Expanding the Scope of “Referral” Under the Medicare Anti-Kickback Statute

Introduction

United States v. Stroud, decided April 15, 2025 by the Fifth Circuit (No. 22-11208), addresses the outer limits of what constitutes an unlawful “referral” under the Medicare Anti-Kickback Statute (AKS), 42 U.S.C. § 1320a-7b. Bruce and Bobbi Stroud, owners and officers of three durable medical equipment (DME) companies, were convicted by a jury of conspiracy and substantive AKS violations for paying over $3 million in hidden “kickbacks” to two marketing firms in exchange for patient orders. On appeal, the Strouds challenged the sufficiency of the evidence, the admission of certain witness testimony, and the district court’s restitution order. The Fifth Circuit affirmed in all respects, clarifying that non-physician “decisionmakers” who direct Medicare beneficiaries to providers fall within the AKS’s proscription against inducements “to refer” services billed to federal health programs.

Summary of the Judgment

After a twelve-day trial, Bruce and Bobbi Stroud were found guilty of:

• One count of conspiracy to defraud the United States and to pay/receive kickbacks (18 U.S.C. § 371; 42 U.S.C. § 1320a-7b(b)(1)–(2)); and
• Seven counts of offering or paying kickbacks to induce referrals of Medicare beneficiaries (42 U.S.C. § 1320a-7b(b)(2)(A); aiding and abetting under 18 U.S.C. § 2).

The Strouds operated three DME suppliers that filled orthotic orders nationwide. They entered sham marketing contracts with TrueAlliance Health Group and U.S. Care Associates, which cold-called Medicare beneficiaries, set up telemedicine exams, obtained prescriptions, and funneled orders to the Strouds’ companies in return for weekly “referral” payments tied to reimbursable claims. The district court denied the defendants’ Rule 29 (acquittal) and Rule 33 (new trial) motions. On appeal, the Fifth Circuit held:

• The evidence was sufficient to show that payments to the marketing companies induced referrals “to” the DME suppliers, even though the prescribing physicians did not specify a supplier.
• Allowing witnesses to say they “conspired with” the Strouds did not plainly prejudice the defendants, given overwhelming documentary and testimonial evidence of the fraudulent scheme.
• The judge’s determination of restitution (rather than a jury finding) did not violate the Fifth or Sixth Amendments under Fifth Circuit precedent.

Accordingly, the convictions and restitution order were affirmed.

Analysis

1. Precedents Cited

• United States v. Miles, 360 F.3d 472 (5th Cir. 2004): Recognized that non-physicians (e.g., pacemaker salesmen in Polin) can be “referring” parties under the AKS when their role is to steer patients to a service provider in exchange for payment.
• United States v. Polin, 194 F.3d 863 (7th Cir. 1999): Held that payments to a pacemaker salesman who directed patients to a particular monitoring service were kickbacks under the AKS.
• United States v. Gibson, 875 F.3d 179 (5th Cir. 2017): Emphasized that the AKS applies to payments to “any person” with intent to induce referrals of federal health–covered services.
• United States v. Cooper, 38 F.4th 428 (5th Cir. 2022): Confirmed that “referrals” include a doctor’s authorization of care by a particular provider, but did not limit referral liability exclusively to physicians.
• Pinkerton v. United States, 328 U.S. 640 (1946): Established conspirator liability for substantive offenses committed by co-conspirators in furtherance of a joint scheme.
• Rule 29 and Rule 33 sufficiency standards (Vargas-Ocampo, 747 F.3d 299 (5th Cir. 2014)); plain-error review (Olano, 507 U.S. 725 (1993)).

2. Legal Reasoning

The Fifth Circuit’s decision rested on three core legal conclusions:

1. Broad Definition of “Referral” and “Person” under § 1320a-7b(b)(2)(A):

   The AKS makes it a felony knowingly to pay “any remuneration . . . to any person to induce such person . . . to refer an individual to a person for the furnishing of any item or service” payable by Medicare. The Strouds argued that “referral” required a physician’s directive or the beneficiary’s selection of a named provider. The court rejected this, holding that a marketing company that arranged telemedicine appointments, obtained prescriptions, and directed orders to a DME supplier plainly qualifies as a “person” induced to refer, in line with Miles and Polin. The AKS text imposes no textual restriction to licensed practitioners.

2. Sufficiency of Evidence:

   Applying de novo review (and substantial deference to the jury), the panel held that documentary invoices, emails, spreadsheets, and detailed witness testimony provided more than enough evidence for a rational juror to find the Strouds knowingly paid kickbacks to induce referrals. Their good-faith reliance on incomplete attorney advice was rightly rejected by the jury in light of the hidden terms of the oral agreements and the systematic record-keeping designed to match payments to reimbursable claims.

3. Witness Testimony and Restitution:

   Though Rule 704(a) permits opinions on ultimate issues, legal‐conclusion testimony can be excluded. Here, even if the brief “conspired with” references by cooperating witnesses should have been barred, the court found no plain error affecting substantial rights given the weight of the evidence. Additionally, consistent with Fifth Circuit precedent, a judge may calculate restitution without a jury finding, and Bruce’s constitutional challenge to the restitution order was foreclosed.

3. Impact

• This ruling cements that “referrals” under the AKS are not limited to clinicians. Marketing or administrative intermediaries who steer federal health–covered business to suppliers can trigger criminal liability if payments are tied to Medicare‐reimbursable transactions.
• Healthcare compliance programs must account for hidden oral agreements and tailored payment structures that vary with claim volume. Written “marketing” contracts alone will not immunize kickback schemes if underlying documentary evidence reveals contingent payments for referrals.
• The decision reaffirms deference to jury fact‐finding on sufficiency challenges, while signaling that minimal legal‐conclusion testimony incurs no reversal absent a demonstrated impact on the verdict.
• Restitution orders remain squarely within judicial purview, limiting Sixth Amendment attacks on judge-imposed financial sanctions.

Complex Concepts Simplified

• AKS Kickback Liability: Criminalizes knowing payment for referrals of services billed to Medicare/Medicaid, to curb fraud and abuse.
• Referral “Person”: Any individual or entity—physician, salesman, telemarketer, marketing firm—who influences a Medicare beneficiary’s choice of a provider.
• Conspiracy (§ 371): An agreement to commit an unlawful act, joined knowingly, plus at least one overt act in furtherance.
• Aiding & Abetting (§ 2) and Pinkerton Liability: One who assists or is part of a conspiracy may be held responsible for substantive crimes committed by co‐conspirators.
• Rule 29/33 Motions: Rule 29 seeks acquittal for insufficient evidence; Rule 33 seeks a new trial for similar grounds. Both were denied based on the volume and quality of proof here.
• Plain‐Error Review: An unpreserved error must be (1) clear/legal, (2) plain under current law, and (3) affect substantial rights to warrant reversal.
• Restitution: Judges calculate losses to victims after a criminal conviction; juries need not find restitution amounts.

Conclusion

United States v. Stroud represents a significant Fifth Circuit affirmation that the Medicare Anti-Kickback Statute extends beyond physicians to cover non-clinical entities that channel business to providers in exchange for payments tied to federal health program reimbursements. The ruling underscores broad enforcement powers against creative kickback schemes—oral side deals, contingent payments, and sham contracts cannot shelter illicit inducements. It also confirms long‐standing procedural norms on sufficiency reviews, the admissibility of legal‐conclusion testimony, and judicial authority over restitution. Healthcare practitioners, compliance officers, and defense counsel should take heed: any remuneration designed to induce referrals of federally paid services, no matter how disguised, exposes participants to severe criminal and financial penalties.