The Travel Act in Federal Health Care Fraud Prosecutions
White Collar Crime and Internal Investigations Alert 03/16/20 Hector J. Diaz, Mark W. Bina
The Anti-Kickback Statute (AKS) criminalizes bribes and kickbacks designed to encourage patient referrals or the purchasing, ordering, or leasing of any item or service paid for by a federal health care program. Historically, arrangements between providers and commercial health care payors fell outside of the AKS’s reach. But recent federal prosecutions in Dallas, New Jersey, and California, invoking the seldom used Travel Act, have upended the conventional thinking that commercial health plans are entirely outside of Department of Justice’s (DOJ) enforcement reach for kickback-like conduct that does not involve a federal health care program.
The Travel Act was passed in 1961 at the behest of Attorney General Robert F. Kennedy to combat the prevalence of organized crime and racketeering syndicates. The House of Representatives report on the day of the introduction of the Travel Act stated that “[t]he interstate tentacles of this octopus known as ‘organized crime’ . . . can only be cut by making it a Federal offense to use the facilities of interstate commerce in the carrying on of nefarious activities.” H.R. Rep. No. 87–966 (1961).
The Travel Act, 18 U.S.C. § 1952(a)(3), makes it a federal crime to use facilities of interstate commerce to promote, manage, establish, or carry on specific, statutorily defined "unlawful activity." Under § 1952(b), "unlawful activity" are offenses that would otherwise have been state law violations, including any “business enterprise involving gambling, liquor on which the Federal excise tax has not been paid, narcotics or controlled substances," "prostitution offenses in violation of the laws of the State in which they are committed or of the United States," and state law violations of extortion, bribery, or arson.
The definition of a “facility” of interstate commerce makes the Travel Act attractive because of its relatively low threshold for federal jurisdiction. All that’s needed to implicate DOJ enforcement authority is an interstate call, use of a cell phone, any use of the United States mails, the deposit of a check or wire transfer into a bank account, a credit card charge, or traveling from one state to another.
Private Insurance Prosecutions
In the health care context, this means that DOJ prosecutors can charge defendants with bribery under state law if a facility of interstate commerce, like the mails or a cell phone, were used to carry on the crime. DOJ's enforcement efforts are a federalization of state law. While the trial occurs in federal court, juries will be instructed on the elements of the state crime to determine federal criminal guilt.
This scenario is precisely what Dallas federal prosecutors did in a massive, multi-defendant conspiracy case involving approximately $40 million in bribes and kickbacks. Forest Park Medical Center (FPMC) was a physician-owned hospital in Dallas, Texas. FPMC was an out-of-network hospital that set its prices for services and was generally reimbursed at substantially higher rates than in-network providers.
FPMC employees used shell companies to funnel bribes and kickbacks to surgeons in exchange for patient referrals. According to the indictment, two surgeons received $4,595,000 and $3,400,000, respectively, in bribes and kickbacks in exchange for referring their patients to FPMC. As part of the conspiracy, certain co-conspirators also paid bribes and kickbacks of $500 per month to approximately 40 primary care physicians and practices to refer patients to the hospital or surgeons associated with the hospital. In addition to paying surgeons and primary care physicians, certain co-conspirators also paid a host of others, including workers' compensation preauthorization specialists, lawyers, businesses, and chiropractors.
The bribes and kickbacks resulted in victim plans and programs being billed over half of a billion dollars, including more than $10 million to the Department of Defense healthcare program TRICARE, more than $25 million to the Department of Labor's Federal Employees' Compensation Act (FECA) healthcare program, and more than $60 million to the federal employees’ and retirees’ OPM FEHBP healthcare program. FPMC collected more than $200 million in tainted and unlawful claims.
Ten defendants pleaded guilty, and seven were convicted at trial. FPMC's managing partner was found guilty on, inter alia, six counts of commercial bribery in violation of the Travel Act, as was one doctor. Four defendants were acquitted of Travel Act charges.
This is not the first time federal prosecutors have put the Travel Act to creative use – in 2004, the government indicted two HealthSouth executives under the Travel Act in a Foreign Corrupt Practices Act ("FCPA") investigation in Alabama. The defendants were charged with a Travel Act violation for using facilities of interstate commerce to promote alleged bribery under Alabama law of the director of a Saudi Arabian foundation to secure an agreement to provide staffing and management services for a 450-bed hospital in Saudi Arabia. According to the indictment, the Saudi Arabian foundation’s director general solicited a $1 million payment from HealthSouth, ostensibly as a “finder’s fee.” The two HealthSouth executives were acquitted in 2005 at trial.
In June of 2018, the U.S. Attorney in New Jersey charged executives from the New Jersey-based Biodiagnostic Laboratory Services LLC (“BLS”) for a conspiracy in which millions of dollars in bribes were paid to physicians for blood sample referrals worth more than $100 million to the company. Each defendant had previously pleaded guilty to an information charging one count of conspiracy to violate the Anti-Kickback Statute and the Travel Act and one count of money laundering.
The investigation resulted in the convictions of 53 defendants – 38 of them of doctors – in connection with the bribery scheme, which its organizers have admitted involved millions of dollars in bribes and resulted in more than $100 million in payments to BLS from Medicare and various private insurance companies.
Lastly, in September 2019, a California anesthesiologist was charged for his alleged participation in a conspiracy to commit honest services mail and wire fraud and Travel Act violations involving approximately $800,000 in kickbacks for compounded pharmaceutical drugs.
Here are four key takeaways:
- Private insurance is on the table in federal prosecution. The sixty-year-old Travel Act is a repurposed tool in the health care context that the federal government may continue to use to target kickback schemes involving private insurance.
- At issue in FPMC was its practice of paying for surgeons' marketing costs in exchange for patient referrals. Good faith referral programs and other arrangements should be rigorously examined at all levels, particularly when it comes to incentives. Marketing agreements, consulting agreements, medical directorships, and office leasing arrangements should also be scrutinized moving forward.
- The Travel Act lessens predictability and makes the rules of the road less clear. Compliance programs and advice will have to be more comprehensive and prescient than ever before and include not only the federal regulatory health care framework, but applicable state laws as well
- The Travel Act may not be the secret weapon that the federal government believes it is as shown by the acquittal of four FPMC defendants on the Travel Act counts.
For more information on the Travel Act in the context of health care matters, please contact: