Hospitals, Doctors (And Others) Beware: DOJ May Apply Travel Act To Healthcare Prosecutions – Food, Drugs, Healthcare, Life Sciences – United States – Mondaq News Alerts

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Jonathan N. Halpern is a Partner in Holland &
Knight’s

New York
office.

Jenna C Bigornia is Partner in Holland &
Knight’s
Boston
office

Ilenna J Stein is Associate in Holland &
Knight’s
Boston
office

HIGHLIGHTS:

  • A recent federal jury verdict in
    Dallas affirms the U.S. Department of Justice’s determination
    to extend federal prosecutions to healthcare arrangements involving
    commercial payers by utilizing the federal Travel Act, which was
    predicated in this case on underlying state commercial bribery
    law.

  • The use of the Travel Act for
    criminal prosecutions in private healthcare cases reflects greater
    scrutiny of healthcare system practices by federal prosecutors and
    an increasingly aggressive approach to enforcing the healthcare
    laws criminally against all system participants, including
    surgeons, primary care physicians, healthcare administrators,
    consultants and investors.

Doctors, hospitals and others in the healthcare space should
take to heart the increasingly aggressive position the U.S.
Department of Justice (DOJ) is taking, including through an
expansive application of state bribery laws under the Travel Act,
in bringing federal healthcare prosecutions. In its prosecutions,
the government is not limiting its focus to arrangements with
government-funded programs, such as Medicare and Medicaid, but is
using the Travel Act to extend its prosecutorial reach to private
insurance matters as well. Federal prosecutors have begun relying
on local commercial bribery laws of individual states to bring
indictments in cases involving questionable patient referral
arrangements. A recent verdict involving the Forest Park Medical
Center (FPMC), a physician-owned surgical hospital in Dallas,
highlights the scrutiny that healthcare practices may face and the
extended tools federal prosecutors will reach for to drop the
hammer on healthcare referral practices that, in their view, are
improper. This month, following a jury trial in United States
v. Beauchamp, et al.
, 3-16 Cr. 516D (NDTX), seven defendants,
including surgeons, other healthcare providers and an FPMC managing
director, were convicted of conspiracy to pay or receive healthcare
bribes for arranging patient referrals. Ten defendants previously
had pled guilty.

Summary of the FPMC Charges

In a sweeping indictment of 21 defendants, federal prosecutors
in the Northern District of Texas alleged in seven counts of Travel
Act violations – and in 13 more counts – that FPMC,
through its owners and managers, paid approximately $40 million in
bribes and kickbacks to surgeons and other medical providers in a
fraudulent patient referral scheme from 2009 to 2013, and collected
more than $200 million in more than a half-billion dollars in
billings.

According to the indictment, FPMC capitalized on out-of-network
financial arrangements with insurance carriers by setting its own
prices for medical services and being “reimbursed at
substantially higher rates than in-network providers.”
Referred patients allegedly were assured that they would
“receive in-network benefits” and did not have to pay
out-of-network costs – even though FPMC billed the
patients’ plans and programs at the higher out-of-network
rates. To further induce these patients, the FPMC allegedly did not
collect patients’ coinsurance payments. Most of the affected
payers were private, but the government identified TRICARE and the
Federal Employees’ Compensation Act, federally funded programs,
as additionally impacted payers.

To effect the scheme’s objectives, as charged, surgeons and
others received bribes and kickbacks for referring such patients to
the FPMC for medical procedures or to surgeons who operated there.
The government alleged that surgeries and referrals were tracked so
that bribe and kickback recipients could be “credit[ed],”
and payments were made indirectly through shell companies created
under sham marketing agreements. In addition to cash and check
payments, advertising services, sporting event tickets, expensive
meals, discounts on diamonds and opportunities to invest in FPMC
also were purportedly provided in exchange for referrals.

A companion element of the scheme was referring Medicare and
Medicaid patients and others with “lower-reimbursing insurance
coverage” to other non-FPMC facilities in exchange for cash.
According to the government, the effect on patients’ insurance
plans was direct and stark: the plans ended up paying many
multiples of what the charges – for the same surgeries by the
same surgeons – would have been at in-network facilities.

At the heart of the government’s case was a broad conspiracy
count based on violations of the anti-kickback statute (AKS) and
the Travel Act, as the objects of the conspiracy. The indictment
also includes 17 counts of illegal kickbacks and violations of the
Travel Act, based on commercial bribery (and aiding and abetting),
as well as two money laundering conspiracies. The government also
sought forfeiture of the proceeds. Notwithstanding the scope of the
fraudulent conduct alleged, conspicuously absent is a charge of the
comprehensive healthcare fraud statute – 18 U.S.C. Section
1347 – which encompasses schemes to defraud and false
representations to obtain money in connection with a healthcare
system. Nor is the statute included as an object of the charged
conspiracy. Even though Section 1347 encompasses public and private
health plans, prosecutors chose instead to turn to the AKS and the
Travel Act for its extensive prosecution.

Expansive Prosecutions with the Travel Act

The FPMC indictment leans heavily on the Travel Act, 18 U.S.C.
Section 1952, in its charges against doctors, administrators and
others. That federal statute, in turn, relies on the predicate of
commercial bribery under state law as the basis for the charged
“unlawful activity.” Under the Travel Act, it is illegal
to use a facility in interstate commerce (such as email, a wire
between states or the federal banking system) with the intent,
among other things, to distribute the proceeds of “unlawful
activity” and thereafter do some act to further the
distribution of the proceeds. The Travel Act’s definition of
“unlawful activity” encompasses bribery under the law of
the state in which it was committed; Texas, like many other states,
has a commercial bribery law on its books. However, there is no
federal commercial bribery statute. The FPMC indictment alleged
that co-conspirators used email instructions and a Federal Reserve
Bank’s computer network (interstate facilities) to send
bribe/kickback payments constituting “unlawful activity”
(commercial bribery under Texas state law) to a shell company,
which thereafter sent hundreds of thousands of dollars in checks
for clearance at bank accounts held by the co-conspirators who
referred patients to the FPMC.

The government’s recent reliance on the broad “unlawful
activity” provision of the Travel Act enables prosecutors to
consider, as in the FPMC case, whether private, commercial
insurance arrangements comply with federal criminal law. The
government also has used the Travel Act in a previous healthcare
indictment, in New Jersey, involving Biodiagnostic Laboratory
Services LLC, where laboratory services were allegedly referred in
exchange for bribes. In that case, like here, the statute
was charged as both an object of the conspiracy and a
substantive crime. (In the FPMC case, however, use of the Travel
Act was expanded, extending to seven substantive counts.)

The use of the Travel Act in such cases also is consistent with
the full extent of federal resources that the U.S. government
brings to bear in managing healthcare investigations. For example,
it is extraordinary (but perhaps no longer shocking) that the FPMC
case was investigated not only by the FBI, but also by the U.S.
Office of Personnel Management (Office of Inspector General), U.S.
Department of Labor (both Office of Inspector General and
Employment Benefits Security Administration), U.S. Department of
Defense (Criminal) and Internal Revenue Service (Criminal),
“with assistance” from the U.S. Food and Drug
Administration (Criminal Investigations).1

Traditional Applications of Federal Statutes in Healthcare
Prosecutions

Traditionally, healthcare referral practices attracting the
attention of government prosecutors and agents have involved
federal healthcare programs, such as Medicare, Medicaid and
TRICARE. The federal government often enforces cases involving
bribes, kickbacks or unlawful arrangements for healthcare services
and items, criminally and civilly, through the federal False Claims
Act (sometimes with state law allegations as the underlying
conduct), AKS, Stark Law, Civil Monetary Penalty laws or other
federal laws. Under the AKS, it generally is a crime, among other
things, to offer, pay, solicit or receive remuneration –
anything of value, in whatever form – directly or indirectly,
in exchange for referring a patient for medical items or procedures
provided and paid for at least partially under a federal healthcare
program. Patient referral cases involving private insurance often
have eluded prosecutorial scrutiny as outside the AKS and beyond
federal jurisdiction. Of course, prosecutors have long relied on an
arsenal of other criminal statutes to address an array of
healthcare violations, including the general healthcare fraud
statute for a wide range of healthcare system-related fraudulent
offenses. These include false and fraudulent means to obtain money
from, or a scheme to defraud, a healthcare benefit program –
defined to cover both public and private plans and contracts
affecting commerce. (18 U.S.C. Section 1347). Mail fraud and wire
fraud statutes historically also have been used. (18 U.S.C.
Sections 1341 and 1343).

Takeaway Points

In light of the DOJ’s strict enforcement of the criminal
healthcare laws, especially with aggressive and nontraditional
methods, consider, among others, the following takeaway points:

  • While the AKS may be implicated where
    a federal healthcare program is involved, healthcare companies
    should be aware of the federal government’s application of the
    Travel Act to conduct that falls outside of the AKS. In the FPMC
    prosecution, there was myriad allegedly criminal conduct, some of
    which was outside of the purview of the AKS, so prosecutors relied
    on Texas state law that prohibits commercial bribery as the hook to
    apply the federal Travel Act to activity that was similar, although
    not subject to the AKS.

  • Although not every arrangement will
    likely be covered by the Travel Act, as healthcare companies
    undertake to structure arrangements – and draft corresponding
    agreements – they would be well served to carefully consider
    the potential implications of their proposed practices under
    applicable state and federal law.

  • Healthcare companies and providers
    should conduct due diligence, auditing and monitoring, as
    appropriate, with particular attention to payment systems, to
    ensure that they are adhering to applicable law, their own
    compliance policies and existing agreements.

  • Healthcare companies should take note
    that investigation by a civil or regulatory agency may readily
    develop into a criminal investigation as well.

It is apparent that the DOJ, assisted by other agencies –
and increasingly prodded by whistleblowers – can be counted
on to step up its scrutiny of healthcare systems and aggressively
apply the law, including the Travel Act, in healthcare prosecutions
going forward. Accordingly, healthcare companies could timely
profit from a reevaluation of their current programs and
practices.

Clients needing more information or guidance regarding
protection under the Travel Act or the healthcare laws generally
may contact the authors.

Footnote

1 For
years, prosecutors also have been using the Travel Act in
international bribery cases, where prosecution under the Foreign
Corrupt Practices Act (FCPA) does not extend to the bribe
recipient, such as a “foreign official.” Increasingly,
prosecutors have used the Travel Act as a prosecutorial complement
to the FCPA in seeking to hold both bribe payer and recipient
criminally accountable.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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