September 2020 |
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With History as Our Guide, Expanding Telemedicine in Response to the Pandemic Will Likely Result in a Hotbed of Enforcement

Telemedicine has been around well before the covid-19 public health crisis, but regulatory impediments and economic realities have stifled its widespread adoption. However, in response to the pandemic, many regulatory hurdles and economic roadblocks at the state and federal level have been temporarily waived or changed in an effort to promote access to care, protect patients and providers, increase coverage and reimbursement, and mitigate the spread of the novel coronavirus.

In Texas, for example, Governor Greg Abbott approved the Texas Medical Board’s (TMB) request to temporarily suspend existing regulations related to establishing a physician-patient relationship via telemedicine. As a result of the pandemic, telephone-only encounters initiated by patients (or patient’s proxy decision makers) may now be used to establish a physician-patient relationship.[1] On the federal level, CMS has issued many temporary regulatory waivers and new rules to expand access to telemedicine and telehealth services. For example, CMS expanded the scope of healthcare professionals that can furnish distant site telehealth services to include all professionals that are eligible to bill Medicare for their professional services. Specifically, CMS waived sections 1834(m)(4)(E) of the Social Security Act and 42 CFR § 410.78(b)(2). As a result, a broader range of practitioners, such as physical therapists, occupational therapists, and speech language pathologists can use telehealth to treat Medicare beneficiaries. CMS also continues to update its list of covered Medicare telehealth services in response to the pandemic.

The public health crisis has essentially forced the hands of regulators and payors to engage in a national experiment that will ultimately test the promise of telemedicine’s dual hypothesis – i.e., medical care delivered via telemedicine services is (1) a cost effective and efficient method to treat patients without compromising the standard of professional care and (2) will not result in rampant fraud, waste, and abuse. This latter portion of the dual hypothesis is critical to implementing sustained regulatory reform for telemedicine that survives the pandemic.

A. DME and Telemedicine – Historical Enforcement

Healthcare fraud and anti-kickback enforcement actions are prevalent in the telemedicine space, even before the pandemic. In April of 2019, the government brought charges against twenty-four defendants who were collectively responsible for over $1.2B in losses in what the government describes as “one of the largest health care fraud schemes” in the country. A related case out of the Middle District of Florida, Tampa Division, charges the owner of two telemedicine companies with one count of conspiracy to violate the antikickback statute (AKS) and four counts of soliciting and receiving kickbacks in violations of the AKS.[2]

In that case, the owner of the telemedicine companies allegedly obtained Medicare beneficiary information from a telemarketing company. The telemedicine companies then provided the information to its contracted physicians who authorized orders for durable medical equipment (DME) that were not medical necessity, in the absence of a pre-existing doctor-patient relationship, without a physical exam, and frequently based on a short telephone conversation or no conversation at all.  After obtaining the DME order from its contracted physicians, the telemedicine companies then transferred the orders back to the same telemarketing group who provided the beneficiary information. The telemarketing group then sold the orders to DME companies who filled the orders and billed Medicare for them.

As alleged in the indictment, the telemedicine companies did not bill Medicare for the telemedicine consults, but instead sent fraudulent invoices to the telemarketers in exchange for the DME orders. The telemarketers allegedly paid the telemedicine company pursuant to “sham contracts” that identified the payments as “marketing” or “business process outsourcing” expenditures. The telemedicine companies facilitated the submission of false and fraudulent Medicare claims totaling approximately $250M. The case against the owner is pending, although at least one physician who contracted with the telemedicine companies has plead guilty to one count of conspiracy to commit healthcare fraud, has been ordered to forfeit approximately $209K, and has agreed to pay approximately $7.1M in restitution.[3]

B. Laboratories, CGx and PGx Testing, Telemedicine, and “Sham” Flat-Fee Arrangements

Additionally, in an unrelated case out of the Western District of Pennsylvania, the owner of two labs plead guilty in January of 2020 to three conspiracy counts and one count of offering and paying kickbacks in violation of the AKS.[4]  The lab owner operated two labs in Pennsylvania and the information alleged three separate conspiracies related to CGx and PGx genetic testing. This case is particularly notable because it involves purported flat-fee arrangements with the labs and marketers, which are often implemented as compliance mechanisms to comply with the personal services safe harbor of the anti-kickback statute.

The lab owner contracted with multiple marketers who acquired samples for PGx and CGx through aggressive telemarketing campaigns. The marketers provided swabs to the beneficiaries at purported “health fairs” and sent swabs to patient homes. The lab owner and the marketers paid the owner of a telemedicine company to obtain prescriptions from the physicians contracted with the telemedicine company. The physicians authorized testing for more than 95% of beneficiaries but did not conduct a proper telemedicine visit, did not treat the patients for symptoms related to the testing, did not use the test results to treat the patients, and were generally not qualified to interpret the tests results.

The two labs did not have equipment to perform CGx or PGx testing on-site, and instead sent more than 30% of the samples to references laboratories in violation of the limit established by federal law. The labs billed for the tests as the referring laboratories and claims regularly exceeded $12K per beneficiary. The government alleges that the lab owner and his coconspirators took advantage of the physical location of the labs, which were in a coverage area that offered the highest reimbursement rates in the country. From May of 2018 to April of 2019, the two labs billed Medicare more than $127M for the genetic testing.

In each charged conspiracy, the lab owner contracted with the marketers and entered into what the government describes as “sham agreements.” According to the charging instrument, these agreements disguised the kickbacks as hourly or other purportedly legitimate flat-fee payments. In at least one of the charged conspiracies, the marketers and the lab owner regularly circulated spreadsheets that tracked Medicare claims submitted by one of the labs, the amount billed for the testing, the amount reimbursed, and a percentage based payment owed to the marketers for each beneficiary. In another conspiracy, two of the marketers associated with the first conspiracy tracked the acquisition and billing of the samples submitted to another lab by using an informal alter-ago for their company. The government also characterized the marketing arrangement in this instance as a “sham,” despite its purported flat-fee arrangement.

The government’s sham argument represents a substantial difficulty for labs and other industry participants executing flat-fee marketing agreements, even those who genuinely strive for compliance with applicable law.  Ultimately, marketers, even those paid flat monthly amounts, are paid to successfully market a company’s services.  And in most if not all instances, companies will assess the productivity of their employees and contractors to some degree.  It is unclear at what point reasonable and necessary evaluations become evidence of nefarious motivations. There is precious little guidance from the government on what labs can do in this regard, and this uncertainty presents difficult and perhaps insurmountable obstacles to the establishment of a flat-fee 1099 sales force.

C. The Stakes are Too High – You Need a Thorough Compliance Review

Although these cases pre-date the Covid-19 pandemic, they are nonetheless representative of the typical enforcement actions involving telemedicine. Telemedicine is evolving and expanding, primarily because it has to in response to the public health crisis. The patient pool is larger and payers cover more telemedicine and telehealth services than ever before. Given the increased access to telemedicine services, providers need to be keenly aware of their regulatory obligations. Aggressive and targeted marketing campaigns for telemedicine services during the public health crisis and the delivery of telemedicine services themselves are likely to be carefully scrutinized by government regulators for compliance with applicable federal law. Contracts that purport to involve flat-fee arrangements will not necessarily insulate you from government scrutiny and intentional ignorance is not a defense.

We anticipate that the telemedicine space will become a hotbed of enforcement activity. If you are a telemedicine company, a physician providing telemedicine services, or an ancillary service provider or marketing group that operates in the telemedicine space, we recommend that you contact an experienced healthcare attorney to conduct a robust compliance review of your model and business practices. The attorneys at Elliott Sauter are experienced healthcare compliance and white-collar criminal defense attorneys. Please do not hesitate to contact us at (469) 758 – 4150.

[1] This will remain in effect until Governor Abbott lifts the temporary suspension or when the Disaster Declaration expires, which occurs first.

[2] Indictment here:

[3] Indictment here:

[4] DOJ press release here:

Author: Jordan Rose

Jordan Rose is an experienced civil litigator who has represented medical professionals in liability and licensure matters throughout the state of Texas. Jordan focuses his practice on advising physicians, pharmacies, laboratories and ancillary service providers in complex business disputes, government investigations, payor audits and regulatory and transactional matters.


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