Corporate Practice of Medicine: Travel Act 2.0?

On April 9, 2019 a jury in the Northern District of Texas returned a guilty verdict against seven of the nine defendants tried in the highly publicized Forest Park Medical Center case. The notoriety for the case was a direct result of the novel use of the Travel Act by law enforcement and prosecutors to develop the allegation. The Travel Act – a federal law intended to address organized crime in the 1960’s – allowed prosecution to indict the defendants in federal court for a state crime; in this instance, a violation of Texas’s Commercial Bribery statute. Even prior to the verdict, those within the health care community have been scrambling to understand the government’s reliance on this seldom used law, as well as, try and determine what other statutes could be co-opted for use in health care investigations.

The Forest Park trial demonstrated, among other things, at least three essential lessons. First, it demonstrated that the government is interested in aggressively developing cases involving entities and relationships that it perceives to be problematic, regardless of the amount of government funds at risk. Second, it showed that the government is constantly looking for new and creative ways to develop allegations that present unconventional fact patterns. Lastly, the trial illustrated that the government is willing to look outside of contract language and towards conduct in order to determine if there are inconsistencies that support the elements of an offense. If we look at these core lessons and extrapolate them out across the statutory landscape, the potential exists for the government (or whistleblowers) to utilize a state’s Corporate Practice of Medicine (CPOM) statute in furtherance of Anti-Kickback (AKS) and False Claims Act (FCA) investigations; specifically to address the ever-increasing number of corporate entities operating within the health care industry through management service agreements (MSA). 

What is The Corporate Practice of Medicine (CPOM) and How is it Violated?

Most, if not all states, have a statute in place that prevents unlicensed individuals or entities from practicing medicine, in an effort to preserve the vitally important doctor-patient relationship and prevent possible abuses resulting from lay control of corporations employing licensed physicians to practice medicine.  The Texas Act, codified in the Texas Occupations Code, prohibits physicians from directly or indirectly aiding or abetting the practice of medicine by a person, partnership, association, or corporation that is not licensed to practice medicine by the board.  

It can be difficult to find case law interpreting a state’s CPOM and determine what may or may not violate the Act. The cases in Texas generally relate to private parties attempting to use the CPOM to invalidate a contract so as to avoid a cause of action for breach. Texas courts’ CPOM analysis generally centers around the amount of control exerted over the physician by the corporate entity. The analysis is very fact driven and courts appear to use two specific cases to illustrate both ends of the spectrum – Gupta v. E. Idaho Tumor Inst., Inc. and Flynn Bros., Inc. v. First Med. Assocs. In both cases, the court looked at whether the entity had exclusive management rights over physician’s license; could the entity enter into third party contracts on behalf of physician; and could physician hire his own staff – with particular emphasis given to hiring of medical staff and how billing was performed. The courts reviewed these facts in order to evaluate if the amount of control the entity exerted over the physician interfered with the physician’s complete independence to diagnose, treat, and operate the clinic, using the physician’s own judgment in all such matters. The more control maintained by the corporate entity, the more likely the court was to hold the CPOM was violated.

How Does the CPOM Relate to the AKS?

As everyone in the industry is aware, the AKS is a heath care fraud statute that prohibits the exchange of remuneration for referrals for services payable under federal programs (i.e., Medicare, Medicaid, Tricare, and Department of Labor FECA). While the AKS is a broad statute, it does offer some safe harbors which allow for providers and entities to engage in conduct that potentially implicate the AKS but are not considered offenses under the statute. In order for a safe harbor to apply, every element of the safe harbor must be met. 

Entities engaged in an MSA with a provider operate under the Personal Services and Management Contracts safe harbor. This safe harbor has seven elements that must be met in order to be afforded the desired protection. A great deal of thought is typically given to the “aggregate compensation” element of the safe harbor; however, element number 6 states, “the services performed under the agreement do not involve the counselling or promotion of a business arrangement or other activity that violates any State or Federal law.” The plain language of the statute is clear, a violation of the CPOM – a State law – would mean element 6 is not met and the management contracts safe harbor would not apply. With no applicable safe harbor in place, both the entity and provider increase their respective liability under the AKS.

How Does the CPOM Relate to the FCA?

There are very few cases analyzing whether a violation of the CPOM can serve as the predicate to FCA liability. A 2010 9th Circuit Court case (Ebeid ex rel. United States v. Lungwitz) held that Arizona’s common law prohibition on the corporate practice of medicine could not result in liability under the FCA because the relator could not allege any statute, rule, regulation, or contract that conditions payment on compliance with the state CPOM. In a 2013 case, a District Court from the Southern District of Texas (United States ex rel. Parikh v. Citizens Medical Ctr.) adopted the Ebeid court’s rationale and held that because the defendant did not expressly certify compliance with the law, the FCA allegation predicated on the CPOM must be dismissed. 

Looking at the dates of these cases, it becomes apparent that these courts issued holdings prior to the U.S. Supreme Court’s recognition of “implied false certification” as a viable theory in support of an FCA case (Universal Health Servs. v. United States ex rel. Escobar). In Escobar, the Court holds that “(t)he implied false certification theory can be a basis for FCA liability, at least when a defendant makes specific representations about the goods or services provided and fails to disclose noncompliance with material statutory, regulatory, or contractual requirements that make those representations misleading with respect to those goods or services. 

Putting aside arguments about whether or not a specific representation is required for liability and how to apply the statutes materiality standard, there are numerous examples of Federal payers requiring compliance with CPOM. The Medicare Program requires enrolled providers comply with all relevant state and federal laws when billing for services. This is demonstrated through common language published at the beginning of almost every local coverage determination (LCD) issued by Carriers. This language reads in part, “Federal statute and subsequent Medicare regulations regarding provision and payment for medical services are lengthy. They are not repeated in this LCD. Neither Medicare payment policy rules nor this LCD replace, modify or supersede applicable state statutes regarding medical practice or other health practice professions acts, definitions and/or scopes of practice. All providers who report services for Medicare payment must fully understand and follow all existing laws, regulations and rules for Medicare payment …” The Department of Labor FECA Program has similar requirements. Under 42 CFR §10.800(a), all providers must enroll with the Program in order to submit medical bills. By completing and submitting the enrollment application, providers certify that they satisfy all applicable Federal and State licensure and regulatory requirements that apply. The language in these provisions seem to support that compliance with the CPOM is a requirement for Program participation and payment. If it is determined that a specific representation is required, its conceivable that the government could assert that the CPOM violation results in the entity impermissibly dictating the diagnosis and procedure on the claim and not based on the providers independent medical judgment as the claim would imply. The issue of materiality would still need to be addressed, but the CPOM violation would appear to be a solid foundation for the government to consider.

What Does this Mean?

Due to the dollars at risk, the government is going to continue to aggressively pursue health care fraud. The trend in enforcement seems to point toward law enforcement and prosecutors using novel or unconventional ways to target what they perceive to be illicit relationships. A violation of a state’s CPOM likely invalidates the applicable AKS safe harbor, subjecting providers and entities operating under an MSA to AKS liability – violation of the AKS can also implicate the FCA. Though past courts have held that a CPOM violation cannot serve as the predicate for an FCA violation, the changing enforcement landscape brought about by the Escobar Court may have altered the ability to rely on those decisions.

Entities that engage in management services need to be aware of the potential risks associated with CPOM violations. Where in the past, the provision was used to invalidate contracts, it may now be a new tool for the government to develop allegations relating to violations of the AKS and FCA. Even if entities have a proper MSA in place, Forest Park has shown the health care community that law enforcement and prosecutors are willing to push the contract language aside in an attempt to determine if conduct tells a different story. Furthermore, while this type of allegation may typically require a whistleblower or some form of witness to reveal the CPOM violation, data analysis could be used to substantiate the allegation by identifying the date the MSA took effect and see if claims data demonstrates a drastic change in services and/or diagnosis that would support a finding the entity exerts control over the practitioner, creating an impermissible employer/employee relationship.

Entities and/or their attorneys should review any current MSA’s in place, review their state’s case law interpreting the CPOM, and compare it to how the actual contract is being executed.  If the entity is exerting too much control, a violation may exist, and the entity should reevaluate its policies in order to return the appropriate amount of control to the licensed practitioner. 

Feel free to contact me with your thoughts and opinions. 

Matt Lawhon

Founding Attorney

M B Lawhon Law Firm PLLC

www.mblawhonlaw.com