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Under the Travel Act, Private-Pay Kickbacks Can Be Federal Crimes

Preventing financial misconduct in the health care industry has long been a major focus of federal law enforcement. The Trump administration recently affirmed its commitment to maintaining that priority. A September federal court decision indicates that the Department of Justice may even be expanding its prosecutions to reach health care providers who avoid Medicare and Medicaid.

It's no secret that some providers have tried to escape the heavy regulatory burden of federal and state health care programs by taking only privately insured and self-pay patients. This relieves some billing and documentation issues, of course, but it does not put providers beyond the reach of potential criminal liability. A clear lesson to that effect comes out of the recent order in U.S. v. Barker, (N.D. Tex., Sept. 20, 2017), denying defendants' motion to dismiss.

The Barker defendants were owners of a (now closed) physician-owned hospital in Dallas. They designed the hospital to serve privately insured and self-pay patients, and to refer away patients covered by other, generally lower-paying, programs such as Medicare. Payment was allegedly passed between the physician-owned hospital and the providers accepting those lower-paying referrals. The Department of Justice alleged that, as to the privately-insured patients, this payment violated the Travel Act, 18 U.S.C. § 1952.

The Travel Act has only been used once before as the basis for a health-care fraud prosecution, but it is a very flexible criminal statute. Its essential elements may be satisfied simply by alleging a bank deposit made in the course of carrying on an activity that is unlawful under state law. In the Barker case, the prosecution argued that the Texas commercial bribery statute made payment for patient referrals unlawful. The Court accepted that assertion and allowed the case to proceed, denying defendants' motion to dismiss.

The prosecution also alleged that the referral of Medicare patients to other hospitals in connection with an exchange of value was a violation of the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b. The Court distinguished the factual basis for the counts of the complaint based on the Anti-Kickback Statute from the basis for the Travel Act counts, and found that the Travel Act counts were not preempted by the Anti-Kickback Statute and that the various counts did not duplicate each other.

The Department of Justice's theory in the Barker case could be extended under Nebraska and Iowa law, given the right (or wrong) facts and circumstances. Nebraska's commercial bribery statute makes it a misdemeanor for a physician or corporate manager, among others, to agree to violate his or her duty of fidelity in return for any "consideration," and for anyone to confer any benefit in return for such an agreement. Neb. Rev. Stat. § 28-613. Iowa's statute makes it a felony to offer or deliver, or to solicit or receive, any "consideration" for an act or omission that is in conflict with the employment relationship of an employee receiving the consideration, or of that employee's duties to his or her employer. Iowa Code § 722.10. While "consideration" is not specifically defined by either statute, its meaning generally includes any inducement to an agreement, not merely cash payments.

Most compliance reviews in health care focus on whether the rules of publicly-funded programs are being followed. The Barker decision suggests that this focus may be too narrow. Compliance officers also should monitor and review relationships with health care companies that do not accept Medicare or Medicaid.


Thomas S. Dean

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