Recent cases of fraud and abuse in the healthcare industry serve as a reminder of the importance of healthcare law compliance and ethical medical business practices. One such case is the qui tam relator case against Arizona-based Modern Vascular, in which the federal government has formally joined in as a party in the complaint.

Background

The case alleges that Modern Vascular and many of its principals, affiliates, and investor physicians and podiatrists violated a variety of fraud and abuse laws, including the federal False Claims Act and the Anti-Kickback Statute.

Essentially, Modern Vascular is accused of engaging in a fraudulent scheme whereby physicians and podiatrists were encouraged or permitted to invest in the company's office-based laboratories (OBLs) in exchange for making referrals to the OBLs. Investments required minimum referrals by each investor in order to vest.

Takeaways

This case demonstrates the consequences of financially incentivizing physicians to make referrals to a business in which they have a financial interest. Such actions can corrupt professional judgment, result in the provision of unnecessary medical care, and result in excessive spending by federal healthcare programs and taxpayers.

As healthcare providers and medical-based businesses, it is important to be aware of the potential risks and take steps to mitigate them. Below are some steps that medical-based businesses can take to avoid liability:

1. Require that owners in the medical-based business make a substantial pro-rata capital investment and ensure that the investment represents a bona fide business risk for all owners. This helps show that additional owners are being made for legitimate business purposes, and not directly linked to referrals.

2. Ensure that incoming owners are not solely entering the business based on prior or expected volume or value of referrals.

3. Ensure that incoming owners are not required to make referrals to the business to stay in the business. Equity redemptions should not be linked to an owner’s referral history.

4. Implement a compliance plan and engage in regular compliance training for all employees to ensure ongoing compliance with healthcare laws and regulations.

As healthcare providers and businesses, it is crucial to stay informed about the latest developments in fraud and abuse laws and regulations, as well as to take proactive steps to ensure compliance. By implementing the measures outlined above, healthcare-based businesses can reduce the risk of fraud and abuse allegations and protect themselves, their employees, and their patients. Our Healthcare Law Group is dedicated to helping businesses navigate the complexities governing the rules and regulations in operating a healthcare-based business.

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