DOJ Steps Up Review of EHR Vendor Agreements: What the ModMed Settlement Means for the Life Sciences Industry | King and Spalding

On November 1, 2022, Modernizing Medicine, Inc. (“ModMed”), an electronic health record (“EHR”) technology provider, entered into a settlement agreement with the Department of Justice (“DOJ”), agreeing to pay $45 million to resolve allegations that he caused the submission of false claims in violation of the False Claims Act (“FCA”) in part by soliciting and receiving bribes from a pathology.1 The settlement represents the fourth resolution from the U.S. Attorney’s Office for the District of Vermont that focuses on EHR technology, underscoring the office’s commitment to investigating agreements around the development and use of EHR systems. The DOJ and other state and federal agencies recognize the growing role that EHRs play in the delivery of healthcare and, therefore, are focusing more on how life science companies could use them to promote their improperly produced. The growing scrutiny of EHR technology underscores the importance of closely reviewing agreements with EHR vendors to mitigate potential risks.

The settlement agreement. The settlement stems from a who tam lawsuit filed by the former vice president of product management at ModMed. The complaint alleged that ModMed violated the Anti-Kickback Act (“AKS”) and the FCA through three of its marketing programs. First, the DOJ alleged that ModMed solicited and received bribes from Miraca Life Sciences Inc. (“Miraca”) in exchange for recommending and arranging for ModMed users to use the services of Miraca pathology laboratory. Specifically, the complaint refers to a strategic marketing agreement between ModMed and Miraca, as set out in a draft letter of intent (“LOI”), in which the two companies “tried to make the partnership mutually beneficial and to allow Miraca and ModMed to share success and…tried to ensure the strategic and financial alignment of the two organizations.2 The draft letter of intent cited in the complaint also refers to “co-marketing/promotion” which includes recognizing Miraca and ModMed as partners, issuing joint press releases and co-developing marketing materials. .

Second, the DOJ alleged that ModMed conspired with Miraca to improperly give ModMed’s EHR platform to healthcare providers (“HCP”) in an attempt to increase lab orders to Miraca and simultaneously add clients to ModMed’s user base. In particular, the complaint notes the alleged exchange of sales leads and data between Miraca and ModMed that detail vendor behavior to target new customers for either or both companies and to maximize both companies’ return on investment through donations from Miraca’s EHR platform.

Third, the DOJ alleged that ModMed bribed current HCP customers and other influential healthcare industry sources 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. Further, the complaint alleges that ModMed’s compensation to certain influential sources was tied to the volume of business generated, as opposed to any fair market value for marketing activities.

Collectively, the allegations illustrate the increased scrutiny of EHR platforms by the DOJ and highlight that these vendors are subject to many of the same compliance risks as life sciences companies. The allegations also show how scrutiny of these tech companies can draw attention to their business partners, including pharmaceutical and medical device companies, who are often attractive targets for whistleblowers and government authorities. of law enforcement. Notably, Miraca paid $63.5 million to settle its own separate allegations that it violated the FCA by offering subsidies to healthcare professionals for EHR systems and free or discounted technology consulting services. .3

Implications for the life sciences industry. The ModMed settlement represents an emerging trend in enforcement that focuses on life sciences companies’ agreements with companies that offer point-of-care technologies used by healthcare professionals, such as of EHRs, which could influence the items or services that healthcare professionals prescribe. EHRs and similar technologies have been a staple for many years, and we are now starting to see application priorities catching up with the technology. The ModMed settlement notably follows the January 2020 Practice Fusion settlement which involved relationships between an EHR (Practice Fusion) provider and pharmaceutical manufacturers. Practice Fusion would have allowed pharmaceutical companies to participate in the design of clinical decision support alerts, including selecting the guidelines used to develop the alerts, defining the criteria that would determine when a healthcare professional would receive an alert and, in some cases, even the redaction of the language used in the alert itself. This settlement also involved allegations of Practice Fusion’s inappropriate focus on commercial interest and return on investment for manufacturers.4

Life sciences companies should carefully consider their relationships and agreements with EHR vendors and similar technology platforms that facilitate or could influence clinical decision-making. Relationships that might be perceived as improperly focused on commercial interests, rather than providing accurate and truthful education and information to EHR users, are particularly sensitive. Discussions and communications regarding the potential return on investment or business benefit for the parties to the arrangement will attract attention. Law enforcement authorities are also particularly skeptical of commercial messages inserted into EHRs when there is no transparency as to who sponsored the message, especially when a third party could benefit. commercially of the message (such as a manufacturer or a laboratory). Additionally, life science companies should be aware of the marketing practices of technology vendors with whom they have agreements. Suppliers’ communications and agreements with their customers could bring unwanted attention to suppliers and, therefore, to their agreements with life sciences companies.

1See ModMed Settlement Agreement (November 1, 2022), available at: https://www.justice.gov/opa/press-release/file/1548661/download.

2See ModMed Complaint (November 1, 2022), available at: https://www.justice.gov/opa/press-release/file/1548656/download.

3See DOJ press release (January 30, 2019), available at: https://www.justice.gov/opa/pr/pathology-laboratory-agrees-pay-635-million-providing-illegal-inducements-referring.

4See DOJ press release (January 27, 2020), available at https://www.justice.gov/opa/pr/electronic-health-records-vendor-pay-145-million-resolve-criminal-and-civil-investigations -0.]

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