By Jonathan Halpern, Jenna Bigornia & Ilenna Stein | Holland & Knight LLP
Doctors, hospitals and others in the health care space should take to heart the increasingly aggressive position the U.S. Department of Justice is taking, including through an expansive application of state bribery laws under the Travel Act, in bringing federal health care 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, a physician-owned surgical hospital in Dallas, highlights the scrutiny that health care practices may face and the extended tools federal prosecutors will reach for to drop the hammer on health care referral practices that, in their view, are improper.
This month, following a jury trial in United States v. Beauchamp et al., seven defendants, including surgeons, other health care providers and a FPMC managing director, were convicted of conspiracy to pay or receive health care bribes for arranging patient referrals. Ten defendants had previously 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 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 health care fraud statute — 18 U.S.C. Section 1347 — which encompasses schemes to defraud and false representations to obtain money in connection with a health care 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 health care 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 used as an object of the charged conspiracy. (In the FPMC case, however, use of the Travel Act was expanded, extending to seven substantive counts as well.)
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 health care 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, U.S. Department of Labor (both the Office of Inspector General and the Employment Benefits Security Administration), U.S. Department of Defense and Internal Revenue Service, “with assistance” from the U.S. Food and Drug Administration.
Traditional Applications of Federal Statutes in Health Care Prosecutions
Traditionally, health care referral practices attracting the attention of government prosecutors and agents have involved federal health care programs, such as Medicare, Medicaid and TRICARE. The federal government often enforces cases involving bribes, kickbacks or unlawful arrangements for health care 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 health care 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 health care violations, including the general health care fraud statute for a wide range of health care system-related fraudulent offenses. These include false and fraudulent means to obtain money from, or a scheme to defraud, a health care benefit program — defined to cover both public and private plans and contracts affecting commerce. Mail fraud and wire fraud statutes historically also have been used.
In light of the DOJ’s strict enforcement of the criminal health care laws, especially with aggressive and nontraditional methods, consider, among others, the following takeaway points:
While the AKS may be implicated where a federal health care program is involved, health care 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 health care 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.
Health care 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.
Health care 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 health care systems and aggressively apply the law, including the Travel Act, in health care prosecutions going forward. Accordingly, health care companies could timely profit from a reevaluation of their current programs and practices.
 United States v. Beauchamp et al., 3-16 Cr. 516D (NDTX)
 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.
 18 U.S.C. Section 1347
 18 U.S.C. Sections 1341 and 1343
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