Kickback Statute (AKS), which applies to all health care companies, but only as to patients insured by federal government programs. 

For example, in U.S. v. Polin, 194 F.3d 863 (7th Cir. 1999), the defendant was paid to "recommend" pacemaker monitoring services for patients, and his recommendations were essentially always adopted by the treating doctors. Similarly, in U.S. v. Shoemaker, 746 F.3d 614 (5th Cir.), a nurse staffing business paid a hospital chairman and CEO to arrange for the nurses to service the hospital's patients. In both cases, the courts held that the payments were for "referrals," as they went to individuals with effective "decision-making" power or "undue influence" over who ended up providing and billing for the services.

By contrast, in U.S. v. Miles, 360 F.3d 472 (5th Cir. 2004), a home healthcare provider paid a marketing firm to merely provide promotional materials to, and arrange "informational" sessions with, prescribing doctors. And more recently, in U.S. v. Sorensen, Case No. 24-1557 (7th Cir. April 14, 2025), a supplier of orthopedic braces paid marketers to publish ads, collect information from patients who responded, and send those patients' information to doctors, a minority of whom prescribed the braces. In both cases, the courts found that the marketers who received the payments did not have "undue influence" over the ultimate decision of who would supply the patients; that decision remained in effect with the treating physicians.

The Fifth Circuit's decision in U.S. v. Marchetti, 96 F.4th 818 (5th Cir. 2024) drew the line between two different schemes within the same case. The defendant marketer promoted one laboratory's testing services through advertising and marketing strategy. But in a second arrangement, the marketer actively determined which lab the patient samples would be set to. The court held that the first scheme did not involve referrals and was thus legal, but that the second involved unlawful referrals under the AKS. Again, the difference came down to the marketer's control over the patients' samples.

At the oral arguments in S&G Labs and Schena, both held the same day, the Ninth Circuit panel (Thomas, Bress, De Alba) questioned counsel specifically about the issue, at some points specifically discussing Miles, Marchetti, and other AKS cases. There appeared to be a consensus that the "undue influence" test from those cases applied. If the court addressed the "referral" issue in its decision, it should be an important milestone in EKRA litigation going forward, and will provide guidance both to defendants in EKRA investigations and prosecutions and to labs or SUD treatment providers seeking to ensure that their marketing operations are compliant.