As detailed in our prior entry, on April 9, 2019, a Forest Park, Texas jury found seven individuals guilty of various charges related to a scheme engaged in by Forest Park Medical Center (“FPMC”). The physician-owned surgical hospital paid more than $40 million in bribes and kickbacks to induce surgeons to use FPMC to perform their services, while collecting more than $200 million in billings. These convictions came at the tail end of DOJ’s indictment of twenty-one FPMC founders and investors, other hospital executives, physicians, surgeons and nurses in a case called United States vs. Beauchamp, et al.

The Beauchamp case is significant because two of the defendants were convicted for violating the federal Travel Act, which punishes the use of various means of interstate commerce for the purposes of carrying on unlawful activity under another statute, in this case the Texas Commercial Bribery Statute (“TCBS”). The government alleged that co-conspirators used email instructions and a Federal Reserve Bank’s computer network to send bribes and kickback payments constituting “unlawful activity” to a shell company, which in turn paid the kickbacks to physicians who referred patients to the FPMC. Many of the alleged bribes were facilitated through commercial or marketing contracts that purportedly provided free advertising for the physicians in return for their patient referrals.

The Travel Act, passed in 1961, establishes the illegality of committing unlawful acts across state lines – which can occur via email or other electronic means. The Travel Act has not historically been used in the healthcare context; rather it was used to curtail the activities of organized crime. The Travel Act gives the government the ability to “federalize” state law crimes, and consider whether private, commercial insurance arrangements comply with federal criminal law. Patient referral cases involving private insurance have traditionally escaped this prosecutorial scrutiny, since most federal enforcement actions focused on federal healthcare programs, and used as authority the federal fraud and abuse laws such as the Anti-Kickback Statute (“AKS”), the Physician Self-Referral Law (“Stark”) and the False Claims Act (“FCA”).

In Beauchamp, the government used the Travel Act because the allegedly fraudulent commercial and marketing arrangements between FPMC and the referring physicians fell under the safe harbors of the federal AKS, thus making them lawful under AKS. This was expanded on in the surgeon defendants’ briefs which argued, among other theories, that: (i) the TCBS, as the predicate state law violation needed to sustain a charge under the Travel Act, was preempted by AKS, since the alleged conduct was lawful under various exceptions and safe harbors; (ii) the TCBS conflicts with a later-enacted and more specific Texas law, the “Solicitation of Patients Act,” which mirrors AKS, incorporates its safe harbors, was intended to provide a single comprehensive statutory scheme regulating health care providers in Texas, and applies to both federal and private payers.

In its ruling, the U.S. District Court for the Northern District of Texas rejected these arguments and held that the TCBS was not preempted under federal law and could support the Travel Act charges because the two statutes “address different types of conduct performed by different potential actors.” The court also held that TCBS was valid under Texas law, as the state’s general bribery provision, and unlike the Solicitation of Patients Act, it applies to all persons, rather than just healthcare providers. Finally, the court held that the Travel Act’s use of the phrase “facilities of interstate commerce” encompasses purely intrastate uses of such interstate facilities.

The Beauchamp case has had a substantial impact on the healthcare space. The Department of Justice has long made healthcare fraud enforcement a priority and is devoting substantial resources to its efforts to curtail and prosecute fraud in the healthcare industry, both that of federal healthcare programs and private commercial plans. The Travel Act changes the rules in that even a health care provider who conducted itself in compliance with the standards of the federal AKS and its state law counterparts could still be prosecuted under the expansive reach of this off-label use of the federal criminal statute.

This reinforces the need for healthcare providers to re-evaluate their financial and other arrangements to ensure compliance with all applicable laws. The arrangements should include services that are bona fide, commercially reasonable, and actually performed. Most importantly, unlike the arrangements in Beauchamp, these arrangements must not take into account the volume and value of referrals, and should not track referrals as a metric.

Finally, healthcare providers cannot simply rely on compliance with the AKS and Stark Law, but should consider the applicable state laws, especially state commercial bribery statutes. Arrangements that do not involve federal program reimbursement, mainly Medicare and Medicaid, should not be assumed to be out of the federal government’s reach. As the use of the Travel Act suggests, the DOJ is taking an increased interest in private commercial health plans, thus these arrangements must be re-evaluated for compliance with the Travel Act.