In a recent decision, the Seventh Circuit joined the Fifth Circuit in limiting the reach of the AKS to marketing and advertising activities.
BACKGROUND
The AKS prohibits X from paying Y to do certain things. Most notably, X cannot pay Y to (i) “refer” Medicare, Medicaid, or other federal health care program (FHCP) patients to X or (ii) “purchase” or “order” an item or service covered by an FHCP. The AKS also prohibits paying Y to:
- “arrange for” someone else (i.e., Z) to purchase or order an item or service covered by an FHCP; or
- “recommend” that someone else (i.e., Z) purchase or order an item or service covered by an FHCP. 1
So if a provider pays a company to advertise, market, or otherwise promote its products or services to physicians or patients, do these payments implicate the AKS? For example, if a hospital pays a marketing company to advertise the hospital’s cancer center, is the marketing company being paid to (i) “refer” patients to the hospital, (ii) “arrange for” patients to obtain services from the hospital, or (iii) “recommend” that patients obtain services from the hospital?
According to HHS-OIG, the lead enforcement agency with the respect to the AKS, the answer is “yes.” In a 1991 rulemaking, for example, the agency stated that “many marketing and advertising activities may involve at least technical violations” of the AKS.2 In a 2002 advisory opinion, the agency was less tepid: “Advertising activity, like any marketing, implicates the [AKS] because, by its nature, it is meant to recommend the use of a product.”3 And in a 2012 advisory opinion, the agency connected all the dots: “Advertising activity, like any marketing, is meant to induce the use of an item or service. Where the advertised items or services are reimbursable, in whole or in part, by a Federal health care program, the [AKS] is implicated.”4
FIFTH CIRCUIT GUIDANCE
The Fifth Circuit has rejected this sweeping interpretation of the AKS, most recently in United States v. Marchetti.5 That case involved payments by Vantari Genetics LLC (Vantari), a genetic testing laboratory, to a company owned and operated by Vincent Marchetti, who had “established relationships with physicians.” Vantari paid Marchetti’s company each time one of those physicians ordered a test from the lab. The Fifth Circuit held that this evidence, without more, was insufficient to establish that Vantari had paid Marchetti for “referrals” or “recommendations” in violation of the AKS.
The Fifth Circuit reasoned that advertising that “facilitates an independent decision” by the advertising target “to purchase a healthcare good or service” will not violate the AKS unless there is some “evidence that the advertiser unduly influence[s] or act[s] on behalf of the purchaser.” Because the government did not provide any detail regarding Marchetti’s interactions with the physicians, the Fifth Circuit concluded that the government had failed to establish that Marchetti had “improperly influenced” the “relevant decisionmakers.”
UNITED STATES v. SORENSON
Last week, in United States v. Sorensen,6 the Seventh Circuit considered, for the first time, “the Anti-Kickback Statute’s application to advertising activities.” As discussed below, the appellate court’s conclusion would appear to put another nail in the “advertising implicates the AKS” coffin.
Facts
Sorensen involves a criminal action brought under the AKS against Mark Sorenson, the owner and operator of SyMed Inc. (Symed), a Medicare-registered DME supplier, in connection with a business plan to promote the sale of orthopedic braces.
SyMed and PakMed LLC (PakMed), a DME manufacturer, arranged for two marketing companies, Byte Success Marketing (Byte) and KPN, to undertake the following marketing activities (collectively, the “Marketing Services”):
- publish advertisements for orthopedic braces made by PakMed;
- review forms submitted by patients, including Medicare beneficiaries, who were interested in the braces;
- contact those patients to discuss ordering a brace; and
- if the patient consented, fax prefilled, unsigned prescription form for the brace to the patient’s physician.
If the physician signed the prescription, PakMed drop shipped the brace to the patient and SyMed submitted a claim for reimbursement to the patient’s payer. Upon being reimbursed, SyMed paid PakMed a percentage of the reimbursement as compensation for the brace, and PakMed, in turn, paid a portion of its percentage to the marketing company that had generated the patient lead.
It appears that one of the two marketing companies (Byte) specifically included SyMed’s name and corporate logo in the prescription forms, but physicians “routinely ignored” those forms. Physicians signed the prescription forms provided by KPN (which presumably did not include that information) about 20% of the time. Because the marketing companies were paid based on the number of patient leads each generated, KPN received the bulk of the payments for the Marketing Services.
The government took the position that this business model violated the AKS and brought a criminal action against Sorenson.
Procedural History
Sorensen was tried and convicted for one count of conspiring to violate the AKS and three counts of offering and paying kickbacks in return for the referral of Medicare beneficiaries to his company. Following a jury trial, Sorensen moved for acquittal, on the grounds that the government provided insufficient evidence to prove his guilt beyond a reasonable doubt under the AKS.
The US District Court for the Northern District of Illinois denied Sorenson’s motion and sentenced him to 42 months in prison. Sorenson appealed the conviction to the Seventh Circuit.
Seventh Circuit Decision
The Seventh Circuit reversed the district court’s judgment, on the grounds that the government had failed to provide any evidence that would allow a reasonable jury to find beyond a reasonable doubt that Sorensen (through his company) had paid or agreed to pay anyone for “referring” patients within the meaning of the AKS.
The Seventh Circuit began by observing that, for purposes of determining whether a payment was made with an intent to induce referrals, “the payee’s position can be relevant.” Because “[p]hysicians have significant power to guide patients to specific providers” and to authorize or order care, the fact that payment is being made to a physician can be “clear” evidence of the payor’s intent to induce referrals, “at least when the physician is providing no other benefit to the payor.” The Seventh Circuit went on to state that, in the “less common” scenario of payments to non-physicians, the relevant inquiry is whether the “payee leverage[s] fluid, informal power and influence over healthcare decisions.”
In analyzing the payments to the marketing companies, the Seventh Circuit turned to a well-established line of federal appellate cases that distinguish payments made to individuals who are “in a position to make or influence healthcare decisions” from those who are not.
- In United States v. Polin7 (1999), the Seventh Circuit concluded that a sales representative fell into the former category because he was a “decisionmaker,” as evidenced by the fact that no physician in 14 years had rejected his recommendations on where to obtain pacemaker monitoring services. In that case, the sales representative appeared to be the “decisionmaker” and the physicians’ approval appeared to be merely a “rubber stamping of the sales representative’s referral.”
- In United States v. Miles8 (2004), the Fifth Circuit concluded that a public relations firm did not “unduly influence the doctors’ decisions” because it simply “supplied promotional materials” to physicians (along with the occasional plate of cookies), which “did not prevent [the] physicians from deciding independently whether to authorize care and which provider to choose for their patients.”
The Seventh Circuit concluded that “[t]he facts here resemble Miles much more closely than Polin.” The court first noted that the government had produced “no evidence that Sorensen, PakMed, KPN, or Byte authorized medical care.” The court then concluded that the government had failed to show that the parties to the arrangement had “unduly influence[d] the doctors’ decisions.” In the court’s view, two factors were important. First, KPN and Byte “had received consent from patients” before sending the prefilled, unsigned prescription forms to physicians. Second, and perhaps more importantly, “[t]he physicians retained full discretion to determine whether to prescribe the advertised care.” The fact that physicians did not return 80% of the blank prescriptions sent by KPN and many sent by Byte was evidence that “those physicians were not rubber stamps.”
The court also found support for its decision in Marchetti, stating that “[a]s in Marchetti, the central question we confront here is whether Sorensen intended to induce referrals, which is illegal, or whether he intended to compensate advertisers, which is permissible.” The Seventh Circuit found that, just as in Marchetti, where the government “failed to offer any evidence that Marchetti exercised any impermissible influence on ‘those who make healthcare decisions on behalf of patients,” here there was “no evidence that anyone whom Sorensen paid had any special relationship with or influence over patients’ physicians so as to subject them to improper influence.”
Given those facts, the court ultimately concluded “Sorensen’s payments to PakMed, KPN, and Byte were made in exchange for ordinary and legal services” and “not for referrals.”9 Even if Sorensen’s advertising campaign were considered “aggressive and even pesky,” “aggressive advertising efforts are not equivalent to unlawful referrals of patients.”
CONCLUSION
Like all agencies, HHS-OIG jealously guards its jurisdiction. This manifests itself in scores of ways. By interpreting the AKS expansively, for example, the agency maximizes the universe of arrangements pursuant to which it may exercise its enforcement discretion. This explains, at least in part, why HHS-OIG has interpreted words like “refer,” “arrange,” and “recommend” so broadly over the years. But the notion that a provider—simply by paying an individual or entity to advertise, market, or otherwise promote the provider’s service to physicians, patients, or others—would risk violating a federal, criminal statute has never made sense. As reflected in cases like Marchetti and Sorensen, the courts increasingly seem to agree.
- 42 U.S.C. §1320a-7b(b). ↩︎
- 56 Fed. Reg. 35952 (Jul. 29, 1991). ↩︎
- HHS-OIG Advisory Opinion 02-12 (Aug. 21, 2002). ↩︎
- HHS-OIG Advisory Opinion 12-02 (Mar. 20, 2012). ↩︎
- 96 F.4th 818 (5th Cir. 2024); see also United States v. Miles, 360 F.3d 472 (5th Cir. 2004). ↩︎
- No. 24-1557, 2025 WL 1099080 (7th Cir. Apr. 14, 2025). ↩︎
- 194 F.3d 863 (7th Cir. 1999). ↩︎
- 360 F.3d 472 (5th Cir. 2004). ↩︎
- The Seventh Circuit concluded that Sorenson’s payments to PakMed were payments for legitimate manufacturing and shipping services, not payments for referrals. In reaching that conclusion, the Seventh Circuit emphasized that PakMed “never directly contacted patients or physicians” and “did not refer any patient to another healthcare provider.” The Seventh Circuit also noted that the fact that “SyMed shared revenue with PakMed on a percentage basis” was not sufficient to show that the payments were illegal, as “[p]ercentage-based compensation structures are not per se unlawful.” ↩︎
