On April 14th, 2025, the U.S. Court of Appeals for the Seventh Circuit reversed the Anti-Kickback Statute (AKS) conviction of Mark Sorensen, the owner and operator of a Medicare-registered durable medical equipment distributor in United States v. Sorensen, 134 F.4th 493, 496 (7th Cir. 2025). The lower court had found that Sorensen’s practice of hiring advertising and marketing companies based on a percentage-based fee to sell orthopedic braces to Medicare patients violated the AKS at 42 U.S.C. § 1320a-7b(b)(2)(A). In reversing the district court, the Seventh Circuit followed the Fifth Circuit’s United States v. Marchetti, holding that the central question was whether the defendant intended to “induce ‘referrals,’ which is illegal” or whether he intended to “compensate advertisers, which is permissible.” Finding that there was no evidence of this improper intent, particularly as the marketers were not in a position to influence patients, the Seventh Circuit reversed.
This decision is one case in one circuit and other circuits may take another approach. Still , the Seventh Circuit opinion makes clear at least some circuits require more of the government than simply linking advertising and percentage-based compensation from federal health program revenue to prove an AKS violation. Whether this holding is broader will require further review and caselaw development. However, as in this case, the cited cases in the opinion and some other recent cases, the Sorensen distinction of who is able to exert improper influence will at least be a potential defense in such cases, even if caution around percentage-based fees remains a safer approach.
Brief Overview: The Anti-Kickback Statute
The AKS prohibits “knowingly and willfully” soliciting or receiving remuneration in exchange for “arranging for the furnishing” of a healthcare service and “recommending purchasing” a healthcare service. 42 U.S.C. § 1320a-7b(b)(1). The AKS also prohibits paying remuneration to “induce” someone to take such actions. As noted in Sorensen, although the statute can reach non-physicians, the typical and more common example of a prosecution under the AKS involves a physician accepting money in exchange for sending patients to a particular healthcare provider, such as a hospital or a specialist.The Office of the Inspector General (OIG) for HHS, which has oversight roles and issues safe harbor regulations, has previously counseled that if healthcare providers wanted to pay such positions on a percentage-basis, they should directly employ them. The Sorensen decision deviates from that position.
Facts of Sorensen
The challenged business conduct with Sorensen’s company, SyMed Inc., involved two marketing firms, Byte and KPN. Each published advertisements for orthopedic braces on behalf of SyMed and were paid based on the number of leads that they respectively generated. Interested patients responded via electronic forms and provided their names, addresses, and doctors’ contact information — which would prompt a sales agent from Byte or KPN to contact the patient to obtain additional information and consent. The sales agent would then generate a prefilled but unsigned prescription form that would be faxed to the patients’ physicians. Crucial to the court’s holding in Sorensen, the physicians who received these unsigned prescription forms then decided whether to sign and return the forms to SyMed and its biller, or to decline the order. Approximately 80 percent of these orders were declined or ignored by physicians. After receiving payment for orders, SyMed paid its manufacturer, then used the balance for its profit and the marketing fees.
A federal grand jury indicted Sorensen on four counts of violating the AKS.After a jury convicted Sorensen, the district court sentenced him to 42 months in prison. On appeal, the Seventh Circuit overturned Sorensen’s conviction for insufficient evidence.
Seventh Circuit Holding in Sorensen
Given Sorensen’s context of payments being made to non-physicians, the Seventh Circuit honed it’s AKS inquiry on whether the marketing companies paid by the defendant “leverage[d] fluid, informal power and influence” over healthcare decisions — finding that the government failed to provide evidence that such leverage existed. Further, the court found nothing in precedent cases that would extend the reach of the AKS to payments received for “aggressive advertising efforts,” as was practiced by the entities hired by Sorensen — contrasting these types of payments from payments to individuals who take advantage of their existing relationships with the patients of other healthcare providers.
Quoting the Marchetti opinion in asking “[w]hat are advertisers hired to do anyway?”, the Seventh Circuit elaborated that “…clearly not every sort of influence is improper,” after all, the purpose of advertising is to influence decision making. Further, the court reasoned that 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, thereby making his conduct not a violation of the AKS.
Citing the Fifth Circuit in United States v. Miles and distinguishing from its own precedent in United States v. Polin, the Seventh Circuit differentiated between a payment to induce referrals from a payee who is in a position to make or influence healthcare decisions, which violates the AKS, and a payment for advertising services, which it does not. Important to their holding, the Seventh Circuit emphasized that the physicians that received the prescription forms from Sorensen’s agents, retained ultimate control and full discretion to determine whether to prescribe the advertised care, and while applying their independent judgment, many of these physicians chose not to.
As pertains to SyMed’s percentage-based arrangement with PakMed, the Seventh Circuit reiterated the precedent of Marchetti, holding that “percentage-based compensation structures are not per se unlawful,” but rather, a violation of the AKS that requires “the payments have to be made in order to induce an unlawful referral,” which requires a show of proof beyond the existence of a percentage-based compensation contract.No such evidence was presented by the Government, so Sorensen’s conduct did not constitute a violation of the AKS.
Key Takeaways
Sorensen may open an additional path in the circuit for those that have historically shied away from percentage-based marketing fees, clarifying that such arrangements are not per se illegal. Instead, a violation of the AKS would require evidence of improper inducement. With potential government attack, however, caution in implementing percentage-based fees for marketers remains a practical approach, particularly outside the Seventh Circuit.
The authors thank McGuireWoods’ summer associate, Tariq Rajei, for his assistance in preparing this legal alert. He is not licensed to practice law.