Summary
The Ninth Circuit affirmed Mark Schena’s convictions, including convictions under the Eliminating Kickbacks in Recovery Act (EKRA), holding that EKRA may apply to payments to marketing intermediaries who influence medical referrals. The court held that percentage-based compensation alone is not necessarily unlawful, but that payments to marketers directed to use false or fraudulent representations to influence referrals can constitute inducement under EKRA. The court also vacated and remanded part of the restitution order.
Topics
Practice areas
Questions Presented
- Whether 18 U.S.C. § 220(a)(2)(A) applies to remuneration paid to marketing intermediaries who do not directly interact with patients but seek to influence referrals through doctors or other medical professionals.
- What conduct constitutes paying remuneration "to induce a referral" under EKRA when the remuneration is paid to marketing agents under a percentage-based compensation arrangement.
- Whether the evidence was sufficient for a reasonable jury to find that Schena paid marketers to induce referrals in violation of EKRA.
- Whether the district court's restitution order should be affirmed or vacated in part.
Holdings
- 18 U.S.C. § 220(a)(2)(A) covers marketing intermediaries who interface with persons making referrals; the statute does not require that the remuneration recipient directly interact with patients or possess formal authority to make the referral.
- A percentage-based compensation structure for marketing agents, without more, does not violate 18 U.S.C. § 220(a)(2)(A), but remuneration paid to marketing agents to unduly influence doctors' referrals through false or fraudulent representations about covered medical services is sufficient to constitute wrongful inducement.
- The evidence was sufficient for a reasonable jury to find that Schena paid marketing agents to induce referrals to Arrayit through undue influence and deceptive representations.
Key quotations
“We disagree and hold that 18 U.S.C. § 220(a)(2)(A) covers marketing intermediaries who interface with those who do the referrals.” (11)
“We conclude that a percentage-based compensation structure for marketing agents, without more, does not violate 18 U.S.C. § 220(a)(2)(A). But the evidence is sufficient to show wrongful inducement when, as here, the defendant pays remuneration to a marketing agent to have him unduly influence doctors’ referrals through false or fraudulent representations about the covered medical services.” (14)
“At a minimum, when percentage-based payments are made to marketing agents who are directed to mislead those making the referrals about the nature of and need for the covered medical services, those payments would violate EKRA.” (19)
Factual background
Mark Schena operated Arrayit, a medical testing laboratory that marketed blood allergy tests and later COVID-19 antibody tests. He paid marketing agents percentage-based compensation tied to the revenue generated, and the evidence showed that he directed them to make misleading or fraudulent representations to doctors about the accuracy, superiority, speed, and necessity of Arrayit's tests. The marketers sought referrals to Arrayit and, according to trial testimony, exerted influence over which laboratory received patient samples. Arrayit billed insurers millions of dollars for allergy and COVID-related testing.
Procedural history
The district court denied Schena's motion to dismiss the EKRA counts, concluding that the alleged conduct could violate the statute. A jury convicted Schena on all counts, and the district court sentenced him to 96 months' imprisonment and ordered more than $24 million in restitution. The Ninth Circuit affirmed the convictions, affirmed the restitution order in part, and vacated and remanded it in part.
Remand instructions
The convictions were affirmed. The restitution order was affirmed in part and vacated and remanded in part as detailed in the accompanying memorandum disposition.