by Brad Howard, Esq.
AMARILLO, TX – DME suppliers, other healthcare providers, and marketing companies continue to operate in an environment of heightened scrutiny under the federal anti-kickback statute (“AKS”). While enforcement actions remain aggressive, recent court decisions have also provided helpful guidance about where legitimate marketing ends and unlawful referrals begin. Together, a recent Department of Justice settlement and two federal appellate court decisions offer a clearer road map for organizations seeking to grow their business through marketing while maintaining compliance.
The Evolving AKS Landscape
The AKS prohibits offering or receiving remuneration to induce referrals for items or services reimbursable by federal healthcare programs. Although the core principle is straightforward, applying it to modern healthcare business arrangements can be challenging. Recent developments suggest that regulators and courts are increasingly focused not simply on how parties are paid, but on whether someone is being compensated for influencing healthcare decisions.
Three recent matters illustrate this trend:
- A DOJ settlement involving laboratory referral arrangements.
- The Seventh Circuit’s decision in United States v. Sorensen.
- The Fifth Circuit’s decision in United States v. Marchetti.
DOJ Targets Laboratory Referral Arrangements
In 2026, the DOJ announced settlements exceeding $2 million involving former executives, sales personnel, marketers, and a physician associated with laboratory testing referrals. According to the government, certain payments were routed through Managed Service Organizations (“MSOs”) and characterized as management or ownership distributions when they allegedly functioned as compensation for laboratory referrals.
The matter involved allegations that physicians were paid to refer laboratory testing, including tests billed to Medicare, Medicaid, and TRICARE. The government also alleged that participants continued the arrangements despite compliance concerns being raised internally.
Although the defendants resolved the case through civil settlements without admitting liability, the government’s position was clear: compensation structures that reward referral activity, particularly when disguised as consulting fees, management payments, or investment distributions, remain a significant enforcement priority.
Lesson for Providers
The DOJ settlement serves as a reminder that regulators will closely examine arrangements involving:
- MSOs and management companies
- Revenue-sharing models
- Payments tied to referral activity
- Laboratory marketing programs involving federal healthcare beneficiaries
Healthcare organizations should assume that any payment flowing to an individual who can influence ordering decisions will receive heightened scrutiny.
Sorensen: When Marketing Is Not a Referral
The Seventh Circuit reached a very different outcome in United States v. Sorensen. The case involved orthopedic brace marketing arrangements in which advertising companies generated patient leads, obtained patient consents, and forwarded information to physicians for review.
The government argued that payments made to marketers constituted illegal kickbacks. However, the court focused on a critical fact: physicians remained independent decision makers. Physicians retained complete authority to approve or reject prescriptions and, in many instances, declined to prescribe the braces altogether. Approximately 80 percent of one marketer’s requests were either rejected or ignored.
Because the marketers lacked authority to direct treatment decisions, the court concluded they were functioning as advertisers and service providers rather than referral sources. The payments, therefore, compensated for legitimate business services rather than unlawful referrals. As a result, the court reversed Sorensen’s conviction.
Why the Decision Matters
The Sorensen decision reinforces an important principle: paying for legitimate advertising and marketing services is not automatically unlawful. The key question is whether the marketer can influence or control a physician’s independent medical judgment. When physicians actively evaluate patients and make independent decisions, the arrangement is far less likely to violate the AKS.
Marchetti: Crossing the Line Into Referral Control
The Fifth Circuit addressed a similar issue in United States v. Marchetti but reached a different conclusion based on different facts.
Like Sorensen, Marchetti was involved in marketing laboratory testing services and received compensation tied to generated business. The court recognized that compensation based on business generation is not inherently illegal. Standing alone, the government’s evidence regarding sales and marketing activities did not establish an AKS violation.
However, the case included an additional arrangement involving another entity. Evidence showed that Marchetti participated in deciding which laboratory would ultimately receive certain testing business. By influencing the routing of specimens and referrals between competing laboratories, he allegedly moved beyond mere marketing and into referral decision-making. For that reason, the court upheld his conviction.
Why the Decision Matters
The Marchetti decision highlights the distinction between promotion and control. Marketing activity may be permissible, but once an intermediary acquires authority to determine where patients, specimens, or orders are directed, AKS risk increases dramatically.
Common Themes Across All Three Matters
Despite their differing outcomes, these cases share several consistent themes that healthcare providers should understand.
1. Influence Matters More Than Labels
Courts and regulators look beyond contractual language and compensation labels. The central question is whether an individual or entity can influence referral decisions or medical judgment. If so, AKS concerns become significantly greater.
2. Legitimate Marketing Can Be Lawful
Both federal appellate courts recognized that advertising and marketing serve legitimate business functions. Marketing becomes problematic only when it transitions from promotion into referral generation or decision-making.
3. Percentage-Based Compensation Is Not Automatically Illegal
Neither court held that percentage-based compensation alone violates the AKS. Instead, the legality of the arrangement depends on whether compensation is intended to induce referrals.
4. Physician Independence Remains Critical
When physicians exercise genuine independent judgment, courts are less likely to find an AKS violation. Conversely, when referral decisions are controlled by marketers, consultants, or other intermediaries, liability becomes more likely.
5. Laboratory Arrangements Remain a Major Enforcement Focus
The DOJ settlement demonstrates that laboratory testing arrangements remain a priority for federal enforcement authorities, particularly when compensation structures appear designed to reward referrals.
Conclusion
Taken together, these recent developments reinforce a simple but critical compliance principle: paying for legitimate business and marketing services may be permissible, but paying someone who can influence, steer, or control healthcare referrals is not. The closer an arrangement comes to affecting who receives a patient, product, test order, prescription, or specimen, the greater the risk under the AKS. Healthcare providers that preserve physician independence, document legitimate services, and avoid referral-driven compensation structures will be best positioned to withstand regulatory scrutiny.
Brad Howard is a senior attorney in the Health Care Group at Brown & Fortunato. Brad represents DME companies, manufacturers, pharmacies, and hospitals in all health care matters including regulatory matters, payor disputes, governmental investigations, business disputes including litigation, and general business matters. Howard can be reached at (806) 345-6310 or [email protected].
AAHOMECARE’S EDUCATIONAL WEBINAR
Loan Closets, Employee Liaisons,
and Other Arrangements with Referral Sources
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato & Noel Neil, ACU-Serve
Tuesday, November 10, 2026
1:30-2:30 p.m. CENTRAL TIME
In the non-health care world, businesses (e.g., auto parts stores) have very few restrictions regarding their relationships with referral sources. By contrast, the health care world is a totally different animal. Because a large portion of a DME supplier’s revenue is derived directly (or indirectly) from tax dollars, there are myriad federal and state laws designed to protect the tax dollars from fraud. Many of these laws focus on relationships health care providers have with physicians, hospitals, and other referral sources. This program will discuss such relationships between DME suppliers and referral sources. These arrangements include (i) loan closets (also known as consignment closets and stock and bill arrangements), (ii) employee liaisons, (iii) Medical Director Agreements, (iv) physician advisory boards, (v) preferred provider agreements, (vi) patient service agreements, (vii) marketing service arrangements, and (viii) subcontract agreements. The program will discuss how these relationships can be legally entered into…and pitfalls that need to be avoided.
Register for Loan Closets, Employee Liaisons, and Other Arrangements with Referral Sources on Tuesday, November 10, 2026, 1:30-2:30 p.m. CT, with Jeffrey S. Baird, Esq. and Noel Neil.