On November 1, 2022, Modernizing Medicine, Inc. (“ModMed”), an electronic health record (“EHR”) technology vendor, entered into a settlement agreement with the Department of Justice (“DOJ”), agreeing to pay $45 million to resolve allegations that it caused the submission of false claims in violation of the False Claims Act (“FCA”) in part by solicitating and receiving kickbacks from a pathology lab.1See ModMed Settlement Agreement (Nov. 1, 2022), available at: https://www.justice.gov/opa/press-release/file/1548661/download. The settlement represents the fourth resolution out of U.S. Attorney’s Office for the District of Vermont that centers around EHR technology, highlighting the Office’s commitment to investigating arrangements around the development and use of EHR systems. DOJ and other state and federal agencies recognize the increasing role EHRs play in the provision of health care, and, as a result, are increasing their focus on how life sciences companies might use them to inappropriately promote their products. The growing scrutiny around EHR technology underscores the importance of closely examining arrangements with EHR vendors to mitigate potential risks.
The Settlement Agreement. The settlement stems from a qui tam action filed by the former Vice President of Product Management at ModMed. The complaint alleged that ModMed violated the Anti-kickback Statute (“AKS”) and FCA through three of its marketing programs. First, DOJ alleged that ModMed solicited and received kickbacks from Miraca Life Sciences Inc. (“Miraca”) in exchange for recommending and arranging for ModMed’s users to utilize Miraca’s pathology lab services. More specifically, the complaint references a strategic marketing arrangement between ModMed and Miraca as set forth in a draft letter of intent (“LOI”), whereby the two companies “tried to make the partnership mutually beneficial and allow both Miraca and ModMed to share in success and… tried to ensure strategic and financial alignment for both organizations.”2See ModMed Complaint (Nov. 1, 2022), available at: https://www.justice.gov/opa/press-release/file/1548656/download. The draft LOI quoted in the complaint also references “co-marketing/promotion” that includes recognizing Miraca and ModMed as partners, issuing joint press releases, and co-development of marketing materials.
Second, DOJ alleged that ModMed conspired with Miraca to improperly donate ModMed’s EHR platform to health care providers (“HCPs”) in an effort to increase lab orders to Miraca and simultaneously add customers to ModMed’s user base. In particular, the complaint notes Miraca and ModMed’s alleged exchange of sales leads and data that detailed provider behavior to target new customers for one or both companies and maximize both companies’ return on investment from Miraca’s EHR platform donations.
Third, DOJ alleged that ModMed paid kickbacks to its current HCP customers and to other influential sources in the healthcare industry to recommend ModMed’s EHR platform and refer potential customers to ModMed. The complaint notes that in internal emails, ModMed employees openly acknowledged that the referral program was intended to drive sales. Furthermore, the complaint alleges that ModMed’s compensation to certain influential sources was tied to the amount of business generated, as opposed to any fair market value for the marketing activities.
Collectively, the allegations illustrate DOJ’s heightened scrutiny of EHR platforms, and emphasize that these vendors are subject to many of the same compliance risks as life sciences companies. The allegations also show how scrutiny around these technology companies can bring scrutiny to their business partners, including pharmaceutical and medical device companies, who are often appealing targets for both whistleblowers and government enforcement authorities. Notably, Miraca paid $63.5 million to settle its own separate allegations that it violated the FCA by providing HCPs subsidies for EHR systems and free or discounted technology consulting services.3See DOJ Press Release (Jan. 30, 2019), available at: https://www.justice.gov/opa/pr/pathology-laboratory-agrees-pay-635-million-providing-illegal-inducements-referring.
Implications for the Life Sciences Industry. The ModMed settlement represents an emerging enforcement trend that focuses on life sciences companies’ arrangements with companies that offer technologies used by HCPs at the point of care, such as EHR platforms, that could influence which items or services HCPs prescribe. EHRs and similar technologies have been a staple for many years, and we are now beginning to see enforcement priorities catch up to the technology. The ModMed settlement notably follows the January 2020 Practice Fusion settlement that involved relationships between an EHR vendor (Practice Fusion) and pharmaceutical manufacturers. Practice Fusion allegedly permitted pharmaceutical companies to participate in designing clinical decision support alerts, including selecting the guidelines used to develop the alerts, setting the criteria that would determine when an HCP received an alert, and in some cases, even drafting the language used in the alert itself. That settlement also involved allegations of Practice Fusion’s inappropriate focus on commercial interest and return on investment for the manufacturers.4See DOJ Press Release (Jan. 27, 2020), available at https://www.justice.gov/opa/pr/electronic-health-records-vendor-pay-145-million-resolve-criminal-and-civil-investigations-0.
Life sciences companies should carefully examine their relationships and arrangements with EHR vendors and similar technology platforms that facilitate or that could influence clinical decision making. Relationships that could be perceived as unduly focused on commercial interests, rather than providing accurate and truthful education and information to EHR users, are particularly sensitive. Discussions and communications regarding potential return on investment or the commercial benefit to the parties in the arrangement will draw attention. Enforcement authorities are also particularly skeptical of commercial messaging inserted into EHRs where there is no transparency regarding who sponsored the messaging, especially when a third party might commercially benefit from the messaging (like a manufacturer or lab). Additionally, life sciences companies should be mindful of the marketing practices of technology vendors with whom they have arrangements. Vendors’ communications and arrangements with their customers could draw unwanted attention to the vendors and, consequently, their arrangements with life sciences companies.
The King & Spalding Life Sciences Fraud & Abuse Team is closely following these and related developments. We stand ready to assist in the assessment of potential risks of arrangements with EHR vendors and offer strategies to help mitigate those risks.