Continuing its focus on healthcare technology and electronic health records (EHR) companies, the Department of Justice announced last month a $45 million settlement to resolve a False Claims Act suit involving EHR provider Modernizing Medicine, Inc. (ModMed). The underlying complaint involved allegations in three areas that often draw government scrutiny — exclusive contracts, marketing agreements, and the EHR “meaningful use” program.

Exclusive Lab Agreement

First, the complaint focused on the exclusive agreement that ModMed made with a pathology lab provider, Miraca Life Sciences, Inc. DOJ alleged that the agreement violated the Anti-Kickback Statute (AKS) by providing remuneration based on patient referrals, noting that the   April 2014 Office of the Inspector General Advisory Opinion (No. 14-03) alerted EHR venders that arrangements favoring one laboratory over another raised potential kickback liability.  

The government asserted here that ModMed had done exactly that by entering into an exclusive agreement with Miraca that incentivized orders by EHR users to Miraca over other labs. Specifically, ModMed created an interface with enhanced features — streamlined orders, better accuracy, etc. — that only applied for orders sent to Miraca. If a physician sent a laboratory order to a different lab, the physician could not use the enhanced features. In exchange, Miraca agreed to pay ModMed fees per specimen order sent to Miraca that were above fair market value and increased depending on the percentage of laboratory orders that ModMed users sent to Miraca compared to other laboratories.   

Marketing Arrangements with Influencers

Next, the complaint also targeted agreements that ModMed had with physicians and industry influencers to recommend ModMed’s EHR technology to other healthcare providers. It alleged several violations, including:

  • ModMed was providing kickbacks by giving referring healthcare providers licensing fee credits and gift cards if they referred ModMed to prospective clients who eventually adopted their EHR system.
  • ModMed paid healthcare providers who used their EHR technology to speak to other providers favorably about ModMed, offering $500 per site visit and $25 to $50 per phone call regardless of time spent on the visit. The complaint asserted that these arrangements revealed that “ModMed was not paying for providers’ time but rather for their positive and only positive-reviews of EMA.” 
  • ModMed’s arrangement with a billing expert “influencer” provided that the expert would exclusively endorse EMA as the best electronic medical record for dermatologists in various promotional activities. In return, the influencer received a percentage of the monthly subscription fees earned by ModMed from customers’ monthly subscription fees during the first year of use of EMA, an arrangement that tied to the amount of business generated, not any fair market value for the marketing activities contemplated.

Meaningful Use Program

Finally, the settlement resolved allegations that ModMed’s system did not always satisfy the requirements for an EHR to qualify for the meaningful use program. 

ModMed sold its EHR system to healthcare providers who participated in the Medicare and Medicaid EHR Incentive Programs (“meaningful use program”), which provided incentive payments through 2017 to healthcare providers who demonstrated “meaningful use” of certified EHR technology. 

Here, the government contended that ModMed’s EHR system did not always meet the mandated technical specifications to qualify for the meaningful use program. As a result, according to DOJ, ModMed caused its users to submit false claims when they sought incentive payments under the meaningful use program based on their use of ModMed’s system as a certified EHR technology.

Takeaway: Vendors Beware

This settlement reflects the DOJ’s continued focus on marketing arrangements and cautions users to monitor their own EHR service providers. It also reveals that vendors, not just providers themselves, must be vigilant. In announcing the settlement, Principal Deputy Assistant Attorney General Brian M. Boynton noted the importance of EHR generally and emphasized that “[v]endors of electronic health records will be held to the same standards of compliance that we expect of everyone who provides health care services.”