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Healthcare Fraud Update: The Forest Park Medical Center Case and Federal Enforcement of Private Insurance Referrals

In recent years the federal government has shown increased aggression and creativity in its prosecution of fraudulent referral activities within the healthcare profession. This creativity is front and center in the recent case of USA v. Beauchamp et al. (“Forest Park”).

There, prosecutors alleged that 21 individuals used fraudulent marketing agreements to pay kickbacks or bribes to physicians for referring surgical patients to Forest Park Medical Center in Dallas, Texas. Although the federal government typically uses the Stark Law and Anti-Kickback Statute to combat healthcare fraud, some of the fraud involved in this case would traditionally fall outside of the jurisdiction for those laws. Therefore, in order for the government to extend its reach, it employed an anti-racketeering law, the Travel Act, to “federalize” the underlying state law bribery violations. In what follows, we briefly detail this case and discuss its implications for providers.

What happened in the Forest Park case?

In Forest Park, the government detailed a conspiracy whereby Forest Park Medical Center, a physician-owned surgical hospital, sought to increase reimbursement by refusing to join insurance plan networks, paid bribes and kickbacks to physicians and other providers in exchange for referrals and for performing medical procedures at the hospital, and laundered these bribes through sham business ventures (marketing and management agreements). As additional inducement to high reimbursing out-of-network patients, the hospital also waived copays and paid for their travel and lodging.

The effect of this fraud on the private insurance plans was that plans paid many times the normal rate for what these same procedures would have cost at in-network facilities. This generated a huge amount of profit for the hospital which then shared those illegal gains with referring providers. According to the prosecutors, between 2009 and 2013, these providers were paid approximately $40 million in “marketing money”. In one particularly egregious example, a single spinal surgeon received $7 million for his referrals.

Ultimately, 10 of the initial the 21 defendants pled guilty before trial. Of the remaining 11 defendants, 7 were found guilty of violating the federal Anti-Kickback Statute (“AKS”) (which prohibits anyone from offering, paying, soliciting or receiving anything of value in exchange for referrals of items or services reimbursable under a federal healthcare program) and sentenced to federal prison terms ranging from 10 to 65 years.

However, what makes this case unique is that 2 of the 11 defendants were also found guilty under the Travel Act for paying or receiving kickbacks for referrals of privately insured patients.

What is the Travel Act and how did the Federal Government apply it to the Forest Park Case?

The Travel Act is a federal law originally used to fight organized crime involving gambling, narcotics, and bribery of corrupt politicians. Under the Travel Act it is illegal to use a facility in interstate commerce (e.g. email, wires between states, or the federal banking system) with the intent to distribute the proceeds of “unlawful activity”. “Unlawful activity” includes bribery, as defined by state law.

In Forest Park the prosecutors predicated their Travel Act claims on underlying violations of the Texas commercial bribery statute by alleging that the directors used email instructions and a Federal Reserve Bank’s computer network to transmit bribery payments to a shell company, which in turn sent the money to referring physicians. Although the crime, the bribery of physicians to refer patients to the hospital, was purely a state law violation, because “interstate commerce” was used to carry out the crime the prosecutors can “federalize” that state law violation under the Travel Act.  This allows the government to pursue commercial insurance kickbacks under federal criminal law.

Conclusion –How Does this affect my hospital and/or practice?

The Forest Park case should serve as a reminder to hospitals, physicians, and other healthcare professionals that there is risk of criminal and civil exposure whenever healthcare professionals receive compensation for patient referrals. Since most federal healthcare fraud prosecutions have involved Medicare, Medicaid or other federal healthcare programs, many medical providers overlook the risk that federal enforcement agencies will also scrutinize arrangements with purely private payers.

As such, healthcare organizations should review any compensation arrangements that have been specifically designed to carve out federal program business to confirm that they are not prohibited under other state laws which might form the basis for exposure under the Travel Act. Compliance procedures and training materials should also be re-evaluated and updated with information on how to spot problematic arrangements under the Travel Act.

For more information or for legal guidance concerning these matters, please contact the Healthcare Department at sbemp.com. Our attorneys have years of experience in this field and will ensure that your practice remains an ethical and compliant environment both for workers and patients.

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