On September 2nd, the DOJ reported that Mark Schena, president of Arrayit Corporation, a biomedical company was convicted of orchestrating a $77 million scheme involving mainly false and fraudulent claims for Covid-19 and allergy testing. Mr. Schena also paid kickbacks and bribes to recruiters and doctors to run allergy testing. [https://www.justice.gov/opa/pr/medical-technology-company-president-convicted-77-million-covid-19-and-allergy-testing-scheme]
One of the failed defenses was that EKRA did not apply because the Arrayit marketers worked with physicians and not patients directly.
As you may recall, in the case of S&G Labs Hawaii, LLC v. Graves, No. 1:19-cv-310, 2021 WL 4847430 (D. HI Oct. 18, 2021), the U.S. District Court for the District of Hawaii found that a commission-based lab employee who made payments to physicians did not violate EKRA because payments were not made to individuals.
In the Hawaii case, the issue was whether commission-based payments to employees violate EKRA. The court distinguished the referral of patients by physicians to the lab from the act of marketing by the employee to physicians to convince patients to use the lab. The court concluded there was no such referral or inducement of an individual because the commission paid salesperson did induce the patient.
In the Schena/Arrayit case, the Government alleged that Schena had offered and paid illegal kickbacks to physicians and marketers to induce the ordering of bundled COVID-19 and allergy testing. Schena attempted to argue that EKRA did not apply because the marketers worked with physicians and not patients directly (similar to the S&G Labs Hawaii case). The Court did not agree with this proposition, instead finding that the act of marketing is an inducement to refer an individual and can violate EKRA when such marketers are paid on a per specimen, per person, or percentage of reimbursement.
